Re-Imagining ETFs with Simplify

hired some interesting people we've had. Uh. We had a good zoom call with them about six months ago and they're doing well. They're kind of up to looks like seventy million assets. That's a fift growth rate this year. And what's interesting about them is they keep making these interesting hires and what they're doing with some of their E t F s is doing options overlays. It's part of a bigger trend of package trades and we've seen

this in the Innovator and buffer products. This is becoming more popular as the market gets uh you know, froth theer and froth theier. People want some protection and so the idea of using options is becoming a popular move and so they recently made a couple of big hires, including Mike Green, who a lot of people know if you're on Twitter. He used to work with Peter till he was at a logic after that, and then he's famous for having some worries about passive. He's famous for

battling the bitcoiners on Twitter. I give him credit. Takes a brave person to combat to combat some of those folks. But he's just a really original thinker. And we've had many chats, and so I wanted to get that this capture this young firm and their growth, and also look at these products. We've had a couple of requests to talk about these downside protection type products that use options.

So I thought that would be the idea here and joining us James Safer, Bloomberg Intelligence ETF analyst this time on trillions Simplify. Paul Michael, James, thanks for joining us on trillions pleasure. Thank you for the invite. It's Paul Michael. Before we start with you, I want to bring James in here. James, can you talk to us You know about the strategy um this option overlay strategy quite a bit.

Can you give us your assessment of what the space looks like, Yeah, so Eric kind of touched on this, but right now is like a unique point in the asset management industry. There's a lot of people talking about the death of the sixty forty portfolio. We are at all time highs in the equity markets, we are near all time loads and just off of all time loads and rates. So people are looking for different ways to sort of adjust their portfolios. They're not set in the

sixty forty portfolios. Advisers looking for ways to eke out additional return or additional yield, and a lot of the new ETFs are mentioned are using like option overlay strategies are as you mentioned the buffer products with have specific specified downside protection, but capped upside um simplified does this and it just kind of alters the risk of the investments that you have and whatever funds you're choosing, and all of this is just the way that some people

and advisors and it's being spoken about. There's a lot of money coming into this these types of strategies to kind of maybe take a few percent of the equity side, some money out of the fixed income side, and eke out additional return and without altering your risk profile too much. So it's just a lot of people just figuring out different ways to um get a more risk, higher risk adjusted return or more eke out more yield, and they're doing it with options strategies and the area is booming.

We're over ten ten billion dollars in this area for the most part, depending on how you slice and dice the marketplace, with the bulk of that being in those buffer products. Okay, Paul, you co founded this. What did you have in your pitch deck that James left out right there? So thank you for the chance to answer this question. Um this is my third et F platform,

and I started at Pimpco. As Eric alluded to, My last stop was actually a principle for about five years right where I helped build their business up to a little over four billion. But at at Simplify. The sort of key thesis that we wanted to address was helping advisors build much more interesting portfolios and using options and derivatives to shape distributions to better address a very specific

investment goals. So it may be goals such as risk mitigation or interesting or an uncorrelated return enhancement as well as income generation. And it's a really good time from

a number of fronts. So from the regulatory front, UH, the timing was very important to see the SEC modernize the regulatory framework on the use of derivatives by registered investment companies and so what that did was basically catch up the US to some of the other regulatory frameworks out in places like Europe in the use it's format. Basically what that means is now companies can bring much more interesting combinations of strategies that just did not or

could not fit into the forty act rapper. So that tied with the sort of demand for e t f s, the long running advantages of ETO, specifically tax deferral, transparency, easier access, as well as I think individual preferences and

comfort on the use of derivatives. We we have the financial crisis way in the rear view mirror at this point, and I think the comfort on the use of derivatives to help portfolios, the stigma associated with the dangers or pitfalls of derivatives UM as well as individuals learning to trade things like single stock options and institutions looking for ways to solve portfolio challenges, i e. How do you

hedge in a world of high correlations and low interest rates. Um, it's a perfect time for a brand new company that focuses right in that sweet spot. So, Paul, that was a really good overview, And I just want to try to get more into the details of how this the e t f s work. Like I said, we've gotten a lot of requests from people to go into some of the options using e t f s that offer downside protection and really to understand exactly how they tick.

