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Protecting Your Portfolio With ETFs · Trillions

0:05
Speaker 1: Oakner chains.
0:06
Speaker 2: I'm Joel Webber and I'm Eric Belchernas.
0:11
Speaker 3: Okay, so I'm running through things that are at all
0:14
Speaker 3: time highs. Stock market, US, stock market, zitcoin, gold, everything
0:20
Speaker 3: just keep going up. What are people supposed to do
0:22
Speaker 3: when things only go up?
0:23
Speaker 2: Eric, Well, first of all, just appreciate it. There's so
0:27
Speaker 2: much angst out there, these columnists and the economists, and
0:31
Speaker 2: everyone's like trying to be like, well, it's just something's wrong.
0:33
Speaker 2: And I'm like, everything is going pretty good and enjoy
0:36
Speaker 2: while lasts. But this is probably as good as it gets.
0:39
Speaker 2: It can't last forever. It never does. So the question
0:44
Speaker 2: is what will derail this? The higher the markets go,
0:48
Speaker 2: the less it takes right because there's a lot of
0:50
Speaker 2: people with itchy trigger fingers, like, well, if this little
0:53
Speaker 2: thing happens, they're more likely to take some profits quickly
0:56
Speaker 2: then rather wait. So we'll see what that is. But
0:59
Speaker 2: I think the more things go to all time highs,
1:02
Speaker 2: and the more everything is at all time highs, this
1:04
Speaker 2: is interesting. Gold and stocks rarely are going up together.
1:08
Speaker 2: I think that really makes people nervous. But at the
1:12
Speaker 2: same time, I am pretty happy. My four one k
1:16
Speaker 2: is loving this.
1:17
Speaker 1: So really though, how are people supposed to navigate this?
1:21
Speaker 2: That's the thing like as the markets go up, more
1:23
Speaker 2: and more people are starting to think, Okay, what can
1:26
Speaker 2: I use as a little bit of insurance just in
1:29
Speaker 2: case things go south quickly? And there are various vehicles
1:32
Speaker 2: need to have market that are really good for this.
1:35
Speaker 2: The problem is a lot of them come with like
1:38
Speaker 2: it's like you got to read the owner's manual on these.
1:41
Speaker 2: So there's a lot of options, but some are really powerful,
1:46
Speaker 2: but they need explaining. And I think it's a good
1:49
Speaker 2: time to go through these things because you just sense
1:51
Speaker 2: something that's going to happen soon, and instead of talking
1:54
Speaker 2: about these things after it happens, we should talk about
1:56
Speaker 2: them right now.
1:58
Speaker 1: All right.
1:58
Speaker 3: Well, to help us our inks, we're going to be
2:01
Speaker 3: joined by Bernard Goiter, who's an options reporter with Bloomberg News,
2:05
Speaker 3: as well as Suzanne Woolley, who's personal finance reporter with
2:08
Speaker 3: Blimberg News.
2:10
Speaker 1: This time on train's protecting your Portfolio with ETFs. Bernard Susanne,
2:16
Speaker 1: Welcome to Trillians.
2:17
Speaker 4: Thank you, good to be here.
2:19
Speaker 3: Bernard. I want to start with you because you just
2:21
Speaker 3: published a story recently investors pile into funds betting on
2:25
Speaker 3: elusive market volatility. Volatility has There was a little bit
2:30
Speaker 3: of that in April, I think when Trump unveiled some
2:34
Speaker 3: tariffs or talk of tariffs. Since then kind of disappeared.
2:39
Speaker 3: So so what are we starting to see show up
2:42
Speaker 3: in markets now?
2:42
Speaker 4: Yeah, well, people are basically trying to allocate to what
2:47
Speaker 4: happens if volatility comes back. There's another April situation where
2:51
Speaker 4: there's suddenly a big spike in volatility. And I kind
2:54
Speaker 4: of think of volatility in quiet binary wand markets like
2:57
Speaker 4: it's either kind of everything's very very quiet or everything's extreme.
3:02
Speaker 4: And part of this is going back to this idea
3:03
Speaker 4: about how easy is it to trade? And in periods
3:06
Speaker 4: when everything's fine, kind of like it is now and
3:10
Speaker 4: the VIX, which is one of the indicators of polatility,
3:13
Speaker 4: is below about twenty, it's really easy to trade. There's
3:16
Speaker 4: a lot of liquidity everywhere, and then when stuff gets choppy,
3:19
Speaker 4: sometimes that liquidity pulls back. It's harder to trade, it's
3:23
Speaker 4: more expensive to hedge, and yeah, the VIX goes up,
3:26
Speaker 4: and in those situations that that's when, Yeah, that's when
3:30
Speaker 4: it kind of gets exciting, right in terms of being
3:33
Speaker 4: a volatives reporter. So at the moment, things are kind
3:35
Speaker 4: of quiet and it's a little little dull, but back
3:37
Speaker 4: in April, like things get really exciting.
3:39
Speaker 2: Dull, you also get a lot more clicks. Yeah, it's
3:42
Speaker 2: like the weather channel, you know, you only tune in
3:43
Speaker 2: when there's a hurricane. It's like dead for us too.
3:46
Speaker 3: Okay, So what's going on beneath the surface and where
3:49
Speaker 3: our investors? And these aren't retail investors so much as
3:53
Speaker 3: professional ones where they turned to allocate.
