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Markets, Ukraine, And Crypto (Podcast) · 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. Katarina Simonetti, Senior vice
• 0:22
  Speaker 1: president Private wealth adviser at Morgan Stanley, joins us. Katarina,
• 0:27
  Speaker 1: on a day like today, give me an example of
• 0:29
  Speaker 1: one of the incoming phone calls you've received from your
• 0:32
  Speaker 1: clients today. Well, thank you for having me on the show.
• 0:36
  Speaker 1: You know, it certainly has been, you know, a difficult
• 0:39
  Speaker 1: year for investors, and you know specifically this day, and
• 0:43
  Speaker 1: you know, the type of phone calls we would receive
• 0:45
  Speaker 1: on the day like today would be focused on the
• 0:48
  Speaker 1: fact that investors are getting uncomfortable um with the stocks
• 0:53
  Speaker 1: and bonds that they own, and they might understand that
• 0:57
  Speaker 1: the quality of their portfolio is really high and there
• 0:59
  Speaker 1: really welcal asitions, but we are all human beings and
• 1:02
  Speaker 1: it's very hard to manage through the sphere, and we
• 1:07
  Speaker 1: tell our our clients all the time, over and over
• 1:10
  Speaker 1: and over again to focus on the long term. But
• 1:12
  Speaker 1: you see returns on the day like today and you
• 1:15
  Speaker 1: know what we're so during the previous week and in combination,
• 1:19
  Speaker 1: is getting progressively difficult for them to focus on that
• 1:23
  Speaker 1: long term, to have that big picture you know, in
• 1:25
  Speaker 1: mind and in our review. The only thing that we
• 1:28
  Speaker 1: can do at the moment is go back to basis,
• 1:31
  Speaker 1: go back to all the work that was done through
• 1:34
  Speaker 1: the portfolio construction on making sure that the portfolio quality
• 1:39
  Speaker 1: is really high on the income generation, to in quality
• 1:43
  Speaker 1: of the portfolio only asset allocation between stocks and bonds,
• 1:47
  Speaker 1: and also internationally because surprisingly many when we look at
• 1:51
  Speaker 1: the returns and the European markets in general, um, you
• 1:55
  Speaker 1: know they're not you know, quite quite as bad as
• 1:57
  Speaker 1: good which seemed here in the US, making our case
• 1:59
  Speaker 1: for at allocation, but investors are concerned in the scary time. Sorry,
• 2:08
  Speaker 1: I feel like we haven't seen Katerina true capitulation. And
• 2:12
  Speaker 1: I don't know if that's necessary, but it seems to
• 2:15
  Speaker 1: be something that a lot of people want. Right now.
• 2:17
  Speaker 1: The VIX is at thirty three, but it's taken so
• 2:20
  Speaker 1: long for to get there. This sell off seems fairly orderly.
• 2:23
  Speaker 1: What what what do you think we need to see? Well,
• 2:27
  Speaker 1: bottoms are hard to printict to begin with, and the
• 2:31
  Speaker 1: market is getting to the the the range that we
• 2:37
  Speaker 1: quite frankly have expected. You know, we thought that on
• 2:40
  Speaker 1: the lower side we could see anywhere from uh thirty
• 2:43
  Speaker 1: four hundred to thirty eight hundred. We're at thirty seven
• 2:47
  Speaker 1: seventy nine at the moment. And it's not used to
• 2:51
  Speaker 1: anyone that we are in the bare market and you know,
• 2:54
  Speaker 1: the rallies that we have been seeing. The one of
• 2:57
  Speaker 1: the big things to keep in mind is that, you know,
• 3:00
  Speaker 1: the bear market rallies, which is totally normal during the
• 3:02
  Speaker 1: bear markets, and we have to um analyze the data
• 3:08
  Speaker 1: that is coming in and you know see really the
• 3:11
  Speaker 1: the path out of this bear market, which we quite
• 3:14
  Speaker 1: frankly think is not going to last too long. We
• 3:16
  Speaker 1: think that with all of the earnings revisions to the negative,
• 3:20
  Speaker 1: eventually as we get through the force and force and
• 3:23
  Speaker 1: a third and forced quarter of earning reports, we're going
• 3:27
  Speaker 1: to get some positive news and maybe get get this
• 3:31
  Speaker 1: catalyst that we need to get for the third and
• 3:33
  Speaker 1: fourth quarter. You think we need to get through the
• 3:35
  Speaker 1: second half of the year. That's what we think. Yes,
• 3:38
  Speaker 1: we think that that we're here. But but but at
• 3:43
  Speaker 1: the same time, you know, here's a little bit of
• 3:45
  Speaker 1: a positivity means as difficult asitors to you know, focus
• 3:48
  Speaker 1: on it. Right now, our up range for the year
• 3:51
  Speaker 1: is forty two hundred to three hundred because as the inflation,
• 3:57
  Speaker 1: you know, get get somewhat out of control and as
• 4:00
  Speaker 1: tu more confidence in pools a little bit and we
• 4:02
  Speaker 1: start seeing the end of this earnings revision cycles and
• 4:06
  Speaker 1: companies get into in position where the earnings are normal.
