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Coinbase Provides Credible Way To Hold Crypto: Ritholtz · Bloomberg Intelligence

• 0:00
  Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney alongside
• 0:04
  Speaker 1: my co host Matt Miller. Every business day we bring
• 0:06
  Speaker 1: you interviews from CEOs, market pros, and Bloomberg experts, along
• 0:11
  Speaker 1: with essential market moving news. Find the Bloomberg Markets Podcast
• 0:15
  Speaker 1: on Apple Podcasts or wherever you listen to podcasts, and
• 0:18
  Speaker 1: at Bloomberg dot com slash podcast. Let's talk a little
• 0:22
  Speaker 1: crypto now, Matt, looking at Bitcoin. It's up about a
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  Speaker 1: half of one percent today to sixty two thousand, let's
• 0:29
  Speaker 1: call it seven d two thousand, seven hundred. Coin based Global,
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  Speaker 1: the big initial offering yesterday via a director listing. It
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  Speaker 1: is up two percent today after a wild day of
• 0:40
  Speaker 1: trading yesterday. But it's up two percent today. What we
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  Speaker 1: need here is a little perspective on all things crypto.
• 0:46
  Speaker 1: To do that, we turned to Barry Ridhold's founder RD
• 0:48
  Speaker 1: Holt's Wealth Management. He's a Bloomberg Opinion calmness and host
• 0:52
  Speaker 1: of Masters in Business on Bloomberg. Really like fantastic podcast.
• 0:56
  Speaker 1: All right, Barry, coin Base yesterday, A lot of folks
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  Speaker 1: are out there with a narrative that coin base, uh
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  Speaker 1: was a validation point for the crypto market. Is that
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  Speaker 1: how you viewed it. I was more intrigued by the
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  Speaker 1: fact that it was a direct listing by passing the
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  Speaker 1: usual I P O process. And you have folks, especially
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  Speaker 1: out in Silicon Valley, people like Bill Gurley of Benchmark Capital,
• 1:20
  Speaker 1: who have been saying, hey, why are we having big
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  Speaker 1: brokerage firms and Wall Street capturing or miss pricing so
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  Speaker 1: much of the value of these new companies. Hold that aside.
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  Speaker 1: Maybe that's a little too inside baseball, but but the
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  Speaker 1: what what coin base validates is that there is now
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  Speaker 1: a credible way uh to deal on an institutional basis
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  Speaker 1: with holding crypto. So some of the studies have shown
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  Speaker 1: maybe even of all mind coins have either been law
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  Speaker 1: or are locked in password protected Matt Mill where can
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  Speaker 1: access it? And and you know, imagine if a third
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  Speaker 1: of brokerage accounts, sorry you, your money is gone. You're
• 2:12
  Speaker 1: purposely rubbing salt in my wounds. Here, Berry, how much?
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  Speaker 1: How much bitcoin have you lost somewhere? How many? Nine eleven?
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  Speaker 1: I don't know, And even if I knew, I couldn't
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  Speaker 1: tell you because my wife already wants to kill me.
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  Speaker 1: So whenever she asked me like how much is it,
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  Speaker 1: I'm like, it's a very small amount. Don't worry. The
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  Speaker 1: g T three fully mocked up for the track for you.
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  Speaker 1: You definitely definitely that it's definitely regular password by blockchain wallet.
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  Speaker 1: And uh, I promptly forgot about it. You know, it
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  Speaker 1: was two thousand twelve. What what did I know? So
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  Speaker 1: coin base is what solves theoretically anyway solves that problem
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  Speaker 1: because you don't have to I mean, I've heard stories
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  Speaker 1: about people etching past words on on metal bars and
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  Speaker 1: then sticking that into a into a bank vault, and
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  Speaker 1: then you have to worry is the melting point of
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  Speaker 1: that steel high enough in case the bank burns down?
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  Speaker 1: I mean, think about how crazy that is. Dude, Matthew
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  Speaker 1: Mellen used to do. He Matthew Mellen used to put
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  Speaker 1: it on He used to go and buy laptops and
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  Speaker 1: then put it on them in cold storage and then
• 3:24
  Speaker 1: go and buy safe and bring them to friends houses
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  Speaker 1: and then put it in the safe in a friend's house.
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  Speaker 1: You know, So like, uh, some people get very That's
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  Speaker 1: why I like the equity traded product that coin Shares does.