So let's look at SPD. This is your biggest one is to simplify us when you plus downside convexity e t F, which when I first saw this file I thought was a bit of an oxymoron to have simplifying convexity in the name. It was the first DTF with the word convexity in the name. Um, So let's walk through what's in it and then you tell me why. Um So, I've got the SMP five hundred e t F I VV is a holding and then it looks like there's five put options with various months and various

strike prices. Um, you know, it looks like they go all the way out into June two. So just if you could walk us through what's going on here, why you pick those and what the return stream should look like with this thing. Sure, so at the highest level, we're trying to stay true to the beta. In this case, the beta that we're offering inside of this is the SMP five very popular, very very highly used for US large cap exposure UM, and so we're taking that as

a starting point. And then what we're doing is if you could think of it as surgically modifying the distribution using options, but in a way that does not take away the upside or the day to day returns of that beta. So it's gonna give you pretty much SMP fire.

But what we've laid on through options is one in the case of our flagship strategy, the two tail version UH Spicy, we've added about percent of the portfolio and downside hedges, so we're buying les eggs of deep out of the money puts, which tend to be cheap and from at least from a probabilitistic return perspective, we think they're fatter tales and ree equity returns than what are priced in these options, and so they provide a really

interesting way to protect the portfolio with very very modest use of capital and on relatively unique for our strategies were also enhancing the upside. And I know Mike has a ton of comments or opinions on this, but we think, uh, basically, the market structure um as well as all sorts of fiscal and monetary policies make the upside a significant risk as well in terms of keeping up with the purchasing

power of that investment portfolio. So we focused on both sides and create customized scientific option overlays unique to each of the tails, and we do it in a way that mitigates the cost that of that option strategy and delivers about at one point a beta. Okay, Mike, I wanna ask you because you came from a hedge fund background and so I want to talk about that, But I also just gotta ask, like, what's it like to

have Paul as your boss instead of Peter Teal Uh. Well, we're still new in this process, but I will tell you that Paul smiles a lot more. Um. It is the reason for the move from hedge funds to the e t F space is actually exactly what Paul articulated. The rules have changed and so products that were not able to be created in the E t F space or in the retail space are now actually available in the way they just haven't been before. And you know,

broadly Eric was referring to this earlier. My career is largely characterized by trying to identify how the regulatory regime is changing, how the market structure is changing. And for the first time this is now open and so I'm

thrilled to be on board with the Simplified team. Join my friend Harley Bassman, who's another you know, legend in the in the rate space in particular, who's going to be introducing similar products um and I think the opportunity to be kind of first out of the gate with some really fantastic products that introduce convexity, right and so convexity we can talk about that dynamic, but the simplest way to think about it is that you're creating a

structure that can potentially participate with more than to the upside and yet avoid portions of the downside. You're just changing the shape of that distribution. That's an incredibly exciting opportunity to an adventure to be part of. When when did you recognize, especially in the hedge fund world, that that there was going to be an opportunity to actually like enhance what et s were capable of. Well, so the rule change occurred, Um, Paul, correct if I'm wrong.

I think it was last June. Um, yeah, officially October, but it's been shadowed for at least a number of ryers. And so the challenge that I had in that context was I have no skill set in terms of launching e t s. I have a history of participating in launching hedge funds. Sort of join up with an organization that is really skilled in launching those ETFs was really one of the key components in terms of the opportunity itself.

I became aware of it in early one is my friend Harley Basman made the transition over to simplify and basically said, hey, you gotta take a look at this, and I came to the conclusion that he was right. So quick question, you guys keep talking about the rule change. The rule change you're talking about is that? Is that the ability to do in kind transactions with options? Is that? Is that the rule change of referencing it's it's not,

Although that one is also an important one. So in October sec past essentially a modernized regulatory framework on the use of derivatives. It's it's been long in sort of the pipeline and then was formally finalized and passed, and

that again modernizes the use of derivatives. UM, as I alluded to earlier, does the other point you're making, UM only magnifies the opportunity because not only are you permitting the use of derivatives inside of an et F rapper or vehicle, you're now giving it a tax advantage relative

to maybe other ways of holding that same option. Much like ETFs have have a tax advantage in holding single single name stocks and bonds, you're now able to redeem out in kind single name stock options, including options on e t F s, and so that creates a whole new ability to creatively think about really interesting ETF strategies

that are very tax efficient. UM. Let me jump in here, because over the years there's been many downside hedge TTF that's been air You that it looks good on paper, but in a bull market, a lot of them dragged, And I get your idea is to not drag as much and get as much upside, and then assuming that the more of the market gets bubbly, which probably leads to Mike Green's you know, passive bubble theory where when you do have these downturns they get steep, right. So