• 4:11
  Speaker 1: We're looking for that general market normalization. You know that
• 4:15
  Speaker 1: that is you know, difficult to achieve. We just have
• 4:17
  Speaker 1: been through this COVID environment. There's UM, a war in um,
• 4:23
  Speaker 1: you know in Ukraine. That as the geo political risk.
• 4:26
  Speaker 1: But the biggest thing is that consumer confidence is at
• 4:28
  Speaker 1: the all time low. I mean, we have not seen
• 4:32
  Speaker 1: the numbers at the quite frankly at the levels that
• 4:35
  Speaker 1: they are today. And the big part of it is
• 4:37
  Speaker 1: the price of blowing gases. Inflation is you know, just
• 4:40
  Speaker 1: just the day to day. But at the same time,
• 4:43
  Speaker 1: in our view, market cycles are getting hotter but shorter,
• 4:47
  Speaker 1: and we even though the but we totally appreciate the
• 4:50
  Speaker 1: possibility of the recession, thinks that it's not you deal
• 4:55
  Speaker 1: that you know, it might be on the horizon, but
• 4:57
  Speaker 1: it also is not something that is a sure thing,
• 5:01
  Speaker 1: all right in terms of kind of getting a sense
• 5:03
  Speaker 1: of are we seeing capitulation. I have an SMP that's
• 5:05
  Speaker 1: off three point three percent this morning. I look at
• 5:08
  Speaker 1: the w e I function on the Bloomberg terminal and
• 5:11
  Speaker 1: I see the volume so far this morning is thirty
• 5:13
  Speaker 1: three above the thirty day average so far today. So
• 5:17
  Speaker 1: that's a little bit of something to pay attention to. Katerina,
• 5:20
  Speaker 1: when when you talk to clients and they say, I
• 5:22
  Speaker 1: think this is the bomb. I want to buy some stuff,
• 5:25
  Speaker 1: you want to put some money to work. Are there
• 5:26
  Speaker 1: any sectors today that you feel comfortable with? Absolutely? They
• 5:32
  Speaker 1: are all these sectors that would do better than others,
• 5:34
  Speaker 1: you know, in this type of environment. In all of
• 5:37
  Speaker 1: you the data point the re focus on is inflation
• 5:40
  Speaker 1: and that it might be peaking. Actually so so the
• 5:44
  Speaker 1: sectors that dwell in this environment are utilities, healthcare, real estate,
• 5:50
  Speaker 1: UH and consumer stables. And consumer stables is the you know,
• 5:54
  Speaker 1: it's a little tricky because there is a price pressure
• 5:57
  Speaker 1: there you know, but but we think that this is
• 5:59
  Speaker 1: the after that that those Hubert defensive sectors, you know,
• 6:03
  Speaker 1: that are positions well in this environment. But you know,
• 6:06
  Speaker 1: speaking about inflation, even though we think that inflation might
• 6:09
  Speaker 1: be declining, um, we think it's seemed to be higher
• 6:12
  Speaker 1: than just stored at a level. So we always view
• 6:15
  Speaker 1: portfolio through the prism of income. All right, Katerina, great,
• 6:18
  Speaker 1: great stuff. As always, always appreciate getting your perspective. Katerina Semonetti,
• 6:23
  Speaker 1: Senior vice president, a private wealth advisor at Morgan Stanley
• 6:28
  Speaker 1: talking to her clients today, holding some hands today snp
• 6:31
  Speaker 1: off three point. Let's get to our next guest, Matt,
• 6:39
  Speaker 1: because I don't know what this guy does. Chris Campbell.
• 6:41
  Speaker 1: He's a chief strategist for Kroll. I know Kroll as
• 6:44
  Speaker 1: like the security people, right, yes, okay, but before joining Kroll,
• 6:48
  Speaker 1: he actually had a real job. He was a former
• 6:50
  Speaker 1: assistant secretary from the U. S. Department of Treasury. Chris,
• 6:54
  Speaker 1: what does a assistant secretary for the U S? N correct? Like,
• 7:00
  Speaker 1: what did you do for like day to day? What
• 7:03
  Speaker 1: did you do? Yes, it was it was a very
• 7:05
  Speaker 1: busy time seventeen and eighteen. We uh, you know, we
• 7:08
  Speaker 1: had reregulation of Dodd frank And and Starman's Oxley and
• 7:11
  Speaker 1: tax performers underway, and so many other things, cyper security
• 7:15
  Speaker 1: and uh, you know, it's a great variety of things.