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  Speaker 1: You can buy bitcoin through them and they just hold
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  Speaker 1: it in custody for you. As someone who has had
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  Speaker 1: computers and laptops. Going back to my Mac Classic, I
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  Speaker 1: wouldn't want to put a billion dollars of value on
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  Speaker 1: something as completely unreliable as a laptop in cold storage.
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  Speaker 1: Talk about a recipe for disaster, No hard pass, Barry.
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  Speaker 1: I want to get to UM. You know, I've been
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  Speaker 1: working here at Bloomberg since January of two thousand and UM.
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  Speaker 1: I think I started paying attention like six or seven
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  Speaker 1: years later. I remember distinctly hearing arguments for the continued
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  Speaker 1: market run up in two thousands six seven that there
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  Speaker 1: was so much cash on the sidelines, and I was
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  Speaker 1: totally uh, you know, sold hook line and sinker on this. Man,
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  Speaker 1: If there's two trillion dollars in cash on the sidelines,
• 4:34
  Speaker 1: then this market has a lot further to run. I've
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  Speaker 1: never heard the end of that argument. No matter what,
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  Speaker 1: there's always so much cash on the sidelines. What is
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  Speaker 1: this coming from. Well, it's one of those tropes that
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  Speaker 1: live brokers used to talk people into buying or trading stocks. Look,
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  Speaker 1: there's always cash on the sidelines, number one. That doesn't
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  Speaker 1: go away. And if you want to talk about cash
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  Speaker 1: that matters, you're either talking about the velocity of money
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  Speaker 1: how fast cash is moving through the economy. And as
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  Speaker 1: we've seen in the velocity of money was very low
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  Speaker 1: even as the market rocketed up to new highs. So
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  Speaker 1: it can't be that. And and then there are other
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  Speaker 1: things to look at. Um. The AII does a study
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  Speaker 1: on a monthly basis of how much cash is allocated
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  Speaker 1: within individual portfolios to stocks versus cash, and at peace
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  Speaker 1: it's too much stock, and and at lows it's too
• 5:34
  Speaker 1: much cash. But you know, you get a signal from
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  Speaker 1: that once every five or ten years. It's nothing that's
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  Speaker 1: that's reliable. The one simple way to think about this is,
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  Speaker 1: all right, so all that cash on the sidelines, what's
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  Speaker 1: going to happen with that? Well, Matt, if I'm going
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  Speaker 1: to buy a thousand shares of Amazon from you, I
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  Speaker 1: have cash, you have stocked. We engage in that transaction
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  Speaker 1: through through our robin Hood account. Now, how I have
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  Speaker 1: a thousand shares of Amazon and you have six thousand
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  Speaker 1: dollars in cash. The same exact amount of money is
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  Speaker 1: still on the sidelines. For every buyer of stock. There
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  Speaker 1: is a seller um who gets the cash, and so
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  Speaker 1: the cash on the sidelines never changes. It's just ownership
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  Speaker 1: of the cash and the equity swaps hands it. By
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  Speaker 1: the way, does the dry powder article our argument for
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  Speaker 1: private equity hold up for you? Is that a different story. UM,
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  Speaker 1: So if you're talking about either private equity or venture
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  Speaker 1: capital or or anything's like that, you're really talking about
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  Speaker 1: a very different asset class that is attracting capital because
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  Speaker 1: it's successful. Lets use venture capital is even better example,
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  Speaker 1: because private equity is kind of hard to determine what's
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  Speaker 1: private equity and what's UM traditional syndication and M and
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  Speaker 1: A and other stuff like that. Venture capital started out
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  Speaker 1: in the sixties and seventies as a way to, hey,
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  Speaker 1: how can we work with the Defense Department and others
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  Speaker 1: to steer money to these important technologies where if you
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  Speaker 1: remember or have read about spot nick Us Island, Russia.
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  Speaker 1: And as as these companies became more and more successful,
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  Speaker 1: remember semiconductors and integrated circuits is something that was produced
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  Speaker 1: by UM the Apollo program and the Defense Department and
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  Speaker 1: at the same with the Internet. So as as more
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  Speaker 1: and more of these products scenes attracted more successful returns,
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  Speaker 1: more money flowed to that sector. Alright, fascinating conversation which
• 7:36
  Speaker 1: we will have to continue. We've got to kick off
• 7:38
  Speaker 1: our car show too. You mentioned the g T three.