this this way you're protecting your downside. Is this the type of product that you use on top of, say a Vanguard five fund or do you sort of are you trying to replace that whole part of the portfolio. Um? How are you presenting this in terms of portfolio construction to advisors? Um, we are presenting it as a tool. So for some advisors, they they they viewed as a dollar for dollar replacement of their equity beta in the

case again of our SMP strategies. And it makes sense in the context of a higher risk adjusted return potential through similar reasons at a sixty forty off and out forms equity beta in that by cutting off the downside, you're you improve the compounding and potentially improve your geometric returns. Right, And so that sort of concept UH is an attractive

one for one. But in today's environment, where yields are essentially at negative real rates, UM, the advantages of UH sort of having that fixed income is offset by the negative carry of that fixed income. And so in that case, if you could create some other way to directly hedge downside instead of instead of relying on fixed income, it could actually also improve your returns. And so we may be getting a partial dollar out of your fixed income bucket as well as the equity bucket. And so those

are the two main use cases that we found. But our core value proposition is that we're trying to keep and maintain that roughly one beta exposure. So, Mike, um, you and I have had several discussions both offline over I B and then on Filbox podcast, which if you want background on Mike's thoughts on passive and his worries about it, go listen to that podcast. Um, he goes over all of it there. But you're you are known. Oh you're also on Odd Lots and I thought that

was a good one too. You went over all that on that, which is a sister podcast to ours. So but let's just for people out there, Mike's a little worried about passive being a sort of problem. And now, so when I tweeted about your coming over to simplify, of course, you had some knuckleheads out there. They're like, Oh, what's going on here, Mike? I thought you said the S and P S dune, you know, passives of bubble.

How does this is? How is this in tune with your thoughts on passive or is there a little bit of a conflict there? So I don't think there's a conflict at all. I mean, the point that I have continually made on passive is is that it is changing the market structure, right, that it is influencing the behavior of markets. And we see this both in the behavior of rallies and in the behavior of selloffs. The selloffs are more frequent in terms of the negative skew that

presents in the market and others. The market's propensity to crash is rising over time. Propensity for highly correlated selloffs is rising over time. At the same time, the dynamics of the shift to passive away from active are creating many of the themes that we hear in the market

right the by the dip type mentality, etcetera. What you have, by and large is a um unthinking allocation mechanism that simply relies on Americans participating through their four oh one case or people around the world participating through their retirement programs or through their deductions. That they're making from their paychecks or regular contributions. And the rules of passive in

ones the behavior of the market and just the simplest form. Right, the rules of passive are as simple as did you give me cash? If so, then by did you ask for cash? If so, then sell? And the work that I have focused on is the impact of introducing that systematic type of strategy on market behavior. What that really does, and what I've been very clear on is is that that change in the distribution of outcomes that occurs because of the influence of passive means that options are improperly priced.

And so throughout my career I've been a value investor in the context not of saying, you know, here's a super cheap company based on my estimate of future free cash flows, but instead to say, here's a super cheap instrument or security that can be purchased at a price that inaccurately reflects the future distribution of outcomes for the

underlying product. Right, That's what we're doing. It simplify, right, the the ability to overlay the options and participate in the inflation that's occurring because of the passive dynamic, but to do so in a way that protects investors both to the downside and from the risk of a market that effectively runs away from them is as I said, like it didn't exist technically before. You couldn't do it

from a regulatory framework, and now suddenly you can. And the second component is is that the options themselves don't accurately reflect these prices, creating the opportunity to do stuff

that I think of as true value investing. We talked about the broad allocation e t s. We've talked about the benefits of taking part of your six your inequities or party fix income and putting him in these broader um e t s. You guys have launched, but you guys also have launched a suite of more specific, targeted thematic ETFs almost using kind of the same strategy with hoping to get additional upside in like v car, which is robocar, disruption fintech, and v fin um a whole

bunch of these. Can you just talk about how you view those being used, how you chose the strategies to launch, and anything you have to say about them. Sure, um, And so just just because we started off with broad beta does not mean that's sort of where fixed fixated on UM. We're also trying to solve advisor and investor demand for things like concentrated investing, which often play out