3:55
Speaker 4: I'd say that some of these probably are. There's probably
3:58
Speaker 4: some retail guys involved in because the real professionals will
4:01
Speaker 4: be directly using futures and options and all that kind
4:05
Speaker 4: of stuff. So those investors are generally kind of they
4:10
Speaker 4: spent post a prop kind of worried about this return
4:12
Speaker 4: of fear. And I think now we're in the greed stage,
4:15
Speaker 4: so people are allocating to like upside, that's become the
4:18
Speaker 4: big thing. That's why volatility isn't really here, because everyone's
4:20
Speaker 4: just like getting greedy and being like, okay, but what
4:23
Speaker 4: happens if the SMB goes to seven thousand and eight thousand,
4:25
Speaker 4: what happens next? Kind of thing? And this is why
4:28
Speaker 4: people have been talking about this hated rally because they
4:31
Speaker 4: hadn't really allocated to it, but the rally happened anyway,
4:33
Speaker 4: and a lot of people missed out, so they're like, Okay,
4:35
Speaker 4: let's let's go all in. So that's why you see
4:37
Speaker 4: stuff like lever dcfs where you're kind of doubling up.
4:42
Speaker 4: That those kind of things become popular. And there's also
4:45
Speaker 4: September was the biggest ever month for options in history basically,
4:49
Speaker 4: like that that was and that was a quiet, relatively
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Speaker 4: quiet month from a volatility point of view, but the
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Speaker 4: number of options it was over I think over sixty
4:57
Speaker 4: million options contracts traded in the US market. It's been
5:02
Speaker 4: a really kind of busy time eruptions. But people aren't
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Speaker 4: necessarily that they're hedging, but they're also betting things are
5:08
Speaker 4: going to keep getting better. So there's a bit of
5:10
Speaker 4: a balance between those two forces.
5:12
Speaker 2: And I want to go over the vix ETFs and
5:15
Speaker 2: their flows, which I think is what caught your attention
5:18
Speaker 2: in the past month, Like basically all of them have
5:20
Speaker 2: taken in a good amount of money, They've they've grown
5:22
Speaker 2: their assets by about twenty percent in the past month
5:25
Speaker 2: and year to date, they've grown their assets by fifty percent. Now,
5:28
Speaker 2: a lot of these ETFs are a lot like buying insurance.
5:32
Speaker 2: You're kind of expecting the money to just go away
5:35
Speaker 2: unless the hurricane comes, and so the total assets in
5:39
Speaker 2: these is always deterior's like a melting ice cube. But anyway,
5:42
Speaker 2: two billion and uri date flows for these vixytps, especially
5:45
Speaker 2: after all that's happened, and you know, they went through
5:48
Speaker 2: a lot of bad press over the years. The reason
5:50
Speaker 2: they're the reason they're complicated as a hedge is that
5:54
Speaker 2: they don't track the vix directly. Nothing can at tracks
5:57
Speaker 2: futures and you have to roll those, and the cost
6:00
Speaker 2: to roll can be really high, like up to forty
6:03
Speaker 2: fifty percent a year, sometimes more. And so people buy these,
6:07
Speaker 2: I think as a hedge and then they get out
6:11
Speaker 2: of them if it didn't come. But to me, it's
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Speaker 2: I guess very akin to buying insurance that will pay
6:16
Speaker 2: off big time.
6:18
Speaker 3: And when you think about how to rate stuff like
6:20
Speaker 3: this for the for the movies, right, our traffic.
6:24
Speaker 1: Lights system, yeah, traffic light system.
6:26
Speaker 2: Yeah, these are all red lights hardcore. Anything that rolls
6:29
Speaker 2: futures is a red light, automatically red light. There is well,
6:34
Speaker 2: we were going to have a skull and crossbones, yeah,
6:36
Speaker 2: which would be the equivalent of like an NC seventeen
6:38
Speaker 2: movie ETF style. There was a two X VIX would
6:43
Speaker 2: be one of the very few ETFs that would be
6:45
Speaker 2: double crossbones. And the reason for that is not it's
6:49
Speaker 2: leveraged and it rolls futures. So all of these vixytps,
6:53
Speaker 2: if you look at their like lifetime return, they're all down.
6:55
Speaker 1: Nine nine persaw on a Swiss ball.
6:58
Speaker 2: Yeah, I mean it. The look just rolling futures, whether
7:03
Speaker 2: it's Oil or VIX, is just something not many people
7:06
Speaker 2: are aware of. And in VIX it's the roll costs
7:09
Speaker 2: are so high that you just hate someone to go
7:12
Speaker 2: in thinking that, oh, I'm buying the VIX. You're not,
7:14
Speaker 2: You're buying VIX futures ETFs that roll them. And then
7:17
Speaker 2: on top of that, there was one that was an
7:19
Speaker 2: ETN which automatically gets two points two leverage. TVX was
7:24
Speaker 2: the ultimate highest score in our system. We got seventeen dings.
7:28
Speaker 2: That's the most you can get. Basically anything over five
7:31
Speaker 2: is right it r. So if we got seventeen, I
7:34
Speaker 2: mean it's literally like remember Faces a Death, that movie
7:37
Speaker 2: like from the eighties. I think you couldn't get in the.
7:39
Speaker 1: Video store, no, because I never found it.
