Cash Is Still King

performance chasing to go to something so boring. Um, it also yields more so there's been thirty one billion dollars into ultra short debt ets, which to be one year or less maturity. Right, so everybody is just hiding out. They've just run into the cave the Fed. The Fed scared them away. Yeah, they're on the sidelines, whatever metaphor you want to use. They're totally scared. The Fed has just wreaked havoc on everybody's brains. And um, this is sort of the one eight they pulled on the market.

So you know, as somebody in one of the articles on Bloomberg Today said, um, now is not a time to be a hero. Which I think really sums up this market. So we're seeing a lot of money to cash, but that would be a good idea to sort of break down what these E t F s are, what they do. They're not exactly cash, but they're really close to it. And this also relates to what's happening in currency because strength of the dollar globally is just on a tear and we're seeing things like the pound this

week just get hammered. So I'm sure we'll talk about that a little bit here too. Joining us going to be Katie Grayfield from Bloomberg News and James Shapeer from Boomberg Intelligent. This time, I'm Trilliance. Cash is King, Katie, James, Welcome back to Trilliance. How are you guys? Thanks for having me. Okay, Katie, I want to start with you because you and I've been talking about cash as king for a second. Got you working on a Business week story to that effect. Talk to us. What do you see?

I'm kind of obsessed with it at this moment. I know that Eric just absolutely ripped on it. I think it's actually pretty interesting area to cover right now. I mean, on our show E t F I Q for weeks you've been talking about the safety dance back into cash.

Clearly a lot of investors agree with me. I do think we're at an interesting moment where cash always has this connotation of being kind of cowardly, kind of boring to Eric's point, but I mean, it yields so much right now, a six month treasury bill yields as much as a ten uere treasury note with like magnitudes less duration. Well, like, why would you not do that, right? Because duration is so important when inflations effector right, So, so what do you get in that six month uh that you know

is safer than the tenure bet? Right? Well, you do get a place to hang out. You also get the peace of mind of knowing that you know, a single day's yield movements aren't gonna totally decimate your p ando. I mean, you're still on a real basis not keeping up with inflation, but you're probably doing a lot better than pretty much any other place, unless you're like all

in on US dollars right now. Well, that's sort of my point with this is people must be really scared to go into this ultra short term debt because you're right, doesn't move as much off off of interest rates, but that is where the FED is hiking. They're hiking rate in your face, so like SHV and s h Y are down. So you could get that three or four percent deal, but you are going to lose from the price going down because the Fed just hiked again in your face. So it's not like a clean four percent,

it's a risky four percent. But again it's better than the alternative. I guess, is this the new tina? Is this the new tina? I've heard so many tortured new acronyms for there is no alternative I've heard there are too many alternatives. Now I feel like that that one doesn't quite have a ring to it though. What about sell the rip is the new by the dip? I know? You like that one. That one's just really hard to say on the fly. You have to think about the world. Know.

I screwed that up on air on TV. I I got all jumbled in my head right when I was about to say it in rehearsal, and then in the thing I was like, way is it by the rips? I was like, head game, you can't, you can't peek and rehearsal I did Okay, so cash is cash as an asset class, Katie walk us through the options, because sure you can take that six month, but even like

a savings gount in your bank, looks pretty good right now. Absolutely, Let's talk about one of the more interesting funds I think is b I L that's one to three month Treasury bills, right, and I wrote this story a few months ago, but they're actually paying out monthly dividends again, and for a lot of investors that's basically the core investing thesis. I'm gonna put my money here, I'm going to get a reliable fixed income payment. It all starts

to make sense. For a long time, these weren't paying out anything. That all but totally stopped during the pandemic when the federal took rates to zero. And again to Eric's point, you can still lose out on the price, but you are getting pennies again. It was pennies in July. That's been steadily increasing. Is the FETE has just been

absolutely relentless. It's I think it's pretty damgn close. I mean, there was a lot a long time where some of the haters on Twitter be like the Fed is killing savers, Like post world War two, you could always get a good yield on your on your like your aunt would give you a savings bond. And now they destroyed that. Well, now it's back. The problem is the markets are all crushed. Uh, this was the cost of doing it. I guess, James, what's your take when you think of ultra short term

debt e T s? Like, what do you think? What are you looking for? Think they're boring? Well, I do think they're boring. Eric, We'll we'll see these filings. So, as you know, we tracked filings for new ets that come out, and every like every issue where has a short term dead e t F. It's act summer actively manage. Many are and he just sends like he'll send a link with the filing and just put like a bunch