in thematic investing. And so what we've done is create very hyper concentrated e t s again that push the boundaries to what's permissible in a forty act vehicle UM, and also concentrate further by enhancing the upside potential by buying buying single names stock options mostly calls on some of our key names in the portfolios that hang on

that theme. And the idea from a high level view is kind of do what Warren Buffett and Carl Lyken and other famous investors have done in their careers, which is really concentrated into a few few key names to you take advantage of their relative growth to the universe or potential growth, and then do it in a risk measured way where we're also embedding sort of downside hedges, so that if you're not exactly right with your timing, it could still have a structure that creates this really

concentrated upside, but much more diversified and hedge downside. So that's the interesting thing. At the very highest level, it's it's a variance maximization structure. So you've concentrated, you have relatively high variance names, and you have a structure that captures moves when they go up in a way to sort of diversify and mitigate the downside when they don't

go up as fast. Yeah, so these these strategies can theoretically almost compound almost like some of the leverage gts UM if you if it starts really going in those calls, those upside calls get hit, which is extremely interesting from our point of view. The other thing is themes is like I feel like it's always been talking about last year, themes are taking over sector investing because people don't want to invest in a specific sector like themes are easier

to talk about. They're taking away some of the thunder from smart beta, E t F s UM. So it just makes complete sense to kind of packages in these other strategies. Yeah, when you said the hunger for concentration, I just want to hone it on that. In a minute. We are noticing this clear barbelling of flows where it's either dirt chief beta or wild and crazy you know, something very different. This is sort of the artifact I guess if you will, themes are right in there. Um,

this is this because portfolios are barbelling. People are just they're gonna they're gonna have this cheap base and then sort of decorate it with what we tend to refer to as hot sauce. I mean, is that what you're finding from advisors is that why you're in fact in your area you have the barbell going right there in terms of the product line. Well, so I would actually,

um take a stab at that. I think again for me, part of of the interesting dynamic that we're seeing with theme stocks, etcetera is is that it's a reflection of the market fragility dynamics we're talking about, right, So in many of these situations, the core buyers and holders of these theme stocks are going to be the vanguards and

black rocks of the world. The question is, can you gain increased convexity or rocket fuel to an exposure because you decide to make a concentrated bet in that area, right, and the ability to articulate that and to do so in a manner that is easily accessible and tradeable from an r A framework, It's tough to see that is not offering value to the community. Just before we move on to the limitations, I think Joe's gonna about limitations. Paul Um back to the i VV and then the

puts and that tail risk hedge yep UM. Have you tested this in environments? And do you know about how much of the market downturn you save? Like, do you have any way to quantify what you're saving there? Because the Bruce bond Over an innovator, he has these exact metrics. You know, you'll you'll have the stomach the first five percent, but then after that will cover you know, he's very clear on this is exactly what you get. How do you answer that question to somebody who's like, well, how

much will this save me if the market tanks? So you can't get a precise forward looking number, but there's certainly a lot of historical episodes going back way to the you know, periods like the Great Depression UM, where you could estimate UM sort of draw downs and sort of the limits and timing of those drug downs. UM in a nutshell by buying very deep out of the money puts, they act as a shock ups over, almost

like a rubber band. It's it's hard to forecast exactly what that force is, but it's it's a very powerful force. And UH, which is the term convexy right gamma and equity terms it basically, at the further and faster you fall, and higher the implied volves go up, these options significantly

increasing value. And so if you look back at a very generic one percent of your portfolio and sort of a thirty percent put, this is not our strategy, but I'm just talking generically that going into March, that one percent would have done more than the work of a

forty percent allocation to long treasuries. So very modest amount of out of the money puts effectively protects the entire portfolio, or has the potential to protect the entire portfolio as a full on, hard duration allocation to the longest UH treasuries out there. Um, that's powerful, right. That really speaks to how much UH sort of a help these puts

can have. The drawback is constructing it in the right way and having a systematic approach that makes sure you're not over spending on protection and buying the right strikes and looking for opportunities where options are cheap. Okay, Michael, what are the limitations or the or the potential limitations of the strategy. Well, I think Paul just hit on one of them, right. The history doesn't repeat at rhymes, and so we're never going to know exactly what the

performances of a derivative overlay strategy. It's going to depend on where volatility rises, is going to depend on the shape of the volatility surface or the curve that that exists in the volatility space. It's going to depend on the speed of the decline, etcetera. Right, so these are all factors that you have to consider when you're thinking about protecting a portfolio or how to manage against that.