7:41
Speaker 2: It's like that TVX was that movie and TVX was
7:45
Speaker 2: rolled futures leverage and an ETN that said it blew up,
7:51
Speaker 2: it went away. A lot of these come and gone now,
7:53
Speaker 2: but they've they're ba they're reincarnating some of these ETFs.
7:57
Speaker 2: So now we do have another two xvix and the
7:59
Speaker 2: whole fan is there. But again it's a very small market.
8:02
Speaker 2: This is for a niche audience, but they still are
8:04
Speaker 2: very active.
8:05
Speaker 4: Well, what's interesting, So to quantify that kind of skull
8:08
Speaker 4: and crossbones, you vixsy todate performance down seventy percent minus seventy.
8:13
Speaker 1: That's where the volatility is.
8:15
Speaker 4: Exactly, but if it could go up hundred to two
8:19
Speaker 4: hundred percent in a week, so it's it's pure. This
8:22
Speaker 4: is kind of pure, pure gambling stuff.
8:24
Speaker 2: Yeah, let me jump in real quick here to just
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Speaker 2: just finish this off, because people need to know this.
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Speaker 2: Why would you buy something that rolls futures and loses
8:34
Speaker 2: seventy eighty percent a year and doesn't do anything. Well,
8:37
Speaker 2: here's why. When the market drops and there's a bad day.
8:40
Speaker 2: So let's look at April second to the fourth, that's
8:43
Speaker 2: when the tariff tantrum was in the most palpable. Palpable
8:48
Speaker 2: market's down ten percent in two days. The negative three
8:53
Speaker 2: XS and P is up thirty percent. Makes sense, right?
8:56
Speaker 2: The VIX just one time, VIX is up fifty percent.
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Speaker 2: The two X VIX is up one hundred and seven
9:02
Speaker 2: percent in two days. So when it works, it works.
9:07
Speaker 2: I call it the jackpot mode, and that's why people
9:11
Speaker 2: keep using them.
9:11
Speaker 3: Suzanne, how do you feel about all of this as
9:14
Speaker 3: a personal finance reporter?
9:15
Speaker 5: Well, my first thought is does the world understand the
9:20
Speaker 5: term role? We're throwing around role? And I know that
9:24
Speaker 5: Bernard defined it really well in his recent peace, But
9:27
Speaker 5: is that a term that we think everyone is familiar with.
9:32
Speaker 1: Let's let's break it down. Yeah.
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Speaker 4: So basically what we're talking about here is the VIX
9:39
Speaker 4: is a projection about what the market thinks is going
9:41
Speaker 4: to happen in one month's time. So you're constantly pushing
9:45
Speaker 4: that out one month. And the way that these ETFs
9:49
Speaker 4: use use futures is that constantly it's like a seesaw,
9:55
Speaker 4: and you have you start with one future on the
9:59
Speaker 4: xpree and as you get nearer, you have to buy
10:01
Speaker 4: one and sell the other to keep that kind of
10:03
Speaker 4: seesaw balanced. And what's really ironic about these products in
10:07
Speaker 4: particular is that they're kind of doing this in kind
10:09
Speaker 4: of a funky small futures market. And futures are not
10:13
Speaker 4: like ETFs. They're not based on like what the actual
10:15
Speaker 4: value of that thing is. It's purely based on the
10:17
Speaker 4: supply and demand from the market for that financial contract.
10:22
Speaker 4: So if you have a ton of money flowing into
10:24
Speaker 4: these products, that makes the cost of doing that stuff
10:27
Speaker 4: more expensive because because the market's like, oh, people want
10:30
Speaker 4: to buy. People are scared, like volatinity is gonna go up,
10:33
Speaker 4: so we're going to make it more expensive to sell them,
10:36
Speaker 4: like that insurance. So the more the more demand there
10:39
Speaker 4: is for insurance, the more expensive that insurance gets. So
10:42
Speaker 4: these roll costs are getting worse and worse and worse
10:45
Speaker 4: the more money that goes into these particular products. Now,
10:48
Speaker 4: I don't think that happens as badly in other in
10:51
Speaker 4: other examples of these these kind of eats. The other
10:53
Speaker 4: one was bitcoin. You remember before the before you had
10:56
Speaker 4: like spot bitcoin ETFs, you had futures eats that were
11:00
Speaker 4: based on the futures market, but again they had very
11:03
Speaker 4: very similar structural problems where you have the fees, but
11:07
Speaker 4: you also have these roll costs and they're not really
11:09
Speaker 4: disclosed very well in the in the paperwork around around
11:12
Speaker 4: the ETFs.
11:13
Speaker 5: It's a big price for popularity.
11:15
Speaker 2: But you know the term role. I would just picture
11:17
Speaker 2: you're buying this future which is due. Let's say what
11:20
Speaker 2: month is now October. It's due in November. Now as
11:24
Speaker 2: October ends in November comes, people don't want to take delivery,
11:28
Speaker 2: whether it's oil or vix, whatever it is, nobody wants
11:31
Speaker 2: because they're just the in it for the investment. They
11:32
Speaker 2: don't want to get delivered anything. So they sell the
11:34
Speaker 2: future rate towards the end of the month and buy
11:37
Speaker 2: the next one, and sometimes they buy two months out. Well,
11:40
Speaker 2: the curve is always shaped where it's pricing a little
11:43
Speaker 2: more because there's more chance of volatility as you go
11:46
Speaker 2: further out, so you pay up every time you go
11:49
Speaker 2: from near month to the next month, unless there's a
11:52
Speaker 2: spike in volve, which then it goes in the opposite direction.