of z s nothing else. Um, every single legacy mutual fund company that comes to the T space has to file an ultra short term dead ETF and then an income ETF and G E S G And I'm just like, oh my god, I need more espresso too, because I'm getting drowsy reading the other side of this is that I think rebalancing is another key factor here. So if we keep talking on the FED hiking rates, you're crushing

fixed income. So if you have a sixty forty portfolio and your fixed income is going down or whatever whatever mix you have in your portfolio, you probably need to buy more to maintain that allocations. So rather than going into corporates or longer dated things, they're choosing to go limited duration, limited credit risk. They're going to these ultra short things. They're going to treasuries. So there's all these different things that are going they're forcing people into treasuries

and short term treasury specifically. So what are some tickers that are of interest to you? James, Uh, Well, we shy Bill sh V. I mean, they're they're pretty standard. There's there's some there's some I shares ones out there to jeff and then Jeffy, which is another one that there's a lot of things. Jeffy is the income right there. You think at jpst O JPSD is what I'm thinking. So let's let's take a second to divide the difference between Bill, s h V and s h Y, which

are pure treasuries. Those are probably the closest thing to Bill is the only one that I think is that's really short y is one one to three year UM. So you take a little more risk, you a little more yield. Now explain jps T, which is the JP Morgan. It's not treasury. I mean this is a little more risky, right. Yeah, it's actively managed and they don't just hold treasuries. But it's also short term. But JP Morgan is selling it pretty well. I mean it's taking in money hand to

or fist pretty much every day. What are the influs, like one billion in a year. So the record I believe is around thirty eight billion. We're probably gonna pass it. And that was set in two thousand eight, which you know was a really rough year, Volmageddon and all that, so people ran into cash. So we have probably break the record for all time flows here um on JPST and MINT. Those are two funds. This is an interesting niche that active is found. Actually, you know, past has

been like ruling the land for a while. People do like giving their money to Pimco or JP Morgan and saying, look, keep me short duration. So there's no interest, right risk, but take little bets. Maybe buy an international bond or corporate bond. Try to give me a little more um return or yield. Uh so, I almost like their money market funds with like a little hot sauce in there. But as we know in two they're not cash because

they did go down quickly. Unlike a money market fund where you might have a lot more stability, the can go down well. To your point that this has been an interesting niche for active to proliferate. I think it's a really interesting sign of the sign of the times that for much of the last two years, it's starting in the pandemic, it was ARC that was the biggest active manager. R K was the biggest actively managed fund. Now it's jps T I believe, which is again one

of these short duration boring bond ETFs. Just really sort of paints the mood of the market. You're right, that is a symbolic move, similar to how the innovation theme was the top one now natural resources. Yeah, so, yeah, the times are a change until quickly, quickly and all took with j PAL making some moves well in inflation, prey and inflation. We keep talking about this money markets. We brought them up, but they're they're paying almost three percent,

they're well over two percent. Now. Savings accounts, if you have an online savings account they're yielding over two percent. They're probably gonna be near three within the next month or two. We could be over four percent or near four percent in savings accounts by the end of the But what's your that's the problem, correct, But I'm saying the savings accounts and the money market accounts aren't as subject to the risk as some of these other things.

So I'm kind of surprised so much money is going to these e t f s when theoretically, if you're I mean, if you're at a brokerage account, you you have access to a money market fund, whether it's Vanguard or whatever it may be, it's going to be paying higher interest rates and obviously going to have a lower duration risk. But then obviously the Fed does cut rates,

you don't get the same upward potential. That sounds like you're in cash though, I mean, I don't know, I personally don't own any short term treasury e t s. No, I do not. I'm going to write that down. There's also the option of going with the floating rate notes. So like UM, Wisdom Tree, USFAR and T Flow have also taken in a ton of money. UM again boring but they would float with the interest rates, and so that's been a popular trade and senior loans are like

a high yield version of that. So if we think about this being this flight to safety and just like chill on the sidelines, how long do you think this sticks around? For what what our investor is going to be looking forward before they go from from these moves elsewhere. So so I sit next to Ira Jersey, who has