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  Speaker 1: I really want one, UM, really excited for naturally aspirated
• 7:48
  Speaker 1: boxer still in Porsche's lineup. Now, I want to bring
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  Speaker 1: in former senior advisor of the US Treasury Department, Dan Katz.
• 7:57
  Speaker 1: He is also a Bloomberg opinion contributor, and he's written
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  Speaker 1: a story about airlines um who have which have already
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  Speaker 1: received so many tens of billions of dollars in taxpayer
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  Speaker 1: help that maybe it's um, it's already too much. They
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  Speaker 1: don't need anymore, Dan Um. In your in your piece,
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  Speaker 1: you point out that US airlines got a fifty billion
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  Speaker 1: dollar lifeline um last year last March, and then another
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  Speaker 1: twenty billion dollars through the bipartisan year end relief package
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  Speaker 1: and President biden stimulus plan. At this point, shouldn't the
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  Speaker 1: US government own the US airlines outright? Uh? Well, it's
• 8:42
  Speaker 1: it's great to be with you, Matt and uh. And
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  Speaker 1: you know, when I think about the amount of support
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  Speaker 1: that's been provided to the airline, I think you really
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  Speaker 1: have to break it up into what was done during
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  Speaker 1: the heart of the panic, and then what was done
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  Speaker 1: at at more recent times, and so in the context
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  Speaker 1: of the original uh, the original intervention in March, Now,
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  Speaker 1: the industry was really in an unprecedented free fall, you know,
• 9:12
  Speaker 1: just to take Delta, which reported this morning, you know,
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  Speaker 1: they reported this morning that they were actually cash positive
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  Speaker 1: in March and had access to about sixteen billion dollars
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  Speaker 1: of liquidity. But in March, in their same morning report,
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  Speaker 1: they were burning a hundred million dollars a day and
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  Speaker 1: only had access to six million dollars of liquidity. And
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  Speaker 1: deltas you know, widely acknowledged as one of the stronger
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  Speaker 1: carriers in terms of the financial position amongst the large
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  Speaker 1: carriers out there. So we really faced what could potentially
• 9:44
  Speaker 1: be a collapse of the industry or widespread, hugely widespread
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  Speaker 1: layoffs that would have come at the worst possible time,
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  Speaker 1: both for the labor market and also for our ability
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  Speaker 1: to respond to the pandemic. So what we did in
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  Speaker 1: at the end of March, you know, under the leadership
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  Speaker 1: of of Secretary Minution, who was who's really uh, you know,
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  Speaker 1: extraordinary in this period, I think is clearly going to
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  Speaker 1: be remembered as one of the great Treasury secretaries in history.
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  Speaker 1: As we put together a package that stabilized the airlines
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  Speaker 1: in the short term by offering UH some payroll support
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  Speaker 1: and also provided them access to loans, which had an
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  Speaker 1: extremely helpful effect in allowing them to gain access to
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  Speaker 1: credit markets where they've borrowed very very successfully over the
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  Speaker 1: last year. And the result of that has been that
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  Speaker 1: we've kept the airline that we kept the airline industry
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  Speaker 1: together during the hardest part of the pandemic and UH
• 10:42
  Speaker 1: and and gotten them through to the other side. UH.
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  Speaker 1: The question now is what should taxpayers do visa v
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  Speaker 1: airlines UH in the near term? And you know, I
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  Speaker 1: think I think there's little argument, based on the financial
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  Speaker 1: metrics that we're seeing from the carriers today that they
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  Speaker 1: needed another fourteen billion dollars in March. And then there's
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  Speaker 1: going to be another fight, probably in September when the
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  Speaker 1: protections associated with the March UH taxpayer funds expire, over
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  Speaker 1: whether they should receive further support. And I think any
• 11:20
  Speaker 1: reasonable observer would say it's time for the government to
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  Speaker 1: step back and allow the industry to stand on it. So, so, Dan,
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  Speaker 1: do you think do you think the industry is out
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  Speaker 1: of the woods now? Look, I'm not really in a
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  Speaker 1: position to accurately forecast what the return of airline demand
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  Speaker 1: is going to be like. Uh, you know, certainly there
• 11:42
  Speaker 1: are big issues associated with international travel and also with
• 11:46
  Speaker 1: business travel, which is so important to these carriers strategy. Um.