11:55
Speaker 2: And everybody it's like when the guys are selling umbrellas
11:58
Speaker 2: outside of Penn Station when it's raining all of a sudden,
12:01
Speaker 2: everybody wants then it's cheaper going out and you actually
12:04
Speaker 2: get paid to roll. But that's a very rare occasion.
12:07
Speaker 2: And the first thing is called a state of contango,
12:09
Speaker 2: and the second thing is called a state of backwardation.
12:11
Speaker 2: But I don't even want to introduce that.
12:14
Speaker 5: I have written stories in my past life where I've
12:17
Speaker 5: had to try and explain contango and backwardation, and I
12:21
Speaker 5: would like you to know that unwordle the New York
12:23
Speaker 5: Times game Contango. When I tried to use it in
12:26
Speaker 5: the game, it was not accepted.
12:30
Speaker 2: That's why they're all rated R instantly, because I mean,
12:33
Speaker 2: who even knows what that means. It's backwardation sounds like
12:36
Speaker 2: you know what after you taco bell.
12:40
Speaker 4: A contango is like it's a dance thing, but you
12:45
Speaker 4: it's a contango. It's not a real tango.
12:47
Speaker 1: Oh I love it.
12:48
Speaker 2: So yeah. These are the terms that when you learn
12:51
Speaker 2: it it makes total sense and you but it takes
12:54
Speaker 2: a while. It'd be like sometimes when my auto mechanic
12:57
Speaker 2: explains stuff to me, I'm like, dude, fine, just spend
13:00
Speaker 2: the eight hundred bucks. This is what that sounds like.
13:04
Speaker 3: Sen Real people are still trying to forget to talk
13:06
Speaker 3: about reference. I know, so Suzanne come into this as
13:10
Speaker 3: the personal finance brain.
13:11
Speaker 5: Well, you know, I'm a big believer in personal finance
13:15
Speaker 5: of keeping it simple and so this kind of product
13:19
Speaker 5: I'm sure makes sense for a lot of people, but
13:21
Speaker 5: I just sort of feel like to be like the boring,
13:25
Speaker 5: sensible person. You know, there are a lot of actions
13:29
Speaker 5: you can take on your portfolio before you need to
13:31
Speaker 5: get involved in something like this that is very expensive,
13:34
Speaker 5: really hard to understand. Obviously appealing right now because people
13:38
Speaker 5: are leery of getting into equities, you know, but they still,
13:42
Speaker 5: you know, want to have some participation. And this is
13:44
Speaker 5: the word. The ability to sort of hedge your portfolio
13:48
Speaker 5: is a great way an advisor or broker or something
13:51
Speaker 5: can like hook you in to a product. But I
13:55
Speaker 5: just feel that there are a lot of basic things
13:57
Speaker 5: people can do, like boring old rebalancing, you know, maybe
14:01
Speaker 5: dollar cost averaging out of like mag seven and adding
14:04
Speaker 5: a little international and value to your portfolio, keeping a
14:07
Speaker 5: cast cushion so you don't have to sell into a downturn.
14:10
Speaker 5: I mean, I'm sure everyone's like fog asleep by now.
14:21
Speaker 3: Eric jesus Ann's point where we've been talking about our
14:24
Speaker 3: maybe NC seventeen stuff. What are some more PG options?
14:28
Speaker 2: Most people would use treasury bonds or a little bit
14:31
Speaker 2: of cash. I think money market funds are great because
14:33
Speaker 2: they're just not going to move, but some people do
14:36
Speaker 2: want things that will go up when the stocks go down,
14:38
Speaker 2: and long dated treasuries are usually pretty good. They went
14:40
Speaker 2: up thirty seven percent in two thousand and eight, but
14:43
Speaker 2: in twenty twenty two they went down with stocks, so
14:48
Speaker 2: they're they're probably the best organic hedge that's like PG.
14:54
Speaker 2: Gold is interesting, but that's zero correlated. Sometimes gold will
14:57
Speaker 2: go up with stocks like it is now. That's the
14:59
Speaker 2: thing about gold. People are buying it as a way
15:01
Speaker 2: to maybe hedge stocks and the basement as stocks keep
15:05
Speaker 2: going up. But if it's interesting that it's working as
15:09
Speaker 2: a high beta play right now because it's going up
15:11
Speaker 2: with stocks. But gold can sometimes go down with stocks.
15:15
Speaker 2: It's not totally reliable. It's more like a rebel. It
15:18
Speaker 2: just does whatever the hell it wants, which is kind
15:20
Speaker 2: of cool for a portfolio because you get diversified. And
15:21
Speaker 2: bitcoin is probably in between stocks and gold. It's definitely
15:26
Speaker 2: more risky, but it's come down a little some days
15:28
Speaker 2: it'll go up when stocks are down. So I just
15:30
Speaker 2: think that's why people are out there examining all this stuff,
15:34
Speaker 2: because they do want to have diversification, which I do
15:37
Speaker 2: believe is the only free lunch. That said, I think
15:40
Speaker 2: where the chainsaws and the NC seventeen stuff can come
15:43
Speaker 2: in handy is if you have a feeling that in
15:46
Speaker 2: the next week something real big is going to happen,
15:50
Speaker 2: then you would just put a little bit of Vicks
15:52
Speaker 2: in your portfolio. And you only need a little because
15:55
Speaker 2: it will go up like five eight times the market
15:57
Speaker 2: going down and hedge everything, but you got to sell
16:01
Speaker 2: it after the time comes up, whether that thing happened
16:03
Speaker 2: or it didn't. My dad had this fame experience famously.
