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Rubini he is the CEO of Rubini Macro Associates, and we're also joined by Atlas Capital Team CEO Raise A. Bundi, who of course just launched this fund that we're talking about. Atlas, of course is a fintech company that Rubini co founded. It's great to have the both of you with us, and Noriel I want to start with you since you are a first time ETF issuer, and something we like to ask the debuts in the ETF industry is why now?
What brought you to this rapper now? When it comes to why implement your strategy here?
Well, why now is because we live in a world where after COVID, the risk of spaculationary shocks that lead to high inflation and lower economic growth are becoming more severe and these types of stackflationary problems are.
Going to be more serious during IT administration.
If you think about the impact of TARI protectionism and trade wars, the impact of restriction to migration and the SUPVIB labor deficits and tax cuts that are unfunded, attempt to weaken the dollar, attempt to interfere with the fed, getting out of the partis accord, and worsing in global climate change. All these factors economic theory would suggest that will lead to higher inflation, lower economic growth.
And therefore traditional safe assets.
That head you against those risks like long deguration fixing income don't do well in that type of environment. So you need a different type of asset location cred yourself against the idea of economic risk, inflation, the business currency, edullarization, geopolitical environmental risks.
Thank you for answering that. Clearly it's tied to your economic health, and we can dig into that a little bit later on. But Raza, I want to bring you into the conversation as well, is why the etf rapper? Why is that the best format for really articulating this view.
Well, the origin of the ATLAS program was out of the national security landscape back in twenty seventeen, when we were evaluating some of the risks that were kind of upcoming in our view, geopolitical risks, climate risks, asymmetric risks, socio political risks, and we felt that it was necessary to build a more resilient US treasury alternative, and the Trump administration actually came up with an idea of a goldbacked treasury instrument, which we took upon ourselves to commercialize
because the Treasury Department couldn't do so themselves. It would cannibalize their existing market, and they didn't have enough goal to really create much of an issuance. See the origin of this story came about by trying to create that treasury alternative that could withstand the risks that we were forecasting. And so therefore we thought the ETF rapper would be the best solution, especially because we dynamically allocate these assets as we see market signals coming in, whether growth or
inflation risks. So the UTF was just an ideal liquid and very well regulated and well structured instrument.
All right, Noreel, this is a question for you. We talk about inflation. Right in twenty twenty two, inflation went up fed raise rates, and that caused treasuries to go down. Right, A lot of bonds went down with stocks that year. The sixth, the and the forty both fell. You have fifty percent treasuries in here, and I did notice a
triple leverage bear ETF in there. Can you talk about managing that kind of a situation where inflation causes rates to go up, bonds to go down, how do you protect this treasury.
Exposure point is that we are going away in our portfolio from long duration sinkle and treasures because, as you pointed out, when there are economic shocks that are inflationary, long bund you go higher, the price falls, but also equity price like twenty twenty two go down. So the traditional safe acet is long duration treasury doesn't work in
a situation which inflation is rising. That's why in our portfolio treasury we stay completely away from long term treasuries and all our allocation of treasury is short term treasuries and tips that actually do well in times where inflation is higher and we have those types of economic shocks. So the point is the traditional safe asset that is negatively correlated with equities in a sixty four allocation doesn't do well in the world of higher inflation like we
saw in twenty twenty two, twenty three, even this year. Therefore, you need an alternative, and alternative combines things that do well when inflation is higher. Short term treasury keeps good commodities and environmentally sustainable rates.
Nouriel.
That's really interesting and just to draw about on that point, it sounds like your position basically for curve steepener, that you have all this exposure to the short end of the treasury curve a position for the long end yields to go higher.
Yeah, in our view of the world over time, all the inflationary shocks that they scribed before implied that long bond deals are going to be higher, both in nominal terms and in real terms.
As we're going to have tariff migration restriction.