And then there's the further issue that you have of you know, is the picture of the past an accurate representation. We went through two thousand seven eight, passive strategies were roughly fifteen percent of the market. Today they're somewhere in the neighborhood oft and more than half of all the managed assets. And so understanding those differences means that you're never going to have perfect insight. And candidly, I have not seen the claims of we'll do exactly this protection, etcetera.

But I would challenge the ability to make that type of statement. Um. There is a secondary benefit, though, is you move away from using interest rates to protect your portfolio. What you're really relying on with the interest rate dynamic is the FEDS reaction function. Is the Central Bank going to cut interest rates in reaction to a decline in

equity prices? All right, that's a relatively recent phenomenon in terms of markets that really only began to emerge in the aftermath of long term capital management in the Asian Financial crisis, brief episode of it with the crash seven.

But here you're talking about doing something differently because if you're embedding derivatives that are tied directly to the stock market, so puts on the S and P five hundred, for example, you have a reduced level of what in the industry is referred to as basis risk, or the risk that the protection that you bought in your portfolio doesn't actually protect your portfolio because it's not directly tied to it. Right. So there's some improvement and there's some increase in uncertainty

around other aspects of it. Ultimately, I don't think people have a choice because what we've seen is the FED has so aggressively targeted market selloffs and risk off events.

With the policy of cutting interest rates, that we've now ended up at a point where those bonds offer almost no prospect of reasonable return and you're effectively buying, you know, a synthetic put on your equity portfolio when you buy a ten year treasury or a thirty year treasury, with significant uncertainty as to whether that's going to deliver the return profile that you're hoping for. All Right, I want to shift a little bit too, this sort of ambition

that you guys have. You know, it's not just the products that you've come out with and the hires that you've made. I've seen a really interesting filings from Simplify. I know you can't talk at them, so I'll throw them all out there for the listener and then just lets you comment on however you want. You have a filing for a c d X E t F. This is a basically a credit default swap ETF. That term has a lot of uh, you know, people have a lot of feelings when they hear that, although there was

one tried before. You have an equity plus bitcoin ETF. You have a inverse vall E t F. Another one that gets people the fields right there, although it's not all the way one time inverse, I think it's half for inflation convexity, gold convexity. I mean, you really have this interesting arsenal of products in the pipeline that really put you on on a trajectory to be almost like the alternative issuer. You know, is that is that your goal here is too is to really own that spot. Um,

what's the grand vision here? So I think it's one level higher than that which alternatives tend to be a smaller Porsche and of a portfolio. Right, So what we're really trying to do is create either improved beta's or really take existing beta's, deep public accessible beta's and turning them into either return generators or or sort of better

building blocks for portfolios. And again, in the context of a forty years sixty forty paradigm that's embedded itself in every sort of retirement channel out there, we want to provide an alternative way to think about ASSE allocation that

can navigate the road ahead. So if you think about views on either extreme inflation or deflation, very few et F platforms in my view, have U sort of a significant offering that works when rates go up or when inflation picks up as an example, right, and also very few platforms offer sort of exposure to UH ways of navigating times when risk assets i e. Short vowel assets

sell off. So can we offer things that are much more long volatility that take the other side, but doing in a way that can be put into a portfolio that has a positive expected value and can help meet investors returns. And so that's sort of how we view

the building blocks. It's not so much. Again, Let's go for a ten or twenty slice of somebody's portfolio and give something interesting, it's really less reimagining and create another path for much more interesting as allocation frameworks and give advisors that tool that before have never been accessible, even two very large advisors, things that require things like is does right UM which even um relatively large hedge funds

may not have access to UH. Create interesting again, strategies that take advantage of capital efficient see balance sheet efficiency, really interesting and thoughtful use of leverage in a very risk focused way. So those are all the things that we have down the road, and you're you're starting to see the filings and sort of hinting out where we're trying to take this place. By the way, Joel, this is you know when people are like, oh, they're e t s are a bubble, and I'm like they kind

of quite ets with beta. I'm like, no, they actually make e t s to capitalize on the bubble bursting or people, I think sometimes forget that. It's really fascinating that all this stuff is being put into this structure. Yeah. Yeah,

it's like a wrapper around a roup. I would say, building on what Eric just said, Michael Birnie talked about passive PUBB ETF and investing in small cap values specifically, and then cited a couple of names you've invested in, like game Stop and other other names that were like