16:07
Speaker 1: He thought did a whole episode about this.
16:09
Speaker 2: He thought Hillary Clinton was going to win in twenty sixteen,
16:12
Speaker 2: and he thought the market was going to go tank,
16:14
Speaker 2: and he goes, how can I play this. I'm sure
16:16
Speaker 2: of it. My dad's like a huge college football gambler.
16:21
Speaker 2: So I said, okay, well, look, if you believe this,
16:24
Speaker 2: it's going to put in t vix. TVIX will pay
16:27
Speaker 2: off big if you're right. Trump won and the market
16:30
Speaker 2: went up, and he forgot to sell it. So all
16:33
Speaker 2: three things went wrong, and then he called me every
16:35
Speaker 2: like six months and said, what is this thing that
16:37
Speaker 2: like loses fifty percent every month? And I'm like, I
16:40
Speaker 2: told you to sell it. So, if you're the kind
16:42
Speaker 2: of person here doesn't pay attention to your portfolio, don't
16:47
Speaker 2: use any of those things. Just use the PG. But
16:49
Speaker 2: if you are a trader, they again that jackpot mode
16:53
Speaker 2: will go really far in hedging your portfolio, and that's
16:56
Speaker 2: why the pros do like to use it.
16:58
Speaker 3: All right, So the thing that we haven't talked about
17:00
Speaker 3: yet buffers. What's the state of play on buffers?
17:04
Speaker 1: What's their rating? Where inflows look like?
17:07
Speaker 2: Yeah, so these would be PG PG thirteen. We debate
17:12
Speaker 2: that on the team a lot, but let's just say
17:13
Speaker 2: they're PG thirteen because they use derivatives and they're a
17:15
Speaker 2: little complicated and you have.
17:17
Speaker 1: To do they do.
17:18
Speaker 2: They basically use options to target an outcome. So like
17:23
Speaker 2: if you have to buy in on when the buffer
17:25
Speaker 2: comes out, so the ETF comes out October first, you
17:27
Speaker 2: buy it on October first, and it basically says something
17:29
Speaker 2: like this, if the market goes down five percent, that's
17:32
Speaker 2: on you. If it goes down further, the buffer will
17:36
Speaker 2: cover it. Other times it'll say we'll take the first
17:39
Speaker 2: five percent, you eat everything after. And in order to
17:43
Speaker 2: arrange these downsides, you have to give up some upside.
17:46
Speaker 2: So the more downside protection you get, the more upside
17:49
Speaker 2: you give up. And a lot of older investors, that's
17:51
Speaker 2: what we call these boomer candy. They love this stuff
17:54
Speaker 2: because they're willing to give up some of that upside
17:56
Speaker 2: to sleep at night with the downside these would be.
18:00
Speaker 2: These are popular because they guaranteed, as I just said,
18:02
Speaker 2: even treasuries don't guarantee a hedge. These lock it in.
18:07
Speaker 2: The problem is they do they're pricey. You know, a
18:09
Speaker 2: lot of them are not over ninety basis points. You
18:11
Speaker 2: don't get the dividend as part of the buffer, so
18:14
Speaker 2: you do give up some things. But I think peace
18:16
Speaker 2: of mind is something people are really willing to pay
18:18
Speaker 2: up for, and that's why they're a huge hit.
18:21
Speaker 5: And I think that should be marketed as boomer candy
18:24
Speaker 5: because I think that's kind of brilliant.
18:26
Speaker 2: It has stuck. I introduced this. I I'd say one
18:29
Speaker 2: of every ten phrases I try out actually works, and
18:32
Speaker 2: that was one of them. JP Morgan. I think even
18:34
Speaker 2: made T shirts with it for one conference. Yeah, and
18:37
Speaker 2: then todd Son made me a boomer candy m and
18:40
Speaker 2: ms where he brought a jar of M and ms
18:41
Speaker 2: he put like dividend income premium income buffer and so
18:45
Speaker 2: he made literal boomer candy. It's a whole thing.
18:47
Speaker 4: Yeah, Yeah, you had them on the show.
18:49
Speaker 2: I know, we don't hang out as much as we
18:50
Speaker 2: used to for her all the time, and she would
18:54
Speaker 2: you'd get a kick out of all he wrote. She
18:58
Speaker 2: was the editor of the radio how to invest based
19:00
Speaker 2: on radiohead lyrics.
19:02
Speaker 3: Yes, that was awesome, true, Bernard, are you seeing buffers
19:07
Speaker 3: show up in any of your data yet or is
19:09
Speaker 3: it more like the vix is so different and odd
19:16
Speaker 3: that people are like, that's the thing that so just
19:18
Speaker 3: like real boom boomer can.
19:20
Speaker 1: Just so it's like boomer crack.
19:21
Speaker 4: Because I know you we talked a lot about like
19:24
Speaker 4: can I just get really nerdy abountions for a second.