• 7:18
  Speaker 1: There's no question it was. It was very difficult time,
• 7:21
  Speaker 1: amazing time, but also I you know, as I like
• 7:24
  Speaker 1: to point out, there was good economic time as well.
• 7:27
  Speaker 1: The country was doing pretty well at that time. What
• 7:28
  Speaker 1: I was gonna say, it wasn't that difficult about how
• 7:31
  Speaker 1: about being the assistant treasure secretary. Now, you know, I
• 7:35
  Speaker 1: have got a lot of respect for my friends at
• 7:36
  Speaker 1: Treasury and I wished them a lot very well. So
• 7:40
  Speaker 1: you also interacted with FED chair J. Pal Um during
• 7:43
  Speaker 1: that time through you know, various type types of meaning
• 7:48
  Speaker 1: what do you expect to hear from our Federal Reserve
• 7:50
  Speaker 1: chairman this week? I mean it is it's ugly out there.
• 7:53
  Speaker 1: As it relates to inflation, yeah, there's no question. Like
• 7:56
  Speaker 1: I you know, I've been saying for a long time
• 7:58
  Speaker 1: the inflation was unfortunate, not gonna be transitory, and unfortunately
• 8:01
  Speaker 1: I was right. Um. You know, I have great respect
• 8:04
  Speaker 1: for cham pale Um, and I mean you guys basically
• 8:07
  Speaker 1: put him in there right we did was through February.
• 8:12
  Speaker 1: So yeah, he came in and under the Trump administration, uh,
• 8:16
  Speaker 1: you know, and was renominated by President Biden. Um, look
• 8:19
  Speaker 1: at it's and confirmed. You know it's it's a It's
• 8:21
  Speaker 1: a very difficult job. There's no question about it. Uh.
• 8:23
  Speaker 1: Chairman Powell is a consensus chairman, always has been. I
• 8:27
  Speaker 1: think one thing I always say it's great about him
• 8:29
  Speaker 1: as he's able to talk about the economy in ways
• 8:31
  Speaker 1: that it's really approachable and kind of democratizes the way,
• 8:34
  Speaker 1: you know, otherwise very very unapproachable topics. But he has
• 8:39
  Speaker 1: an incredibly difficult job, and I believe unfortunately he's this
• 8:42
  Speaker 1: move too slow. Um. So I think that uh, he's
• 8:45
  Speaker 1: now faced with an impossible set of of of challenges
• 8:49
  Speaker 1: and um, he's either gonna have to choose to precimpitly
• 8:52
  Speaker 1: raise rates or and drive the economy in the in
• 8:55
  Speaker 1: the tank, or live with inflation and the and the
• 8:58
  Speaker 1: really difficult things that are going to happen with that. Now.
• 9:01
  Speaker 1: I just wondered, like, how does a failed to reserve
• 9:04
  Speaker 1: board some smart people there, led by j Pal, how
• 9:08
  Speaker 1: do they fall behind the curve? They do their best
• 9:12
  Speaker 1: on economic forecasting. Um, you know I can Sherman Pal's
• 9:16
  Speaker 1: uh approach to the FED is he's he's most he's
• 9:19
  Speaker 1: really a consensus builder, and he's a consensus guy. He's
• 9:22
  Speaker 1: very even keel um and uh, you know that approach
• 9:26
  Speaker 1: would in almost every other circumstance would work. But this unfortunate.
• 9:30
  Speaker 1: Right now, this is a word a time where I
• 9:31
  Speaker 1: think inflation is just you know, it got away from them.
• 9:34
  Speaker 1: They forecasted inappropriately, unfortunately, and now there's a real challenge
• 9:39
  Speaker 1: ahead and they're gonna have to find ways of either
• 9:41
  Speaker 1: shocking the system by raising rates precipitously, um, because there's
• 9:45
  Speaker 1: so much outside of their control, supply chains, um, you know, Russia, UM, China, uh,
• 9:51
  Speaker 1: kind of regulation and I mean I was gonna just
• 9:54
  Speaker 1: point out that it's not all about the FED. I
• 9:56
  Speaker 1: know that. Um. There was there were a few days
• 10:00
  Speaker 1: a couple weeks ago when the administration wanted us to
• 10:02
  Speaker 1: believe that the FED was solely responsible for inflation or deflation,
• 10:07
  Speaker 1: like passing the buck. But obviously there are other things.
• 10:11
  Speaker 1: If you spend five trillion dollars in a year, if
• 10:15
  Speaker 1: you um, you know, try and regulate oil companies out
• 10:18
  Speaker 1: of existence, then you're gonna have some, um, some some
• 10:22
  Speaker 1: some feedback from that. Right. All I can tell is
• 10:24
  Speaker 1: you're a very smart guy. No, there's like, there's no question.