It depends on defense challenged and budget depths that run away. Therefore, the traditional safe asset doesn't do well. You know, in twenty twenty two, bond yields went from one percent to three and a half and any treasury lost more than a SMPS and p Fel fifteen percent. Why teny treasure
lost price by twenty percent. So in a world in which average inflation might be five percent rather than two percent, bond yields may be closer to seven eight percent rather than the current four plus, and there for twenty three dollars of treasuries that the traditional safe aset we subject
a massive price ras thirty forty percent losses. That's the kind of worldware I think, not high inflation not hyper inflation, but even arise in inflation from two to five six as a massive damaging effect for the traditional long duration of fixing on assets.
So this will be an actively managed fund in no reel. How often do you anticipate making changes to their portfolio?
Not very often.
This takes a long term view that actually dos forces respectflationary.
So, first of all, is.
A impartly a quantitive approach. We look at states of the world in terms of growth and inflation and the terms and location. There's an element of it that is slightly distractionary, but we think about optimizing maybe once a month, not more often than that.
This is a question for Raiser. When you think about the stock market, it seems like Trump once stalks up, he brags about the stock market a lot, and if they go down, you think he would just bend over backwards to make stocks go back up. In your opinion, do you see that not happening this second term, or do you think that this ETF is needed just in case the stock market, you know, kind of goes its own direction.
Well, there's a tremendous amount of risks offshore that we need to look at. This levit Israeli for example, truce agreement may just create more risks against a war against the Iranians and the Israelis, which obviously has effects on the oil supply that comes out of the Persian Gulf.
These kind of risks do significantly impact the stock market, especially as that oil goes to China, and there's obviously some other risks associated with the South China see and so we don't see these events being positive for the stock market. And we see this instrument, and this instrument is science to do so doing well at times such as this. So that's why we'd launched it at this time.
Train and Reesa, I have another question for you. I thought an interesting detail was that this ETF was launched through Goldman Sachs ETF Accelerator program. It's not quite a white label, but for those listening who maybe aren't familiar with the concept, basically, Goldman Sachs helped you do the back office stuff, as I believe it or understand it, to get this ETF to the masses. Can you talk us through why you went with that setup, for example, rather than hiring out an ETF team.
Yeah, in twenty eighteen, when we came off the back end of working through the Alternative Treasury Instrument idea through the Trump administration of the National Security think tank we were working through. The Golden Sacks team took it upon themselves to help us devise this program as a more resilient US Treasury instrument. They built an index initially, we built an annuity with them, and we just felt their
team was really strong. They're really focused on national security, they're focused on resiliency, They've got a very strong relationship with Washington, and they've got a fantastic team at the ETF Accelerator, Lisa Mantle, Steve Sachs. These are really really strong teams that we rely on to execute these trades, and we think that there's more work to be done underneath the illiquid portion of the CTF at a time
and a place when the scale allows it. So the platform is very strong, but also the connectivity to the other parts of Goldman and their natural inclination to be more focused on national security and resiliency and economic security matters made them a natural choice. We're very proud to be working with.
Them and no reel. You know, when you think about this ETF, the big market for ETF's advisors financial advisors are like seventy percent of ETF users. What does this replace for a typical sixty forty advisor? Is this going into the bond or the equity or maybe some other alternative portion they might have.
No, it's a substitute for the bond portion, because, as I pointed out, the traditional defensive acet is long term treasury doesn't work in a world in which inflation is going to be gradually higher, bond is going to be higher, prices are going to be lower for those bonds at the time that there could be correction in equity markets. The whole point of sixty four is based on a negative correlation between bond prices and active prices. Risk on growth,
equity do well, bond prices fall, risk of recession. Bond prices go higher, the yield goes down, equities do worse.
But that works only if inflation is low and stable. Instead, in the world.
In which gradual inflation goes higher, you lose on the equity portion of your portfolio, and you use also on the bond portion of your portfolio.
So when you lose on.
The bond portion of your folio, go to have an asset is actually truly defense see where interests are higher because either there's.
Higher inflation or bigger deficies than that.
So it's an alternative to the bond part of your portfolio, the defensive part of your portfolio.
We're talking about this ETF that you've launched, which is a way to kind of guard against some of the economic outlook problems that you foresee given the new government that we're going to have starting next year. You mentioned stackflation earlier and how you are worried about that scenario based on what you've heard from the president like so far when it comes to cabinet picks, initial terror threats. Can you quantify the risk of stackflation over the next
four years. Are we're talking about twenty percent odds or we're talking about seventy percent odds.