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  Speaker 1: But what I will say is that they're all in
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  Speaker 1: a very strong financial propression. Most of them are in
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  Speaker 1: a very strong financial position, and so manage of teams
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  Speaker 1: employees are in a position to navigate that future demand
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  Speaker 1: purf uh, and it's time for them to do that
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  Speaker 1: in the absence of taxpayer support. I just want to
• 12:09
  Speaker 1: get something you said earlier about Steve Manuchin. You think
• 12:12
  Speaker 1: he's going to go down as one of the great
• 12:15
  Speaker 1: Treasury secretaries in history um owing to his actions during
• 12:21
  Speaker 1: the pandemic bailout. The Paycheck Protection Program has so often
• 12:27
  Speaker 1: been derided as inefficient and and inept at the hands
• 12:32
  Speaker 1: of Steve Manuchin. Um, what do you think he did
• 12:37
  Speaker 1: that that merits putting him up along the grates in
• 12:42
  Speaker 1: the in the Hall of fame for Treasury secretaries. Well, look,
• 12:48
  Speaker 1: you know, just just quickly to respond to your point
• 12:51
  Speaker 1: on the p p P, I think a lot of
• 12:55
  Speaker 1: the news coverage, unsurprisingly has focused on uh some of uh,
• 13:00
  Speaker 1: you know, less desirable outcomes as we implemented the program
• 13:05
  Speaker 1: very very quickly. But what it hasn't focused on is
• 13:09
  Speaker 1: the overwhelming speed and success of the vast, vast majority
• 13:14
  Speaker 1: of the program. That that in and out itself, right,
• 13:17
  Speaker 1: the simplicity of getting it out there, speed of getting
• 13:20
  Speaker 1: it out there, which which is always going to involve
• 13:22
  Speaker 1: some execution risk, that that was hugely helpful to stabilize
• 13:27
  Speaker 1: in the economy and keeping workers attached to attached to
• 13:31
  Speaker 1: their healthcare and their and their employers, and also saving
• 13:35
  Speaker 1: you know, many many millions of jobs at small businesses
• 13:39
  Speaker 1: across the country. So I don't I don't think that's
• 13:41
  Speaker 1: really a fair critique of the p p P and
• 13:43
  Speaker 1: in terms of the broader legacy. But but but wait,
• 13:47
  Speaker 1: so you think the p p P was an efficiently
• 13:49
  Speaker 1: used program. All that money um went to you're saying,
• 13:53
  Speaker 1: save jobs and keep employee healthcare, and and that's documented. Well,
• 13:59
  Speaker 1: I think that, uh you can if unipick find uh,
• 14:03
  Speaker 1: you know, relatively small in relation to the entire scale
• 14:07
  Speaker 1: of the program issues to include fraud access by public companies.
• 14:12
  Speaker 1: We're all familiar with the stories out there, but you know,
• 14:15
  Speaker 1: some of my colleagues, Mike Falkoner and Steve Myron have
• 14:18
  Speaker 1: looked at in the paper they put out at the
• 14:20
  Speaker 1: end of last year, the program on the whole was
• 14:24
  Speaker 1: hugely successful in saving tens of millions of jobs. And
• 14:28
  Speaker 1: so I don't think it's fair to say because there
• 14:30
  Speaker 1: was one news story about shake Shack, or there were
• 14:32
  Speaker 1: a few instance to the fraud, that the whole program
• 14:35
  Speaker 1: is hard. I think if you look at the complete record,
• 14:38
  Speaker 1: there's no question that this program was hugely important in
• 14:40
  Speaker 1: protecting the economy through the worst of the pandemic. Dan,
• 14:44
  Speaker 1: thanks so much for joining us. We appreciate it. Dan Katz,
• 14:47
  Speaker 1: he's a former senior advisor at the U. S. Treasury
• 14:49
  Speaker 1: Department from one. He's also a Bloomberg opinion contributor. Dan
• 14:55
  Speaker 1: cats looking at the market here, Matt continued strength in
• 14:59
  Speaker 1: this market. Continue to see green on the screen. It's
• 15:01
  Speaker 1: a positive economic data and some decent earnings. Yeah. Absolutely,
• 15:05
  Speaker 1: the bank earnings picture, although I guess, um, you and
• 15:08
  Speaker 1: Dave Wilson need to sit down over a beer and
• 15:09
  Speaker 1: discuss that. Maybe you can meet in Montclair and figure
• 15:14
  Speaker 1: out whether these bank earnings look good or bad. They
• 15:16
  Speaker 1: are definitely they have definitely beaten by a large margin um.