• 10:27
  Speaker 1: I mean I got you know, from my advantage point,
• 10:29
  Speaker 1: Congress and passed and spent way too much money. Um.
• 10:32
  Speaker 1: You know, there was some of that that's really necessary.
• 10:35
  Speaker 1: That the government came in a shutdown the economy, so
• 10:37
  Speaker 1: there was there was a real challenge there for a while.
• 10:39
  Speaker 1: But that we Congress certainly overspent um and both on
• 10:44
  Speaker 1: the fiscal and monitary side and quantity of using and
• 10:46
  Speaker 1: it continued for so long, and so there you know,
• 10:49
  Speaker 1: on both sides of the of the equation are to
• 10:51
  Speaker 1: blame here um, And now we're in significant debt. What
• 10:54
  Speaker 1: one thing is not talked about is that you know
• 10:56
  Speaker 1: that again the impossible challenge of raising a just rates
• 11:00
  Speaker 1: is also going to make the fiscal side almost impossible
• 11:03
  Speaker 1: because now most of us are THEAXX period dollars that
• 11:07
  Speaker 1: they're gonna be collected are going to be spent on
• 11:09
  Speaker 1: servicing our nation's debt. And doesn't seem like people talk
• 11:13
  Speaker 1: about fiscal solution or a policy solution to this. We
• 11:17
  Speaker 1: only talk about what can the Fed do? And I appreciate.
• 11:20
  Speaker 1: That's fun for us. We talked about the FED all
• 11:22
  Speaker 1: day long. Um. But there the difficulty is in Washington
• 11:28
  Speaker 1: as well. Right, they can't come in and just cut
• 11:30
  Speaker 1: taxes and um, well they can't do anything stimulative, right,
• 11:35
  Speaker 1: Otherwise that risks boosting inflation even further. Yeah, Like, I mean,
• 11:38
  Speaker 1: they're they're gonna I know, I know my friends and Washington,
• 11:42
  Speaker 1: I've worked with them a long time. They're gonna want
• 11:43
  Speaker 1: to spend more money, There's no question. And as the
• 11:45
  Speaker 1: economy continues to degrade, they're gonna want to provide assistance
• 11:49
  Speaker 1: to families, and so it's gonna be a great pressure
• 11:52
  Speaker 1: on them to spend more money. You know. But fast
• 11:54
  Speaker 1: forward to November, likely is going to be a divided government. Um.
• 11:57
  Speaker 1: And really in those situations, if there is a willingness um,
• 12:01
  Speaker 1: you know, the president being democratic, perhaps the Congress being
• 12:04
  Speaker 1: Republican at that time, there could be a bigger solution
• 12:07
  Speaker 1: that we we could be we could be seeing. But
• 12:09
  Speaker 1: until then, I see nothing happening in Washington. DC is
• 12:12
  Speaker 1: really broken. Yeah, I guess, Chris, how about a recession?
• 12:16
  Speaker 1: Is that something that you're talking to your clients about
• 12:18
  Speaker 1: is a real risk and if so, when, maybe so,
• 12:22
  Speaker 1: I think it's gonna happen sooner rather than later. Um.
• 12:24
  Speaker 1: You know, even again, I'm talking about before. The FAT
• 12:26
  Speaker 1: has an impossible set of choices ahead of them. But
• 12:29
  Speaker 1: one of the choices they have, and likely the choices
• 12:31
  Speaker 1: they're gonna take, is a is a participitous increase in
• 12:34
  Speaker 1: in interest rates that is for sure going to lead
• 12:37
  Speaker 1: to us at recession. And I like to say, Um,
• 12:40
  Speaker 1: there's about half of our country who live paycheck to paycheck,
• 12:43
  Speaker 1: and so if we go into recessionary times and if
• 12:45
  Speaker 1: we can't get inflation under control, we're in stiflation. That
• 12:48
  Speaker 1: means that the majority of our our our fellow Americans,
• 12:51
  Speaker 1: you're not gonna be able to afford food and gas
• 12:53
  Speaker 1: and clothing. That's gonna be a real challenge. It's gonna,
• 12:56
  Speaker 1: you know, put socio economic pressure, economic pressure and everything
• 12:59
  Speaker 1: else absent what the markets are going through. So what
• 13:03
  Speaker 1: do you expect from the FED on Wednesday and the
• 13:06
  Speaker 1: next few meetings. I think they're going to have to
• 13:08
  Speaker 1: start shocking um. And it's it's uncharacteristic of Cherman Powell
• 13:12
  Speaker 1: and this FED, but I just can't see him doing
• 13:14
  Speaker 1: it right. You can't see him coming out in surprising markets.