19:26
Speaker 4: What's fascinating about these buffers is they've started to kind
19:29
Speaker 4: of show up in the big options market. So you
19:31
Speaker 4: get a ton of like people who are trading options
19:34
Speaker 4: talking about.
19:35
Speaker 2: The JP Morgan roll.
19:36
Speaker 4: Is this really exciting? Event where because this these things
19:40
Speaker 4: kind of target what's going to happen in the market
19:42
Speaker 4: in three months time, and what ends up happening is
19:44
Speaker 4: the market kind of like looks at this as a
19:46
Speaker 4: bit of a target kind of what's going to happen,
19:49
Speaker 4: and they and they and they kind of all the
19:51
Speaker 4: all the Wall Street banks and market makers are kind
19:53
Speaker 4: of positioning around these these flows. The other thing is
19:56
Speaker 4: that there's a there's kind of a sense of like
19:59
Speaker 4: there's that these guys might be getting the BUFFERYTF providers
20:05
Speaker 4: because they've told the world when they're going to trade.
20:07
Speaker 4: There's a bit of a bit of an adverse selection
20:10
Speaker 4: issue because if you've told everyone on this particular date,
20:13
Speaker 4: we're going to do this massive, multi billion, multimillion dollar trade.
20:17
Speaker 4: I think it was like twenty million net premium for
20:19
Speaker 4: the last one they did, but there was hundreds of
20:22
Speaker 4: millions of dollars of options premiums and different directions, and
20:25
Speaker 4: this is like a huge, huge thing for the rest
20:28
Speaker 4: of Wall Street. Unfortunately, JP Morgan's investment bank doesn't get
20:31
Speaker 4: to cash in on it because they don't trade themselves, right,
20:34
Speaker 4: But all the other banks, it's like it's a massive,
20:36
Speaker 4: massive deal these buffers like rolling over and all that
20:38
Speaker 4: kind of stuff like it it's hard to Yeah, yeah,
20:41
Speaker 4: it is like a really kind of important thing for
20:43
Speaker 4: the rest of the market. So that popularity in the
20:44
Speaker 4: buffertf space is actually caused like kind of has a.
20:48
Speaker 2: Direct effect on Wall Street.
20:50
Speaker 4: It's given its scale.
20:52
Speaker 3: What are the buffer tickers that are the ones that
20:56
Speaker 3: people are most interacting with.
21:00
Speaker 2: The biggest then, first ever is bolt b a LT
21:04
Speaker 2: one point eight billion. It might not be the biggest,
21:07
Speaker 2: but it was the first. And you know what the
21:09
Speaker 2: tickers for bond alternative, which is interesting because, as I
21:13
Speaker 2: said earlier, in twenty twenty two, stocks and bonds went
21:17
Speaker 2: down together and this freaked the boomers out because they
21:20
Speaker 2: were told the bonds would cover the stocks and they
21:22
Speaker 2: all went down and it was like whoa. So they
21:25
Speaker 2: cracked their pants. And that's when buffer's got huge, because
21:28
Speaker 2: they come in they say, your bond. You know, as
21:31
Speaker 2: we say in the team, the bonds don't work. And
21:34
Speaker 2: so that's why these are mostly alternatives for bonds, although
21:38
Speaker 2: the bonds will you know, come back and say, well,
21:41
Speaker 2: since then they've gone up. The reason the bonds and
21:43
Speaker 2: the stocks are a weird thing now is because if
21:46
Speaker 2: the fed's lowering rates, that tends to be good for
21:49
Speaker 2: both stocks and bonds, right, we all know this, So
21:51
Speaker 2: when they raise rates, it's bad for both stocks and bonds.
21:55
Speaker 2: And so that's why the FED kind of like warped
21:58
Speaker 2: what would normally happen and bond safe haven stocks risk.
22:03
Speaker 2: So the FED and their influence on the market actually
22:06
Speaker 2: changed the dynamics. So buffer ETFs are pretty well timed.
22:10
Speaker 2: And the guy who invented them is a smart guy
22:14
Speaker 2: who created power shares and he really helped put smart
22:16
Speaker 2: beta on the map, Bruce Bond. And it's interesting. And
22:21
Speaker 2: now all the issuers have them, including black Rock and
22:24
Speaker 2: Fidelity and JP Morgan. So you have all these big
22:26
Speaker 2: issues now riding the buffer train. And because the demand
22:30
Speaker 2: is there and most of the money in America is
22:33
Speaker 2: held by the boomers. If you look at the who
22:36
Speaker 2: owns the stock market, seventy percent of it is owned
22:38
Speaker 2: by people over the age of like sixty five, and
22:41
Speaker 2: so servicing them with things that help them sleep at
22:44
Speaker 2: night is why we have this other theme about how
22:47
Speaker 2: ETFs are almost in the role of the pharmaceutical companies.
22:51
Speaker 2: This is a drug to help you cure your anxiety
22:55
Speaker 2: and sleep at night.
22:56
Speaker 5: How expensive is this drug? And can I find a
22:58
Speaker 5: cheaper generic version of this?
23:01
Speaker 2: There are a lot of competitors, So like Blackrock came
23:03
Speaker 2: in with HIDJ and I was about half the cost
23:06
Speaker 2: of First Trust and Innovator, which are the two big brands.