a rate strategist. He's been on the podcast before. So right now, the market is pricing for the FED to hike basically seventy five basis points, then fifty in December November, fifty in December, and a little bit more through March, and then the market is basically pricing for them to start cutting rates pretty quickly in the spring. Ira, the fed um our economist team believe that we're going to stay flat at that higher plateau for much longer than

the market is pricing. Obviously, the market can change things. I mean, if you talk to anyone, if they asked you, wherefore we thought we were gonna be a three or four percent by the fall. Uh, No one would have said that. But basically, our Bloomberg intelligence team thinks that we're going to get above that four percent level and sit there for a good chunk of and that will

impact everything. Well, that theoretically bodes well for cash. If the FED sits at terminal for a while and rates just sort of stay at this very relatively very high plateau, that would mean your T bills continue to pay out pretty lofty yields. Yeah, which means maybe this wasn't the place to be a year ago as race went up. But if this is where rates stay, then being there now could be good for a while, especially if inflation does especially if the FED does get inflation under control.

That's I would agree. Here's the thing with the inflation number, which is confusing, and I've worked this out with us a little bit. The month over month has been pretty nice for the past couple of months. It's hasn't like shown a huge move, but again year over year still like eight percent, right, eight nine? Well, the year over year was I think the first jump was what six seven months ago? Was that when the first print hit. Don't we have to go twelve months to go back

to where the high water mark is now? Where then it's under two percent, So it would seem to me, nothing will get resolved until a whole year passes from that shock print. So you're asking me to do some math right here, we're talking about you. Yeah, she messed with the dot plot. The dot plot crowd, they were not happy, but some people were on your side. Some people enjoy it was a joke. I said that the

dot plot is a meaningless image. It's so silly. And someone said, you're a financial journalist, how did this mean nothing to you? Okay, but the best comment that someone gave to me was a line is a dot that went for a walk. M h spoken like an artist. I do think you know one thing I will say to your point, and I think ramp Capital was the one who said yes, because it's meaningless because these people don't really know what they're talking about. They're always wrong,

um and they have missed a lot. Nobody called this, as James just pointed out. The other thing that kind of annoys me is the cell side research people who come out like it's like Goldman now has an S and P outlook and they just revised it down because the market had a rough week. I'm like, well, you can't do that. You pick it at the beginning of the year and stick to it, Like I don't understand that prediction based on what just happened. I get I get why they do it, but it just seems like,

why am I going to listen at all? Then I'll just look at past performance and extrapolate that forward and go That's what the sull side thinks. Well, the FED, to their credit, I feel like they try to stress that these are not forecasts necessarily or this this is not like up set in stone policy. They're going to react where it happens. Yeah, they do try to get the message across, but everyone just takes it like their

data dependent exactly. Well, Um, when I was lucky enough to guest host the Clothes, yeah, we had the White House person on, you know, the economic advisor, So I never get to ask these non et F questions, but I did, and I was sort of like talking about the election because inflation is by far the number one issue with voters. It took COVID's place. Voter say it's

the number one issue. COVID is not one percent completely flop flip flopped, and so I think the FED has a political pressure as well because this is the biggest issue for the election. So I do wonder if we have this election, the mid terms, if there might be a little bit of the foot off the gas just because there's the political pressure might die down a little bit because there's no election coming up. I don't think

it's political pressure. I think it's part of the mandate. Right, they have a mandate, and this is part of the mandate. But it's hard to untangle politics from the mandate in my opinion. But I suppose you're right. I just I don't know. I just can't see the FED is completely a political I just can't know. I'm with you, but that they do have a mandate. They're they're targeting a specific amount of inflation, and they've basically said they expect

to hip. What's interesting into more higher unemployment. What's interesting me becomes if if they actually say two percent is unrealistic anymore and like become the new two percent. But we'll see where that ends up. It is amazing that

they've stuck to it. But again, if if your goal is to go not over two percent from when like okay, jumped eight percent, so we'll call that the new normal, you're saying, no, two percent from where the new high water mark is so all they've actually accomplished that to a degree because the month over month hasn't gone up, so all they gotta do is wait a year. So I do sometimes wonder why they're continuing to hike given that all they gotta they're not trying to get the

eight percent down back down to where it was. That chip has sailed. It's just a matter of keeping that eight percent year over year where it is, which they're doing right. Yeah, Well, for the most part of you can break out core CPI, we can get into the real details of inflation numbers. Um. But we can get into the details inflation, which I don't think we should