• 13:16
  Speaker 1: So now as we ratchet up expectations for seventy five,
• 13:20
  Speaker 1: he's gonna have to do a hundred like I like,
• 13:23
  Speaker 1: I just I think he's gonna have to go beyond
• 13:24
  Speaker 1: fifty um do something. I don't think he's you know
• 13:26
  Speaker 1: that the German pal is not Paul Wolkers. It's not
• 13:29
  Speaker 1: going to follow that path. But I think he has
• 13:31
  Speaker 1: to do some things that are that are going to
• 13:32
  Speaker 1: be uncharacteristic of him and what the markets don't expect
• 13:36
  Speaker 1: in order to do something that's going to get inflation
• 13:38
  Speaker 1: under control. Chris, good stuff, man, good stuff. You're coming back.
• 13:41
  Speaker 1: By by the way, we just kind of did a
• 13:43
  Speaker 1: little vote. You're gonna come back. You're pretty good, guess.
• 13:45
  Speaker 1: Chris Campbell, chief strategist for Cool. We like to talk
• 13:48
  Speaker 1: about education. Two NBA from the Thunderbird School of Global Management.
• 13:51
  Speaker 1: I love that, uh, and then a bachelors from the
• 13:54
  Speaker 1: University of California at Santa Barbara. I think students should
• 13:57
  Speaker 1: pay the state of California to go to Santa But
• 14:00
  Speaker 1: that's how beautiful do Santa Barbara is mean, I know,
• 14:04
  Speaker 1: but they should pay more because they're literally on the
• 14:07
  Speaker 1: beach and one of the most beautiful spots in the country.
• 14:10
  Speaker 1: Good stuff there. Let's switch gears a little bit talk
• 14:16
  Speaker 1: geo politics, and there's absolutely no one better to do
• 14:20
  Speaker 1: that with than Jack Divine. He's a founding partner and
• 14:22
  Speaker 1: president of the ark And Group. Awesome. We're talking a
• 14:26
  Speaker 1: thirty two year veteran of the c I, a former
• 14:29
  Speaker 1: acting CIA Director of Operations, and headed CIA's Afghan Task
• 14:33
  Speaker 1: Force from five to eighty seven. Remember kids, that was
• 14:37
  Speaker 1: when the Soviets were there. Jack. You know you're also
• 14:40
  Speaker 1: the author of a book that I read last year,
• 14:42
  Speaker 1: Spymaster's Prison to Fight Against Russian Aggression. Good stuff. I
• 14:45
  Speaker 1: highly recommend it. I cannot really fathom how much President
• 14:50
  Speaker 1: Putin has miscalculated, seemingly in Ukraine. What do you make
• 14:55
  Speaker 1: of the whole situation here over the last four months. Well,
• 14:59
  Speaker 1: I don't think you're the only one surprised. I mean,
• 15:02
  Speaker 1: I'm sure he is UH and his intelligence with salty
• 15:05
  Speaker 1: and there's no question about it. The key question was
• 15:08
  Speaker 1: whether or not the Ukrainians would fight, and I think
• 15:11
  Speaker 1: he grossly underestimated that because of the relatively little resistancy
• 15:16
  Speaker 1: UH faced in fourteen when he went into the Crimea
• 15:20
  Speaker 1: and the thumb buss. So I think he thought he
• 15:24
  Speaker 1: had a cake walk, and I think he's surprised by
• 15:27
  Speaker 1: his own army. I think he thought he had a
• 15:29
  Speaker 1: drugger army. Is he's invested in high end weaponry but
• 15:33
  Speaker 1: didn't look at the basic blocking and tackling of logistics
• 15:37
  Speaker 1: and those things that made you to seas As Grant
• 15:39
  Speaker 1: win the civil war. Alright, so he's made some mistakes.
• 15:43
  Speaker 1: But how is this likely to play out? How Jack,
• 15:46
  Speaker 1: do you expect this to end? Well, I think everybody thought,
• 15:51
  Speaker 1: you know, let's get Zelisio on a plane before it's
• 15:54
  Speaker 1: too late. And this is in the first couple of weeks,
• 15:56
  Speaker 1: but it quickly became clear that's what we're talk about
• 16:00
  Speaker 1: a second ago, that the army and its structure this week,
• 16:03
  Speaker 1: So the Russians basically got put pushed back. Now, I
• 16:08
  Speaker 1: think you're at a point where the Russians are using
• 16:10
  Speaker 1: heavier artillery and so on, and they're making slow but
• 16:16
  Speaker 1: steady progress, but it is slow and bloody. I also
• 16:19
  Speaker 1: think there's a catch up here. I think as the
• 16:22
  Speaker 1: artillery has arrived through the uh for the Ukrainians, they're
• 16:26
  Speaker 1: going to be pushing back again. So you're going to
• 16:29
  Speaker 1: see more counter pushing in somewhere not too far out,
• 16:34
  Speaker 1: I would say, before before the end of the year,
• 16:36
  Speaker 1: if not Thanksgiving. You're going to find somewhat of a
• 16:40
  Speaker 1: stalemate where they can make some gains and then they
• 16:42
  Speaker 1: pushed back. Ukrainians make gains and they get pushed back.