23:10
Speaker 2: And we looked HIDJ did a good job. It launched
23:12
Speaker 2: ight before a downturn, and it covered. It did not
23:14
Speaker 2: go down with the stocks. So I think ultimately that
23:17
Speaker 2: guarantee that comes with the options activity is very powerful.
23:22
Speaker 2: I would just say this though, I wouldn't drop everything
23:25
Speaker 2: and buy buffers. I would maybe, you know, experiment with
23:30
Speaker 2: a little bit. I just really a believer of a
23:32
Speaker 2: well balanced portfolio. I think Buffet Bogel, all the heavyweights
23:38
Speaker 2: would advise the same.
23:41
Speaker 3: Which is ninety percent equity, ten percent the buffet model.
23:45
Speaker 2: Well, the buffet portfolio is ninety percent SMP five hundred
23:50
Speaker 2: and ten percent short term treasuries like a money market fund.
23:53
Speaker 2: That's what he is going to put his whole trust
23:56
Speaker 2: into when he passes away. And that's a pretty good portfolio, honestly.
24:01
Speaker 2: But that little bit of good for a sixty year old,
24:04
Speaker 2: that's the thing. And you know, the boomers made so
24:08
Speaker 2: much money. That's what the crypto people are like. They
24:11
Speaker 2: when you bring up Buffet with crypto people, they're like, oh,
24:14
Speaker 2: try finding a Warren buffet in Nigeria or Argentina. There
24:19
Speaker 2: are none.
24:19
Speaker 1: Look.
24:19
Speaker 2: In other words, Buffett only exists because the US stock
24:22
Speaker 2: market is so badass. He just happens. They have been
24:25
Speaker 2: ride that whole, like fifty year bull market. There's a
24:28
Speaker 2: point there. But Buffett still is smart guy. And I
24:32
Speaker 2: would just say that I would take heed to what
24:34
Speaker 2: he says for sure, but I don't know. I think
24:37
Speaker 2: a little gold if you like it is pretty good
24:40
Speaker 2: little treasuries. If you want to try a little buffer out,
24:43
Speaker 2: go ahead gold.
24:44
Speaker 5: You can get a cheaper version of that too. You've
24:46
Speaker 5: got GLD, which all the treats is right, but can't
24:48
Speaker 5: get the gold the mini the.
24:50
Speaker 2: G oh yeah, they got mini me's all over the
24:52
Speaker 2: place in the gold area. G L with the Hell's
24:55
Speaker 2: DM GLDM is way cheaper. So shop around is probably
25:00
Speaker 2: the more expensive gold ETFs. But yeah, this idea of
25:04
Speaker 2: how to protect your portfolio is big, and that's why,
25:08
Speaker 2: as you said, the options market is very popular. It's
25:10
Speaker 2: not all people losing their mind. A lot of times
25:12
Speaker 2: you just buy a put option for a little while. Yeah,
25:16
Speaker 2: and that's a sleep at night drug if you will
25:19
Speaker 2: as well.
25:20
Speaker 4: Yeah, Or you could sell calls as well. You could
25:22
Speaker 4: do coal overwriting, and there's a bunch of funds that
25:24
Speaker 4: do that. But basically, you can earn premium on your
25:26
Speaker 4: if you if you own a big stock, you can
25:28
Speaker 4: you can say, right, I'm prepared to above, I don't
25:31
Speaker 4: mind selling this if it goes up twenty percent, like
25:33
Speaker 4: I'm happy with that. And if it goes up twenty
25:35
Speaker 4: five percent, you sell it. But you've earned a premium
25:37
Speaker 4: from that activity. And that kind of that's how a
25:40
Speaker 4: lot of these a lot of these buffers and other
25:43
Speaker 4: ones kind of there's a whole.
25:44
Speaker 2: Well, now you're getting into premium income, which is JEPPI,
25:47
Speaker 2: which all it does is what he just said. It
25:49
Speaker 2: sells call options a little bit out of the money.
25:53
Speaker 2: So if the stock goes up, you get a little
25:54
Speaker 2: bit of it. But at some point the call option
25:57
Speaker 2: gets hit in the money and people want to exercise it.
26:01
Speaker 2: At that point you lose your upside. But the whole
26:03
Speaker 2: time you're getting income from the option, from the premium,
26:06
Speaker 2: which gives you an income of nine ten percent depending
26:08
Speaker 2: on the index. That also is boomer candy. But the
26:12
Speaker 2: buffers are even more powerful because they lock it in.
26:16
Speaker 2: It's like locked in because of the options. The guarantee
26:19
Speaker 2: is what is so powerful. And guess who just launched
26:21
Speaker 2: buffers ARC Wow, and yours truly influenced. Their name Isabelle
26:27
Speaker 2: called me, or was Emily, I can't remember, and they
26:30
Speaker 2: said what do you think of these? And I said,
26:31
Speaker 2: this is like diet arc and so they call them
26:35
Speaker 2: diet ARC. This ran with it, Joel, how do you
26:38
Speaker 2: like that?
26:38
Speaker 1: I mean, I knew you were an influencer, but I
26:40
Speaker 1: didn't know like that.