• 15:20
  Speaker 1: Certainly JP Morgan yesterday and Goldman Sachs, but even today
• 15:24
  Speaker 1: Bank America I thought was really pretty good when they
• 15:26
  Speaker 1: came out with earnings a little bit early. We'll continue
• 15:29
  Speaker 1: to watch reaction. This is Bloomberg. Let's get a look
• 15:33
  Speaker 1: at this market holistical way. We do that with Chris
• 15:36
  Speaker 1: Wolfe's the chief investment officer for First Republic Private Wealth Management.
• 15:40
  Speaker 1: They have about two and twenty billion dollars in assets
• 15:43
  Speaker 1: under management. So christ Matt and I were just talking
• 15:46
  Speaker 1: about this market, and we're saying, hey, even when you
• 15:47
  Speaker 1: got a big company like a city like a Bank
• 15:50
  Speaker 1: of American, report some really strong numbers, the stock doesn't
• 15:54
  Speaker 1: necessarily move higher. Does that signal maybe a risk for
• 15:58
  Speaker 1: this market that, uh, the market's really discounting just extraordinary
• 16:03
  Speaker 1: earnings and if you don't deliver, you're not gonna get paid. Yeah.
• 16:06
  Speaker 1: I think there's a syentim here, which is what's going
• 16:09
  Speaker 1: on in the first quarter. And I think a lot
• 16:11
  Speaker 1: of expectations for investors were built up to a pretty
• 16:14
  Speaker 1: high level. So what they're really looking for, I think
• 16:17
  Speaker 1: is the guidance about the second half of the remainder
• 16:19
  Speaker 1: part of this year. And that guidance has turned out
• 16:21
  Speaker 1: to be just a little bit tepid. It makes sense
• 16:23
  Speaker 1: for folks to offer guidance that's not super bullish right now.
• 16:26
  Speaker 1: So I think investors just built up an expectation that
• 16:29
  Speaker 1: the guidance for the remainder of the year and particularly financials,
• 16:32
  Speaker 1: you know, loan volume and other things, would be very strong,
• 16:35
  Speaker 1: and it's just come in a little bit less than expected.
• 16:37
  Speaker 1: I don't I don't read a lot into today's trading
• 16:40
  Speaker 1: that there's a huge risk here. I think what's behind
• 16:42
  Speaker 1: all of it in terms of the economic data is
• 16:44
  Speaker 1: still very strong that we're going to get into an
• 16:47
  Speaker 1: earning season, not just for first quarter, which would be good,
• 16:50
  Speaker 1: but I think it'll be carried through the second and
• 16:52
  Speaker 1: third quarter. Does loan growth have to be strong for
• 16:56
  Speaker 1: you to really expect seven, you know, eight percent growth
• 17:01
  Speaker 1: this year for you to really expect to pop in.
• 17:04
  Speaker 1: Do people need to be running out and borrowing money
• 17:06
  Speaker 1: for businesses if the economy is going to be growing
• 17:08
  Speaker 1: that that quickly? You know? I think, Look, we wrote
• 17:12
  Speaker 1: a piece a couple of months ago called the Year
• 17:14
  Speaker 1: two Bridges. We thought one was gonna have required to
• 17:17
  Speaker 1: get through it a healthcare bridge and a stimulus bridge
• 17:19
  Speaker 1: and BOYD and we're getting that in spades. I do
• 17:21
  Speaker 1: think there's some learnering concerns though about kind of the
• 17:24
  Speaker 1: variants in COVID, and ultimately the Johnson Johnson vaccine news
• 17:28
  Speaker 1: has been to think a little bit challenging. So um,
• 17:30
  Speaker 1: I think that healthcare bridge is mostly built, but it's
• 17:33
  Speaker 1: got a ways to go, and the stimulus bridge is
• 17:35
  Speaker 1: just you know, being built as fast as possible. So
• 17:38
  Speaker 1: why would we use this as an example because I
• 17:40
  Speaker 1: think when you're talking about the second, third, and fourth quarter,
• 17:43
  Speaker 1: there's a little bit of caution now, But as sentiment improves,
• 17:46
  Speaker 1: the COVID bridge gets finalized and we get into a
• 17:49
  Speaker 1: place where there's more infrastructure spending, I think sentiment improves
• 17:52
  Speaker 1: a little bit more and that releases some of the
• 17:55
  Speaker 1: savings to get you to the seven, eight, nine. And
• 17:57
  Speaker 1: by the way, there's even an outside chance on GDP
• 18:00
  Speaker 1: that you print a nine or ten handle uh in
• 18:03
  Speaker 1: one because of all the stimulus that hasn't been spent yet,
• 18:06
  Speaker 1: a lot of it's been saved. So to the extent
• 18:09
  Speaker 1: companies looking to run out and borrow money, I think
• 18:12
  Speaker 1: what they're gonna be is a little bit cautious and
• 18:14
  Speaker 1: kind of use the first quarter and use the kind
• 18:16
  Speaker 1: of spending story that consumers are going to put up
• 18:18
  Speaker 1: there as sentiments improves as a way to respond to that.