Well, some of the economic policies of Trump may lead to higher economic growth, to being pro business, keeping tax or it's low economy, but unfortunately many of the other policy is going to have an implication of higher inflation and lower economic growth. The first thing he has already announced is going to be tariff against Mexico, Canada, and China.
And that's only the beginning.
You said we might have up to twenty percent tarif on all our trade partners, up to sixty percent against China. He wants to have massive deportation of people. In the last few years, the increasing migration has kept the lead on wage growth, has increased the label supply, has increased
economic growth. So definitely mass deportation is t inflationary. He wants not only to make all those tax cuts permanent, but you made other promises and no taxes on tips, on overtime and so security on income earn abroad and so on and so on. This estimate that these things we have to the deficit by eight thrillion dollars. Too much demand inflationary. It might want to weekend a dollar that's going to be inflationary. You may interfere with independence
of the FED. Getting out of the Parish Accords is going to make climate change much worse, increase a food price, and things of that sort. So if you look at this list of policies than others, all of them have the impact that over time inflation will be higher, growth is going to be lower. That's a standard analysis. What's going to be implication of this policy.
So we have to.
Worry about the world in which overall over the next few years, inflation is going to be gradually higher.
Economic growth could be lower, and therefore you have to.
Find an edge against the world in which body is on the longside, maybe much higher than four percent, and I go towards six, seven, even eight percent. In a scenariohere inflation goes from two through three, four five. So that's the kind of concerns I have and the kind of tail risks inflation the basement of h currency potential, dinualarization that's become unsustainable, climate change, geopolitical risks that fragment the world and lead to less growth and more inflation.
That kind of things we start to have to worry about and hedge against.
It's interesting, no reel a lot of things you just said, or what a bitcoiner would say as to why you should buy bitcoin. There's now the Bitcoin ETF there over one hundred billion dollars, clearly a big hit. There's talk that it could be a strategic reserve. You have gold in the portfolio. Is there anything that could move you to add bitcoin to your ETF to help accomplish some of these goals?
You know, the bitcoin is highly volatile. You can go out by ten percent one day and down ten to fifteen percent another day. If you want to a stable store of value, you will not put bitcoin into your portfolio. The kind of acids we're actually thinking about are all acids that do well.
When you have lower growth and you have higher inflation.
Whether it's tapes, short term treasure is, gold is a hedge against inflation, the basement, dinularization, geopolitics, financial crisis, some exposure to add commodities.
They're going to do well in a world.
Of inflation, of ami, chain and environmentally sustainable rids. So it's a diversified portfolio of assets that historical have done well in these types of tailor is. I'm skeptical for a lot of reasons about cryptocurrency is a bitcoin because they're not currencies. They're not the unit of account, they're not the scale of means of payment, they're not the stable store of value, and if you want well preservation rather than high relativity, you want to stay away from those types of acids.
Truly interesting to hear those comments because, I mean, as are pointed out, some of the things you're saying really resonate with a lot of the crypto community. But it sounds like that volatility is just keeping you away here. But I mean the argument can be made that you take a look at gold and it's not exactly a reliable hedge of inflation. I mean, it goes back and
forth over the past four years. I know we're close to record highs right now, but when it comes to a stable store of value, are you sure that you found it?
In goald.
Well Gold as the benefit that has a variety of hedging characteristics.
Usually when inflation is higher.
It does well when there is a risk of the basement of your currency. Does well in a world in which central banks are moving away.
From all as because of.
The dollarization, because we've weaponized the dollar for nacial security and foreign policy reasons, good goes higher. Part of the reason why gold has gone higher forty percent this year is because central banks of.
Our arrival versifying away.
When there's a financial crisis and your money is not even safe in a bank, gold does well.
So it's not a perfect act. Can go up and down.
Is one element of a portfolio where you're hedging against a variety of tailor risks, and from that point of view, is a better store of value than cryptocurrencies that are based on not taking the vaporware.
All right, Oriel Rabini always with the sharp insights Norial Robinia Rubini Macroso sees, thank you so much for joining us today