• 16:46
  Speaker 1: We haven't reached that point and there, but it will arrive,
• 16:49
  Speaker 1: and that because the Russians cannot win over the occupy
• 16:54
  Speaker 1: the Ukraine and Ukrainians unfortunately won't be able to reoccupy
• 16:59
  Speaker 1: all of the suratory without significant cause. So I think
• 17:03
  Speaker 1: we're probably looking very soon to the stalemate where everyone
• 17:07
  Speaker 1: was going to feel that this is going to be
• 17:10
  Speaker 1: a battle as far as it goes. There will may
• 17:13
  Speaker 1: not be a negotiated settlement both sites made. Just lower
• 17:16
  Speaker 1: the firing level and it will go on like it
• 17:18
  Speaker 1: has Pointing four team. But we're looking now, I think
• 17:22
  Speaker 1: it closely where the standoff will be. All right, Well,
• 17:27
  Speaker 1: that's it's obviously a tragedy in so many ways, but
• 17:30
  Speaker 1: I love to get your your take on that. Jack.
• 17:33
  Speaker 1: Let me also ask you what you think about what
• 17:35
  Speaker 1: we're seeing in this country and the market fallout from
• 17:38
  Speaker 1: that inflation at eight point six percent, the highest since
• 17:41
  Speaker 1: the early eighties, the markets really tanking for the third
• 17:45
  Speaker 1: day in a row. You're speaking, I believe you're speaking
• 17:47
  Speaker 1: at the S three Air conference at the New York
• 17:49
  Speaker 1: Stock Exchange. It's a company on whose board you serve
• 17:54
  Speaker 1: and has become really noted in the financial industry for
• 17:58
  Speaker 1: it's short data. What are you talking about out there, Well,
• 18:03
  Speaker 1: we already get the experts that are at the Summer
• 18:06
  Speaker 1: that address that. I'm more of a military political analysts,
• 18:11
  Speaker 1: but I would say, frankly, if we're looking in the
• 18:14
  Speaker 1: context of the Ukraine, it's it's there's a cost here,
• 18:18
  Speaker 1: we're paying that cost. But some are the some are
• 18:20
  Speaker 1: the Russians. But there are overarching issues in the economy
• 18:24
  Speaker 1: that I think many many experts on your show understand.
• 18:28
  Speaker 1: You know, where are we going to go with the
• 18:29
  Speaker 1: interest rates? And I think be enabled to monitor various
• 18:34
  Speaker 1: um UH variables rather as UH as the Street Group does,
• 18:42
  Speaker 1: enable analysts to have a better handle on the speed
• 18:44
  Speaker 1: in which variations are taking place. If you want to
• 18:48
  Speaker 1: gut reaction. My own gut reaction is the platon is
• 18:52
  Speaker 1: going to be with us a while an interest increased
• 18:55
  Speaker 1: interest rates are coming down down the road, and it's
• 19:00
  Speaker 1: any going to be a difficult year, not only for
• 19:03
  Speaker 1: the United States, not only for Russia Ukraine, but probably
• 19:06
  Speaker 1: probably worldwide, including the Chinese. Hey Jack, you just mentioned
• 19:10
  Speaker 1: the Chinese. I wonder what they're the Chinese. What do
• 19:11
  Speaker 1: you think China is taking away from what's happening in
• 19:14
  Speaker 1: Ukraine as it relates as Taiwan. So here we're seeing
• 19:18
  Speaker 1: a lot of static and and chest speeding uh and
• 19:22
  Speaker 1: from China right now about they'll they'll go to the
• 19:25
  Speaker 1: last man to preserve there are countries as if we
• 19:30
  Speaker 1: were going to attack. My senses, they looked carefully, very carefully,
• 19:35
  Speaker 1: what is happening to the Russians? And I think they're
• 19:37
  Speaker 1: asking itself, we don't want to make the mistakes Putin
• 19:40
  Speaker 1: made that looking at Taiwan, attacking an island, by the way,
• 19:43
  Speaker 1: I will tell you a much more difficult thing than
• 19:45
  Speaker 1: the land work, and looking at the cost of the
• 19:49
  Speaker 1: Russians now paying and the cost that they would pay,
• 19:52
  Speaker 1: and it would throw off their economic game immensely. My
• 19:55
  Speaker 1: honest opinion is that I think when they looked at it,
• 19:59
  Speaker 1: whatever they they had in their mind, a lot of
• 20:01
  Speaker 1: people talked about. But my my view is it's pushed
• 20:06
  Speaker 1: off to an indefinite period. I think they need they're
• 20:08
  Speaker 1: more concerned about solidifying or economic and power in the region. Uh,
• 20:13
  Speaker 1: but a war would totally disrupt their economy, totally disrupt
• 20:18
  Speaker 1: their placed in the world. So I think that's it's
• 20:20
  Speaker 1: further off and a lot can happen between and many
• 20:26
  Speaker 1: of the military and trying to think they need to
• 20:29
  Speaker 1: have a Taiwan part of it. So I think they've