• 18:21
  Speaker 1: But you know, all things told, banks are in a
• 18:23
  Speaker 1: pretty good shape to capture that, you know, potential loan
• 18:25
  Speaker 1: growth later this year. All right, Chris, we look at
• 18:28
  Speaker 1: these equity markets here charging charging to ever higher highs.
• 18:32
  Speaker 1: What's the biggest risks to the equity call right here?
• 18:38
  Speaker 1: You know that. I think the biggest is really two
• 18:40
  Speaker 1: of them. One is the bridges we just talked about
• 18:42
  Speaker 1: fail for some reason. There's a variant mutation in the
• 18:46
  Speaker 1: uh COVID story that we just don't understand yet. Science
• 18:49
  Speaker 1: suggests that mutations are picking up outside the rest of
• 18:51
  Speaker 1: the world, and that's kind of a tale to that
• 18:54
  Speaker 1: story as well. The big surprise has been how weak
• 18:57
  Speaker 1: the vaccine response has been in Europe and other areas
• 19:00
  Speaker 1: of the world. The US, despite all of our challenges,
• 19:02
  Speaker 1: is actually leading in this regard. So the risks of
• 19:05
  Speaker 1: the rest of the world just ends up with lots
• 19:07
  Speaker 1: of variants running around and we end up in a
• 19:09
  Speaker 1: reinfection pattern. And that's a meaningful one with respect to
• 19:13
  Speaker 1: consumption sentiment and ultimately market multiples. UM. You know, I
• 19:17
  Speaker 1: think the second piece is more strategic, and it's really
• 19:19
  Speaker 1: what's the relationship between US and China right now? It's
• 19:22
  Speaker 1: you know, fairly challenged. There's a lot of things that
• 19:26
  Speaker 1: look like China wants to be equal with the US.
• 19:28
  Speaker 1: In many ways they are, But the reality is, I
• 19:30
  Speaker 1: think economically, things like digital currencies, for example, changing payment
• 19:35
  Speaker 1: systems represents structural changes that I'm not sure how they're
• 19:38
  Speaker 1: all going to play out, And I think for most investors,
• 19:41
  Speaker 1: I'm not sure they're all bad, but they may represent
• 19:43
  Speaker 1: a change and a big change to the way they
• 19:45
  Speaker 1: think about investing in one and beyond. So what are
• 19:50
  Speaker 1: you saying that China maybe as a command economy UM
• 19:53
  Speaker 1: has a little bit of a lead here in the
• 19:55
  Speaker 1: in the short and near term. But with respect to
• 19:58
  Speaker 1: blockchain technology all the way back to the you know,
• 20:01
  Speaker 1: mine is tracking people with COVID. I mean, there's no
• 20:05
  Speaker 1: privacy issues there. They run everything that that is absolutely true,
• 20:10
  Speaker 1: but that's their model, and their their model works to
• 20:12
  Speaker 1: put up GDP numbers, you know, fairly consistently. You can
• 20:14
  Speaker 1: believe them or not but the reality is that's where
• 20:17
  Speaker 1: they are. The relationship US has what China is important though,
• 20:20
  Speaker 1: key though. All right, Chris, thanks so much for joining us.