really necessarily do in this podcast. But if you look at inflation, one of the things that's baked in is is rent and homeowner's equivalent rent, those things, it takes It's like a lagging indicator. So that's going to take time to filter through the inflation numbers. So we're basically

guaranteed to get higher inflation to some extent. It's so the problem is is the FED looking at leading indicators are lagging indicators, and that's what they're trying to wrestle with and so you have people on both sides arguing that the Fed's hiking too much now because most of the inflation is behind us, like you're kind of arguing, Eric, And then people are saying, well, they're still supply chain issues as other issues, So we need to make sure

that we don't let it get out of control, because once inflation starts going, it'll keep going. I have a question about ETFs to bring it back to e t F So the Fed, Jerome Pal obviously has made it very clear that they're going to hike into inflation even if it tips the economy into session. And with that in mind, I think it's interesting. In addition to all of the short term flows we've seen into these cash like e t f s, you're also seeing t LT get a lot of love recently, a lot more love

for duration. It feels like it's just the middle of the belly, if you will. That isn't seeing a lot of sparkle right now. I don't know what you guys think about that. Yes, So the way I look at it, there's like a whole bunch of reasons why Treasury e t F are getting because it's not even just t LT on the long end, those are twenty plus yours. It's it's the middle of the curve. Every all treasuries

are taking in money. And if you talk to people, a lot of people think the Fed is going to hike us into our session and then they're going to get cold feet, and then a're gonna start cutting rates again. So if they start cutting rates and you're you're in these high duration treasuries, you're gonna shoot off like a rocket ship, like we saw t LT do numerous times when the FED starts cutting rates. I agree. I think

t l T is a recession play. It's it's betting the Fed has gone too far, Whereas I think the cash is more of a hiding out. I think TLT is more of a bet. I would agree with James on that. Yes, that is not it's not a really safe place to be. TALT does do a good job buffering stocks typically, but not this time. I mean also, the duration, like we talked about, I don't know, fifteen minutes ago, you can get your face ripped off. Oh yeah, t l T s uh pretty pretty vaultlight, I think,

you know. But you're to James's point. That's why I like I like geo vt This is the eye shares. It goes. It just buys the whole curve in one shot. So you own everything to get a little recession bed, a little cash, a little you know. Uh. And that one I think might be the top ten most successful et F s of the year, maybe top fifteen. Okay, so we've talked about cash, We've talked about some debt. Let's talk about what's happening in the currency e t s sticks out to you, I guess you up. That's

Investco's Bullish Dollar fund. It's absolutely crushing it this year. It's up at a record high and then some. But I keep looking for a size and scope to write about beyond the fact that it's at a record high. But the flows just haven't really matched that performance. Yeah, and let's be clear, eight percent for a currency ETF is ridiculous. That that's not a lot for a growth fund or whatever, but for currency, that is an absurd amount of return. Um. What's interesting about currency ETF that

just you know, straight bet on currencies. They've never really had a market in the e t F world. They've real small, they've never got gone mainstream. My theory is that people regular people just don't do currency betting. They just don't need it. There long the dollar plenty with all their other investments, there's no reason. So I think it appeals to a certain kind of trading crowd, maybe an institutional who wants to quickly put on this trade. I just think it's a niche area and it always

will be um um. But James, let's tell people what does u P do? Like, how does it give you exposure to quote long the dollar? Yes, so it's it's kind of confusing because you think I'll just hold the dollar, but that's not going to give you this performance that we're seeing. So the way up does it? Or anyone hedges in the market. So in this case they go, they go long dollar futures and then they share at the euro the end, the Great British pound, the Canadian dollar,

the Swedish corona, and the Swiss franc. So it's usually long whatever the current see as you're talking about and that, and then short of basket of other currency. It's literally like a long short fund. Yeah yeah, it's not just holding a dollar bill in a bank. Boy, that is the perfect strategy for this year. It is. But the other issuers have different takes on this trade, Like wisdom Tree has us DU. This one goes long the dollar, but then it shorts emerging market currencies as well as

the developed international so you get a broader short. But the emerging market currencies haven't been as as bad. So UP is outperforming this year, but that could change. But I think there has been great innovation in this space, but again not a ton of buyers. Now. Where we have seen buyers over the years is currency hedgetts, which go long say Japanese stocks or developed international stocks, and

then they neutralize the currency effect. Those e t f s had their day back in the day, but now they're coming back because the stronger the dollar is, the better the currency hedge gtfs are. But no one is buying them. It's like the second time around, no one cares.