passively owned, which is way higher than the average. So it just shows that a lot of times, even extremely smart investors don't have the true understanding of exactly et s and passive investing or what we call passive investing. I should say, because there's a there's a spectrum, but there's definitely a big gap in this understanding even among

super intelligent investors. James, I, I I just wanted to um emphasize the point that you're making there, right, which is when you look at a lot of the theme stocks that you look at a lot of the behavior that's happened in markets, it tends to have happened in these

stocks that have high concentrations of ownership. Whether that's because there are significant option quantities that are outstanding against them, or whether there are passive players who perversely choose to add to stuff effectively, as new money comes in, they'll buy more of something as it goes higher, reinforcing momentum type characteristics. Again, those are the opportunities that we think we have the chance to take advantage of that really

haven't existed in the markets in the past. And simultaneously, that means that we can allow investors to participate in what feels like craziness to us, but also feel some degree of protection to the downside. So, Michael, does that mean that you could potentially get into a place where where, like right now, you're using sort of broader indexes, but you could get into one where you're customizing and doing

so based on trends that you're seeing in certain places. Yeah, it's difficult to talk about the product development framework um other than what's already been filed. Eric referred to a couple of these things. What I hope Simplify becomes known for is actually something that Paul alluded to before, which is the thoughtful construction of these products and the appropriate

use of leverage. So, for example, a short volatility e t F. People are obviously familiar with products like x I V that, um, you know, blew up quite spectacularly in February of two thou eighteen. They're also familiar with two times or three times levered S and P type products, or you know, Russell products, etcetera. What you often find with those is that they were created, in my view, without a a a significant amount of thought behind should

we do this? Is this appropriate for investors? Is this the right degree of leverage? When you create products that have the linear payouts that those products historically have had, and all you're doing is attaching significant leverage to it, you actually increase the odds of events like the February eighteen volmerged where a very popular two plus billion dollar e t F went to zero in a single day,

right or effectively to zero in a single day. UM, we can do better than that, and we can be much more thoughtful about how to appropriately construct these products we're not trying to create the you know, three four five scent return things. We're trying to replace products in

people's portfolios that no longer work, for example, bonds. So, Paul, it sounds like you have things on a white board that are really exciting, and then there's some other things on the other side of the whiteboard that might be farther away. And I'm curious, like, like, what, you know, the name of your company is simple, Why how many products do you think you'll ultimately have here? I get

a lot of complaints internally on how fast we're moving. Uh, we have nine currently and have another six on docket and probably another six waiting right beyond that, So I could easily see thirty or forty t f s and you know, in a couple of years um, which most being very very very unique and solving very very big

problems for advisors. And that's sort of the sort of the urgency behind how how aggressive we're trying to tackle this, because it feels like there's this window of opportunity to move fast, to just feed into that creativity and opportunity and really address some of the biggest challenges that we feel are not being addressed properly today. Mike Green. One thing you said on the last time we were on the podcast at Phil's Phil's pod cast was and it's

stuck with me. You said that the government and just in general, they now look at the stock market as America's retirement savings. And Yellen said something along the lines of how active bond mutual funds. We're going to have to unload all these bonds in the middle of March, and it was going to be fire sale, and she kind of alluded that's why they stepped in, which was part of my hunch. It seems like the whole mutual fund industry, active and passive, is the new too big

to fail thoughts. Unfortunately, I think that's right, And you know, I referred to this earlier, that the Federal Reserve has taken a much more active role in quote unquote protecting the market. Right, so the reaction function to declines has become more aggressive over time, and it has become quicker to be instituted. Right on, in two thousand, we saw

a dramatic market decline with relatively limited intervention. By the time we got to two thousand and twenty, you know, the within days and weeks of the market declined beginning

the Federal Reserve is rolling out unprecedented programs. Right. Part of the reason why that's happening is to say, the FED is relied in the post two thousand eight, post GFC environment on the wealth effect to stimulate the economy, recognizing that a sizeable and growing fraction of the US population relies on self directed retirement accounts to provide for

extended retirements, etcetera. I don't know that there is any way out of that, but the tools that are becoming of the tools that they have available are becoming fewer and fewer. Right, So the ability to cut interest rates from the six percent level in two thousand I'm sorry, two thousand seven and we were at nine percent, right, that's now largely gone. We can't cut those interest rates much further from zero without it becoming potentially contractionary because