• 20:32
  Speaker 1: they've seen this and this is actually helpful and not
• 20:36
  Speaker 1: having a confrontation with them. All right, Jack, awesome stuff
• 20:39
  Speaker 1: as always, Jack Divine, founding partner president of the ark
• 20:41
  Speaker 1: And Group. They are obviously obsessed with what's going on
• 20:51
  Speaker 1: in markets today, and that's not just what's happening in
• 20:55
  Speaker 1: stocks and bonds. Crypto has become an increasingly important part
• 20:59
  Speaker 1: of fine financial markets. Nick Carter joins us right now,
• 21:02
  Speaker 1: who um kicked it off? And Nick correct me if
• 21:04
  Speaker 1: I'm I'm wrong here. As one of the first analysts
• 21:08
  Speaker 1: on the street following crypto before he founded his venture
• 21:12
  Speaker 1: crypto venture company Castle Island and also founded coin Metrics. UM,
• 21:18
  Speaker 1: what is going on? It's not just Bitcoin that's failing
• 21:23
  Speaker 1: as an inflation hedge. I note that gold also hasn't
• 21:26
  Speaker 1: performed terribly well. But the drops that we've seen in
• 21:30
  Speaker 1: crypto UM far outperform or underperform anything else. Why well, UM,
• 21:38
  Speaker 1: then thanks for having me on. Yeah, the crypto markets
• 21:40
  Speaker 1: going through its own little de leveraging cycle here. UM,
• 21:44
  Speaker 1: there are a bunch of lenders that are blowing up
• 21:47
  Speaker 1: and uh, in fact, some of their positions are visible. Uh,
• 21:51
  Speaker 1: their liquidation thresholds are visible on the blockchain, and so
• 21:56
  Speaker 1: there's an element of stop hunting that's also going on
• 21:59
  Speaker 1: in the market right now with UM, So that would
• 22:02
  Speaker 1: probably explain some of the reflexivity. But yes, we are
• 22:05
  Speaker 1: having our own little de leveraging cycle, obviously not helped
• 22:09
  Speaker 1: by the fact that financial conditions are getting very, very tight.
• 22:12
  Speaker 1: So it was already tough before Tara us D and
• 22:15
  Speaker 1: Luna that UM catastrophic collapse. Is that starting to UM
• 22:22
  Speaker 1: to spread? Is there any contagion effect from that, because
• 22:25
  Speaker 1: now we see that Celsius is also barred money being
• 22:29
  Speaker 1: taken out and moved around. Yeah, entirely. Yes, there's a
• 22:33
  Speaker 1: daisy chain of risk care and uh that's precisely correct.
• 22:36
  Speaker 1: Its traces from Tara, which was um its peaked the
• 22:40
  Speaker 1: largest sort of defied lenning protocol, the anchor protocol within Tara.
• 22:44
  Speaker 1: That was really the reason it blew up was was
• 22:47
  Speaker 1: the was the largest UM lender in the DeFi space,
• 22:50
  Speaker 1: and a bunch of sort of centralized lenders that take
• 22:54
  Speaker 1: retail deposits and offer a yield on that they were
• 22:56
  Speaker 1: putting client funds in it. And Celsius, which is this
• 23:00
  Speaker 1: big crypto lender which is now paused withdrawals. They were
• 23:05
  Speaker 1: probably the biggest user of the anchor protocol of Terra
• 23:08
  Speaker 1: and so now that terror fails, Celsius suffered a ton
• 23:12
  Speaker 1: of withdrawals. Uh, they're clearly distressed. We're not true if
• 23:16
  Speaker 1: it's a liquidity or a solvency crisis, and then the
• 23:18
  Speaker 1: next daisy chain would be other lenders that have exposure
• 23:23
  Speaker 1: or relationships with Celsius um and then other lenders that
• 23:27
  Speaker 1: also suffer outflows due to the confidence crisis. So there's
• 23:30
  Speaker 1: your precisely right, there's a daisy chain of risk here,
• 23:33
  Speaker 1: and we're seeing it play out really really quickly. Hey, Nick,
• 23:36
  Speaker 1: I know, as as Matt mentioned, you were at Fidelity
• 23:39
  Speaker 1: as the first crypto analysts there. I'd love to get
• 23:41
  Speaker 1: your perspective about as you look at the sell off here,
• 23:44
  Speaker 1: these are the other assets of crypto. What percentage from
• 23:48
  Speaker 1: your perspective do you feel like is institutional ownership of
• 23:52
  Speaker 1: crypto across the board versus retail today? How institutionalized has
• 23:57
  Speaker 1: it become? It? Well, it's it depends what kind of
• 24:01
  Speaker 1: institution you refer to. Obviously, we have a very small
• 24:04
  Speaker 1: amount of sovereign ownership. Um, we have some corporates UH
• 24:10
  Speaker 1: that own bitcoin. That's probably the largest sort of institutional
• 24:13
  Speaker 1: tranche there. And then of course you do have asset
• 24:16
  Speaker 1: management products created by the likes of Fidelity. Overall, say,
• 24:19
  Speaker 1: the crypto market is still very retail driven, um and UM.