Why do you think that is? Yeah? So I think we we've we often debate this on our team multiple times because we thought this is going to be the year for erncy hedge gtfs with the dollar really does go strong, and I mean the performance has been incredible. I mean all of the currency edge versions, whether it's Europe, whether it's Global Japan, all of the above they've crushed their unhedged counterparts, and still they have taken in virtually no money. I mean it's not no money, but it's

it's almost non existent compared to what it was. You look at a chart, it's just billions flowing out for years. The outflow has stopped and there's been a trickle of inflows, but there the fish just aren't biting. Here's my theory, jol and this at least, why is that? Because Eric, I actually remember this was like how you and I got to meet each other, was talking about the currency hedge GTF effect. It was like of this, you know, you would think this would be that moment for the strategy.

And wisdom Tree, as I recall, was a big player and it's still still the big ones. Yeah, Wisdom Tree, UM, dws, and I shares are all the big ones. But here's my theory on this, which is that when currency ETFs happened back in was a craze. D x J was the number one inflow getter for a year. I think it's the personally time was in Vanguard black Rock. I mean that's insane. Um. I think people got on it like a ride at the amusement park surfboard with which

the surfboard and then ran out. Yeah, and then they the dollar got weaker and the trades sort of didn't work as well, and people soured on it and said, oh, that wasn't as fun as I thought it was. They got out, and now that it's working, people are like, you know, what, been there, done that. I think I'll pass this time. I'll do the cash, sit in the cash and boring like. This is why I'm barish E

s G versus the hype. I believe now this year that we're seeing E s G underperformed generally because oil is up and oil stocks are up. I think any tourists that come in and have that experience, they go in with a little too much like starry eyes, and they they're not really careful what they're doing. They just went bought it because it went up. They get that sort of feeling of like um seller's remorte buyer's remorse rather and they don't They will not take a second

bite at that apple. So when E s G starts out performing next time tech is up, I don't. So that's why I think E s G is limited, and that's why and currency GTPs are having the problems they do um, which is simply because you know, people have been there, done that, and they're just not interested this time. Yeah, And I think like the round trip trade, so people went in and I think a lot of people just didn't take money out initially, Like you look at it.

The performance went down really bad and money didn't really come out. They just kind of sat in there and it lost its value. It's lost its assets of your performance. So I think people just saw that in the round trip trade in staid if they had just stayed in the other thing for an extended period of time, they would have been the same. Because currencies just fluctuate, they go up and down specifically and equities it's not as critical. So if you're gonna currency hedge, it's more like you

have to market time essentially. I think people a lot of people just give up on market timing. You know, the people who sell currency ig tips make a great case or like, look, everything you have is long the dollar, your house, everything you know, your bank account, all your funds, all your stocks. Why not hedge in this case to have something that isn't exposed to the dollar? Um. Now, someone like Bogel, they would argue you would you shouldn't

do it because you should always belong the dollar. That's your whole lifestyle, so why bother with that? So I get both, But I think ms C I had a study. I'll probably get called out for this, but I think as my recollection, they did look at the heads then unheedged over like a long period and it wasn't that big of a difference. Um. But there are times when obviously one is going to be outperforming and then it will underperform. And this is sort of the problem with

E T F that veer from a benchmark. You have your heyday and then you have your under performance. And the people who typically should go into the strategy of people who really understand what they're doing and can stomach that period of of drawdowns. So anybody listening, that's my advice for anybody on all of this, and especially E s G. I'm like, look, if you're hardcore and you live in E s G lifestyle and this is your thing, you're probably fine for E s G because you can

stomach when it doesn't work. Um, But a tourist, I'd be very careful because sometimes people just don't like tunderperform, and they usually sell at the wrong time and by at the wrong time, and that's you know where bad behavior comes from. And for everybody else, there's cash. Yeah, back to cash, Katie James, thanks for joining in Centralia, Thank you for having me, Thanks for having to m H.

Thanks for listening to Trillions. Until next time. You can find us on the Bloomberg Terminal, Bloomberg dot com, Apple podcast, Spotify, or wherever else you'd like to listen. We'd love to hear from you. We're on Twitter, I'm at Joel Webber's show. He's at Eric Baltunas. This episode of Trillions was produced by Magnus Hendrickson. Bye.