• 20:22
  Speaker 1: Chris Wolf, their chief investment officer of First Republic Private
• 20:25
  Speaker 1: Wealth Management, talking to us about the state of the
• 20:29
  Speaker 1: economy as we're in the heart of bank earnings. This
• 20:32
  Speaker 1: is Bloomberg I want to bring in right now. Can Leon,
• 20:37
  Speaker 1: he's a global director of UH Industry and Equity Research
• 20:42
  Speaker 1: at cf are A Research, talking to us about what
• 20:47
  Speaker 1: we saw this morning and yesterday, Um, in terms of
• 20:51
  Speaker 1: bank earnings and what we can expect tomorrow. Can first off, UM,
• 20:55
  Speaker 1: talk to me about Bank America earnings. They came out early,
• 20:58
  Speaker 1: very early. In fact, it was the first time I
• 21:00
  Speaker 1: can remember coming out in the five am hour Bank
• 21:04
  Speaker 1: America earnings. They looked good. Um, initially not you know,
• 21:08
  Speaker 1: JP Morgan, Goldman Sacks good, but still pretty good. And
• 21:12
  Speaker 1: yet the stock is off. Why are investors selling it?
• 21:17
  Speaker 1: So Bank of America is more of a commercial bank
• 21:20
  Speaker 1: than a capital markets driven back JP Morgan also is
• 21:25
  Speaker 1: kind of a hybrid. Of course, Goldman, Sachs and Morgan
• 21:28
  Speaker 1: Stanley are all feed in with the capital markets, which
• 21:32
  Speaker 1: we like a lot Bank of America. Then when you
• 21:34
  Speaker 1: look at the mechanics of how it drives growth and
• 21:37
  Speaker 1: the high investor expectations ahead has to drive higher net
• 21:43
  Speaker 1: interest income, which means a steepening yield curve, and then
• 21:48
  Speaker 1: it's the US economy. Can we get the consumer and
• 21:52
  Speaker 1: commercial businesses to increase lown activity. Those measures were negative
• 21:59
  Speaker 1: in the quarter, and that's why the stock is trading down.
• 22:02
  Speaker 1: And the expectations is from the CFO of Bank America's
• 22:07
  Speaker 1: maybe with a rising yield curve, you know, we can
• 22:10
  Speaker 1: bring back a billion dollars of net interest income that's
• 22:14
  Speaker 1: not there today. So it's a very different profile than
• 22:18
  Speaker 1: a JP Morgan, which is a little bit more like
• 22:20
  Speaker 1: an investment bank, or the ones we really liked with
• 22:24
  Speaker 1: strong buys, Goldman Sachs and Morgan Stanley. So that's interesting, Ken,
• 22:29
  Speaker 1: because yesterday we had Chris Whale and on, chairman of
• 22:31
  Speaker 1: Will and Global Advisors, and he was making the argument
• 22:34
  Speaker 1: that you know, when you strip out some of the
• 22:36
  Speaker 1: reserve reversals UH and some of the capital markets business,
• 22:42
  Speaker 1: the underlying banking business, he thinks by YearIn is going
• 22:44
  Speaker 1: to be in a world of trouble. Is that too
• 22:47
  Speaker 1: bearish from your perspective, it isn't. But most of the
• 22:50
  Speaker 1: bank analysts, so I am a bank analyst, but you
• 22:54
  Speaker 1: know they're siloed and and they they're just seeing, we're
• 22:57
  Speaker 1: going to model out of higher net interesting home this
• 23:00
  Speaker 1: year and next year. And you know what's interesting here
• 23:03
  Speaker 1: is when you look at traditional commercial banks, JP Morgan
• 23:07
  Speaker 1: is the only one that has shown positive growth in
• 23:10
  Speaker 1: this category since two thousand and fifteen, not Wills far Ago,
• 23:14
  Speaker 1: Knock Bank of America, perhaps not some of the regional banks.
• 23:18
  Speaker 1: So it is tough, but the overall environment works two ways.
• 23:24
  Speaker 1: We have recovery, but you've got to see that pull
• 23:27
  Speaker 1: through into the bank metrics I mentioned. And secondly, the
• 23:31
  Speaker 1: risk related to UH credit risk exposure and loan reserves
• 23:38
  Speaker 1: is getting better. And that that to me, is more
• 23:40
  Speaker 1: of a rear mirror conversation, more in front of us.