it becomes effectively attacks on wealth. So that the need for investors to take the steps to protect their portfolios, in my view, is actually growing. At the same time, of course, that the confidence in the Fed's ability to protect the markets through you know, various memes of FED printer Goesburg etcetera is growing higher and higher and higher. Right, people have completely forgotten that the market could crash as

aggressively as it did in March. Now the perception is you can't have any type of decline of of you know, any sustained period or severity it is. It is fascinating. Um. The more I just think and think about it, I'm like, yeah, and plus all the book, it's all boom or retirement money, and the boomers have all the power and there's a revolving door it. I don't want to go conspiracy theory, but it just seems like they they're just not going

to let the market go down. It's now almost like socialized in a weird way, where they have to have it stay up so people can take the retirement money out. The point of the stock market, which is supposed to be not really that bankable you know, used us to be risky, has become the They shaped it to be something that is more reliable, and now there's so much money in it and it's hard to see where it ends. Well, I think, uh, I think Eric's going to go to

a bitcoin island. Well, I think this will come to crypto Yeah, I mean, um, Joel's joke about bitcoin Island. I mean, I've I've said this elsewhere and i'll i'll, you know, continue to stand behind it that people understand that the system is growing increasingly fragile and growing increasingly dependent on the need to keep stability right. And so this play is right into the Hyman Minsky type framework of the more you create stability, the more you build fragility.

The system when it breaks becomes catastrophic. We can't possibly know when that's going to occur, but all I can do is encourage people to recognize that the message that they get from the stock market, right, the idea that there's the expectations channel and the smart and brightest minds in America are speculating in stocks and telling you the forward expected returns associated with the US economy and income prospects, etcetera.

That's just not true in the presence of systematic strategies that literally are as simple as did you give me cash? If so, then by right, And that is really what you know catches my imagination in terms of the opportunity to build a better solution for investors and a set of tools that simplify the process for investment advisors that are trying to understand how to protect their portfolios, both on a right tail outcome and on a left tail outcome.

I like how you slipped and simplified there, Michael, that was good product. But yeah, how much does this? How much does this actually help understand and explain the bitcoin phenomenon? Right of Like if there's this inherent feeling that things are getting more fragile, like here's this, I'll turn native asset that no one's ever seen before. That's better than nothing else, Right, Yeah, shouldn't this make you pro bitcoin? Mike um when you say, shouldn't make me pro bitcoin?

So so, I just want to emphasize my view on bitcoin is not whether it is going to go up or down in the short term. Right. My view on bitcoin is that it is distracting people from um participating in a robust discussion around how to fix the system the minute you choose an exit voice, right, which candidly

has happened historically before. Right. The nineteenth century was largely about immigrants, immigrants from Europe and the rest of the world coming to the New World in order to buy a better future for themselves, taking an exit voice from you know, the corrupt societies that they were part of. Right today you see people trying to do that same thing without changing their geographic location, and it just doesn't

work that way. You can separate yourself from authoritarian m in danger by physically removing yourself and taking yourself an ocean away onto a protected continent. You can't do that by moving your bank account. Right. It's just it's not an accurate representation or a realistic way to step out of the system. And further, it doesn't create the opportunity for building something better. That's my complaint about bitcoin, Paul, last question for you favorite et F ticker other than

your own? Um, I've always liked PPNJ. I don't know like tickers like that are fun um and and not a direct competitor either, which is great. Good. There you go. And my goal. What is Peter Til's favorite? I have no idea. How about yours? Um x I V legend People still tweet about it. I mean, if you if you look dollar sign x I V, it's probably five

six tweets today. People miss that thing. Yeah, I would love the opportunity to have another shot that, but um, Instead we'll come at it from a different angle, Paul Michael James, thanks for joining us on Trillions. Thank you guys, pleasure, thanks for having Thanks for listening to Trillions. Until next time. You can find us on the Bloomberg Terminal, Bloomberg dot com, Apple Podcast, Spotify, and Warbils. Do you'd like to listen,

We'd love to hear from you. We're on Twitter, I'm at Joel Wepper Show, He's at Eric Baltunus and you could find James at j S E y f F. For more unsimplified, go to simplify dot us. This episode of Trillions was produced by Magnus Hendrickson and Jessica Levy is the head of Bloomberg Podcast. Bye.