26:42
Speaker 2: But the arcs are a little different in that you
26:44
Speaker 2: get only fifty percent of the downside, but on the
26:47
Speaker 2: upside you get like fifty to eighty percent. So they
26:50
Speaker 2: designed them differently. Pointing if you're going to even play
26:53
Speaker 2: with buffery TIFs, I would almost consultant advisor or really
26:56
Speaker 2: make sure you read up on what exactly they're doing
26:59
Speaker 2: and by them on the day they come out. That
27:01
Speaker 2: way you get the whole thing, because if as time
27:03
Speaker 2: goes on, the numbers change on what's buffer because the market's.
27:07
Speaker 6: Moved, She's closing thought, I don't know, Eric's making me
27:17
Speaker 6: think I should go buy a buffer ETF and which
27:20
Speaker 6: is very sort of anti me because.
27:23
Speaker 1: I very much balanced financial advice.
27:27
Speaker 3: I think, yeah, and anything else that where we we
27:31
Speaker 3: missed that.
27:31
Speaker 1: Yeah, I'm you're part of the options.
27:33
Speaker 4: To bring up Jack Bogel because what I think is
27:35
Speaker 4: fun about the fixed ETF stuff is it's the most
27:38
Speaker 4: anti Bogel thing I think you could possibly ever do this,
27:41
Speaker 4: which is.
27:42
Speaker 3: Trying nutshell trying to talk about Bogel and the other side.
27:45
Speaker 4: This is the antithesis. This is like the Yeah, it's
27:47
Speaker 4: the the anti rolling over in his grave. Is just basically,
27:50
Speaker 4: try and time the market. You are you you you are,
27:53
Speaker 4: you are a genius and you can time the market.
27:55
Speaker 4: And if you buy one of these things, it doesn't
27:57
Speaker 4: matter that it's going to cost you loads of money,
27:59
Speaker 4: because you are going to make loads loads more money
28:01
Speaker 4: because of your because of your crystal ball that you're holding.
28:05
Speaker 4: And this is you know, this is this is what
28:06
Speaker 4: good financial advice is. It's this idea that you can
28:09
Speaker 4: you are smarter than everyone else in Wall Street, and
28:12
Speaker 4: Wall Street doesn't have tons of PhDs and rocket scientists
28:14
Speaker 4: who who built a system specifically to take your money.
28:19
Speaker 4: I remember I was chanting to a guy, a very
28:21
Speaker 4: large market maker in a senior role, and he said
28:23
Speaker 4: I was in an uber go to the airport, and
28:25
Speaker 4: the driver was explaining, I've had this conversation with with
28:28
Speaker 4: drivers as well. You know, I'm training these options and
28:30
Speaker 4: I'm doing so well, like and this guy's job is
28:33
Speaker 4: to take that options flow and basically buys it from
28:36
Speaker 4: the retail brokers and trades it. And he's just like, yeah,
28:39
Speaker 4: this is a bad idea.
28:42
Speaker 2: Well, I mean to be to be also with Bogle,
28:44
Speaker 2: what he would probably say is don't buy anything, just
28:46
Speaker 2: buy the S and P and use patience as your diversifier.
28:50
Speaker 2: But and he said, you don't need you don't even
28:53
Speaker 2: need international. But that takes a lot of intestinal fortitude
28:57
Speaker 2: to survive what seems like a ski couple weeks or
29:01
Speaker 2: a year. But that's what Bogol would recommend if you're younger.
29:05
Speaker 2: That's why I think low cost index funds are a
29:08
Speaker 2: godsend because a lot of people they buy them and
29:10
Speaker 2: they know they got the best deal and so they
29:12
Speaker 2: can survive the downturns easier, going Yeah, what am I
29:14
Speaker 2: gonna do try to trade around this. I'll just hold it.
29:16
Speaker 2: US stocks usually go up, and that's why the flows
29:19
Speaker 2: are so sticky. So patience is also a hedge and away, Joel,
29:24
Speaker 2: that's why. Yeah, I said, they've got to teach like
29:26
Speaker 2: meditation and Buddhism in the business schools or something, because
29:30
Speaker 2: just not trading. By the way, I pitched the show
29:32
Speaker 2: for Bloomberg TV called it was It was, It was.
29:36
Speaker 3: It was.
29:37
Speaker 2: You know, Seinfeld's a show about nothing. This is a
29:39
Speaker 2: show about doing nothing, and there's gonna have people come
29:41
Speaker 2: on and just talk about why they didn't trade that day.
29:44
Speaker 2: Hobbies they got.
29:46
Speaker 1: That because that's still waiting for a callback, aren't.
29:48
Speaker 2: Yeah, No, it didn't. Way too boring.
29:52
Speaker 3: I like how we started with vix and we ended
29:54
Speaker 3: up with patients, Like we've gone every possible place.
29:57
Speaker 1: So Bernard Suzanne, thanks for joining us on Trillions.
30:00
Speaker 3: Thanks you for having us, Thanks thanks for listening to
30:13
Speaker 3: Trillions until next time. You can find us on the
30:16
Speaker 3: Bloomberg terminal, Bloomberg dot com, Apple Podcasts, Spotify, or wherever
30:21
Speaker 3: else you'd.
30:21
Speaker 1: Like to listen. We'd love to hear from you.
30:23
Speaker 3: Hit us up on social I'm at Joel Weber Show,
30:25
Speaker 3: He's at Eric Balchina's Trillions is produced by Magnus Hendrickson.
30:29
Speaker 1: Sage Bauman is the head of Bloomberg Podcast