• 24:23
  Speaker 1: You know, if it were more institutionalized, i'd expect to
• 24:26
  Speaker 1: see the volatility attenuate, and I would expect to see
• 24:30
  Speaker 1: uh softer peaks and less aggressive bottoms through rebalance, and
• 24:36
  Speaker 1: we're not really seeing that. To me, it's still very
• 24:40
  Speaker 1: retail driven. Remember, it's as small as a class as
• 24:42
  Speaker 1: of right now. It's collectively all the crypto assets are
• 24:45
  Speaker 1: worth less than a trillion dollars, so you know, it
• 24:48
  Speaker 1: doesn't really have the liquidity profile to absorb you know,
• 24:51
  Speaker 1: the largest institutions, But I mean since I've certainly seen
• 24:55
  Speaker 1: a lot more half type for it, I just haven't
• 24:58
  Speaker 1: seen a ton of institutional option in size. Well that
• 25:01
  Speaker 1: could change now obviously, given the crypto winter has gone,
• 25:05
  Speaker 1: UM has turned into like a polar vortex. I want
• 25:08
  Speaker 1: to ask about something maybe a little more esoteric for
• 25:11
  Speaker 1: many of our listeners. But people in crypto have been
• 25:14
  Speaker 1: waiting for the merge to happen at Ethereum, which would
• 25:19
  Speaker 1: change UM the verification system from proof of work to
• 25:23
  Speaker 1: proof of steak. There have been a couple of hurdles lately. UM.
• 25:28
  Speaker 1: There are concerns that a lot of the steaking is well,
• 25:32
  Speaker 1: it's too UM concentrated, and the difficulty bomb that had
• 25:37
  Speaker 1: been planned to help move this along has been delayed.
• 25:40
  Speaker 1: What do you think about proof of steak in the merge? Yeah,
• 25:44
  Speaker 1: that's well. Prior to sort of everything falling apart in
• 25:48
  Speaker 1: crypto markets, that was the biggest catalyst that people were
• 25:51
  Speaker 1: looking for, in which it was expected in the fall
• 25:54
  Speaker 1: of this year, and for a serium, it's a big
• 25:56
  Speaker 1: part of the story because they had determined that they
• 25:59
  Speaker 1: were going to make this transition from day one. It
• 26:02
  Speaker 1: just took some five or six years to get there.
• 26:04
  Speaker 1: Um and it's a key part of the ethereum. Uh,
• 26:08
  Speaker 1: you know, the pr positioning, let's say, in terms of
• 26:11
  Speaker 1: moving away from the energy intensive profork and moving to
• 26:16
  Speaker 1: privo state model. There's definitely some snags there because um,
• 26:20
  Speaker 1: I would say provo stake is just less battle tested
• 26:24
  Speaker 1: in the wild. Um And, yeah, it does raise centralization risks,
• 26:28
  Speaker 1: um either through these large staking pools that have these
• 26:31
  Speaker 1: economies of scale so you have concentrated liquidity, or through
• 26:35
  Speaker 1: custodians that a mass lots of the coins when they
• 26:39
  Speaker 1: do the staking. So you know there's concerns there. But UM,
• 26:43
  Speaker 1: all right, Nick, that's great stuff. We appreciate. Check back
• 26:45
  Speaker 1: in with you later on all things crypto. Nick Carter
• 26:48
  Speaker 1: founding partner Castle Island Ventures. He went the University of
• 26:52
  Speaker 1: St Andrew's and University of Edinburgh, so it begs the
• 26:55
  Speaker 1: question how many times did he play the old course?
• 26:58
  Speaker 1: It's St Andrew's will get that next time we talked
• 27:00
  Speaker 1: to him. Thanks for listening to the Bloomberg Markets podcast.
• 27:06
  Speaker 1: You can subscribe and listen to interviews with Apple Podcasts
• 27:09
  Speaker 1: or whatever podcast platform you prefer. I'm Matt Miller, I'm
• 27:13
  Speaker 1: on Twitter at Matt Miller three. On Fall Sweeney, I'm
• 27:17
  Speaker 1: on Twitter at pt Sweeney Before the podcast. You can
• 27:20
  Speaker 1: always catch us worldwide at Bloomberg Radio