• 23:43
  Speaker 1: When we were talking about this last year. JP Morgan
• 23:47
  Speaker 1: still down off today's seven tenths of percent. It fell
• 23:51
  Speaker 1: yesterday one nine percent. It was down on Tuesday one
• 23:55
  Speaker 1: down on Monday two tenths of percent. I mean, investors
• 23:58
  Speaker 1: this week just don't like the bank um has it
• 24:01
  Speaker 1: just run too far, too fast, you know, UH, so
• 24:05
  Speaker 1: I've been covering these banks for over ten years and
• 24:07
  Speaker 1: I've never seen JP Morgan even when they have a
• 24:10
  Speaker 1: blowout quarter UM where the stock goes up. And in
• 24:15
  Speaker 1: this case though, they had the window dressing as you've
• 24:17
  Speaker 1: mentioned of these loanloest reserves which boost earnings. But overall
• 24:22
  Speaker 1: this is best in class UM commercial bank JP Morrigan,
• 24:27
  Speaker 1: and they have a bigger exposure to the investment bank UM.
• 24:31
  Speaker 1: I would say that, you know, over the long term,
• 24:35
  Speaker 1: UH listeners should do JP Morgan as a very attractive
• 24:39
  Speaker 1: large cap core holding in their portfolio. So can as
• 24:43
  Speaker 1: you're talking to your clients UM during this period, what
• 24:46
  Speaker 1: are your top picks that you're pushing that you know
• 24:50
  Speaker 1: financials have done so well so for portfolios thinking about sectors,
• 24:55
  Speaker 1: and we had black Rock and Swab today as well,
• 24:59
  Speaker 1: UH swaps today. These are these are phenomenal world class
• 25:03
  Speaker 1: franchises UM. And I think if it gets to being
• 25:07
  Speaker 1: a stock picking world, which is what we do to UM,
• 25:11
  Speaker 1: I'm going to stay with the capital markets given more
• 25:14
  Speaker 1: in a risk on environment and low rate UM. You're
• 25:18
  Speaker 1: gonna hear this lad and clear from Morgan Stanley tomorrow
• 25:21
  Speaker 1: on great results and Goldman Sachs had a grand slam.
• 25:25
  Speaker 1: It wasn't a home run, it was a grand slam. Uh.
• 25:27
  Speaker 1: And that's where we are with strong boys. Um to
• 25:31
  Speaker 1: the negative point of the other analysts you mentioned, we
• 25:33
  Speaker 1: also have a cell recommendation on Wells Fargo. I don't
• 25:37
  Speaker 1: think they have uh, the real turn of positive interest
• 25:42
  Speaker 1: income generation that they really need and loan activity because
• 25:46
  Speaker 1: their franchise was hurt by some of the sales practices
• 25:50
  Speaker 1: they had. That's where we are. Hey, Ken, thank you
• 25:53
  Speaker 1: so much for joining us. We always appreciate getting your
• 25:55
  Speaker 1: thoughts at this time at the quarter when we have
• 25:57
  Speaker 1: the big banks putting up their numbers. Ken Leone, Global
• 26:00
  Speaker 1: director of Industry and Equity Research at c f r
• 26:03
  Speaker 1: A Research has been covering the banks for about a decade.
• 26:06
  Speaker 1: And it's interesting MANDI favoring those the big investment banks
• 26:09
  Speaker 1: as opposed to perhaps some of the more commercial banks. Um.
• 26:13
  Speaker 1: So that seems to be the way that he's looking
• 26:14
  Speaker 1: at it right here in Goldman Saxes gets his strong
• 26:17
  Speaker 1: by rating. And again, as you pointed out, Matt, the banks,
• 26:20
  Speaker 1: you know, maybe priced in to perfection, you know, buy
• 26:22
  Speaker 1: on the rumors, selling the news type of thing here
• 26:24
  Speaker 1: as they record their numbers. Thanks for listening to the
• 26:28
  Speaker 1: Bloomberg Markets podcast. You can subscribe and listen to interviews
• 26:32
  Speaker 1: of Apple Podcasts or whatever podcast platform you prefer. I'm
• 26:36
  Speaker 1: Matt Miller. I'm on Twitter at Matt Miller. Put on
• 26:40
  Speaker 1: fall Sweeney I'm on Twitter at pt Sweeney Before the podcast.
• 26:44
  Speaker 1: You can always catch us worldwide at Bloomberg Radio