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Vanguard’s Bogle Sees Pension Pain in Decade of 3% Bond Returns · Bloomberg Intelligence

0:05
Speaker 1: Welcome to the Bloomberg p m L Podcast. I'm pim Fox.
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Speaker 1: Along with my co host Lisa Bramowitz. Each day we
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Speaker 1: bring you the most important, noteworthy, and useful interviews for
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Speaker 1: you and your money, whether you're at the grocery store
0:17
Speaker 1: or the trading floor. Find the Bloomberg p m L
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Speaker 1: Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. Legendary
0:34
Speaker 1: Vanguard founder Jack Bogel sat down with us to discuss
0:37
Speaker 1: his thoughts on the geop plan, Bitcoin and his outlook
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Speaker 1: for the bondom market. We kick things off by discussing
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Speaker 1: Jack's thoughts on the e t F business. Where I
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Speaker 1: began was asking him about the freight train that is
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Speaker 1: destined to be a ten trillion dollar firm within the
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Speaker 1: next few years Vanguard, and whether he was worried at
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Speaker 1: all about how quickly the E t F industry was
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Speaker 1: amassing assets. Take a listen, Well, those two things don't
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Speaker 1: go to two together very well. Our strength at Vanguard
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Speaker 1: has been the traditional index fund, the S and P
1:05
Speaker 1: five hundered total stock market, which I started way back
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Speaker 1: in in and that has been our strength. Were that
1:14
Speaker 1: market and that traditional index fund market. I'll buy an
1:17
Speaker 1: old market broad market is about half of the index
1:20
Speaker 1: business and the E t F business is the other
1:23
Speaker 1: half of the business, and they are totally different. They
1:27
Speaker 1: both have passive investment policies, but the traditional index funds
1:32
Speaker 1: have passive investors, and that the e t f s
1:36
Speaker 1: have active investors. So e t fs have heavy trading
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Speaker 1: and they have a lot more speculation. They have a
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Speaker 1: product line so called that that has very speculative funds.
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Speaker 1: So I'm I wouldn't I wouldn't. I wouldn't predict that
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Speaker 1: that that would continue to flourish. You know, we have
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Speaker 1: data here that shows that e t f have had
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Speaker 1: as ten years is a four point seven annual return
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Speaker 1: and the traditional index fund about a seven point one
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Speaker 1: percent annual return. There was the e t f s
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Speaker 1: have not worked out well for investors. I don't know
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Speaker 1: why nobody knows this. So in a decade, the traditional
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Speaker 1: index funds up about cumulatively and the E t F
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Speaker 1: I mean, that's not that's not a strong record. This
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Speaker 1: is this is a really compelling point you're making. E
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Speaker 1: t f s have not worked out well for investors.
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Speaker 1: Are you concerned that they're going to taint the record
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Speaker 1: of indexed funds because they are being treated, uh, synonymously. Well,
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Speaker 1: I think there's a different, for the want of a
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Speaker 1: better word, a different ethic and e t s. It's
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Speaker 1: by the factors. It's leverage. It's finding narrow niches in
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Speaker 1: the market very quickly to see if you can bring
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Speaker 1: a lot of the sheep in to share them. One
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Speaker 1: of the most recent e t F was long electronic marketing,
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Speaker 1: actually your retail marketing. I mean, that's an interesting idea,
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Speaker 1: it might even work, but some entrepreneur jumps on that
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Speaker 1: bandwagon and says, now he can package it for you.
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Speaker 1: It's a very entrepreneurial business, or, to use a phrase
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Speaker 1: that the great Henry Kaufman once used, is populated in
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Speaker 1: many respects by financial buccaneers. So it's a different business.
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Speaker 1: It's finding product to sell and because there's a great
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Speaker 1: market among brokers and investment advisers who want to sell it.
3:27
Speaker 1: When they want something to sell every day, they have
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Speaker 1: to sell something every day. And that seeks the sort
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Speaker 1: of the rationale for the business trading, trading, trading, and
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Speaker 1: you see it most clearly, and it's a little bit
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Speaker 1: of an off beat et F to say the least.
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Speaker 1: The spider, but it trades. They brag about it fifteen
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Speaker 1: billion dollars an hour or something, and yeah, it turns
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Speaker 1: over at about two or three thousand percent a year.
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Speaker 1: And it's banks trading with one And that's that's a
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Speaker 1: very different implication for the future of the E T
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Speaker 1: F business than the than the more or less retail
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Speaker 1: business that people are buying speculatives E T S. Mr Bogel,
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Speaker 1: you talk about financial buccaneers. I'm gonna throw a couple
4:14
Speaker 1: of topics that you want your thoughts. Bitcoin and cryptocurrencies. Well,
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Speaker 1: I'm not so good as crypto, but let's talk about bitcoin.
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Speaker 1: Bitcoin is a speculation. Why is this speculation because there's
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Speaker 1: no underlying rate of return. Just like gold, stocks have
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Speaker 1: earnings and dividends, bonds have have interest coupons to hold
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Speaker 1: their value up. But the bitcoin has nothing in its
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Speaker 1: value except that you want to sell it to somebody
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Speaker 1: more than you paid for it. Well, that's about as
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Speaker 1: good a definition as you can get. It may be
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Speaker 1: a great speculation, that's the funny part of it. But
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Speaker 1: as I said the other day, um, and the bitcoin
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Speaker 1: was then only about ten thousand, and you know, there's
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Speaker 1: a speculation that I would have liked to plague, And
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Speaker 1: I said, if it gets to twenty thousand, don't talk
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Speaker 1: to me. Waitfil it gets back to a hundred, all right,
5:13
Speaker 1: they may not be buccaneers. Much of thoughts on the
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Speaker 1: GOP's tax overhaul plan, as you know it. I think
5:20
Speaker 1: it's very unfortunate. I think it has a grave moral
5:24
Speaker 1: issues in favoring the wealthiest people in the country that
5:27
Speaker 1: compared to the people who are doing all the hard
5:29
Speaker 1: work just seems crazy. Uh. I think it's really bad
5:35
Speaker 1: some little pieces of policy. You know, this is a
5:37
Speaker 1: country that's supposed to be helping education, and they put
5:41
Speaker 1: some new some taxes on young men and women who
5:45
Speaker 1: are teachers and get fringe benefits. And then they've they've
5:50
Speaker 1: stopped the deductibility of interest on college loans, and those
5:54
Speaker 1: two things hurt education. Well. And what to what, avail
5:58
Speaker 1: I asked? The fusion of wealth, the gap in wealth
6:03
Speaker 1: between the rich and the poor is very upsetting to
6:06
Speaker 1: a good nation, a good society, and they made it worse.
6:10
Speaker 1: Rubs other than not, I love it real quick. Last question,
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Speaker 1: I'm just wondering. You said in recent comments that stock
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Speaker 1: returns are likely to be about four percent over the
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Speaker 1: next decade. What about bonds and where do you think
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Speaker 1: are the most promising assets at this point? Well, stock returns.
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Speaker 1: I've been doing this for twenty five years and ten
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Speaker 1: years in ten year in ten year intervals, and my
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Speaker 1: prognostications for stocks have been about correlation with what happened,
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Speaker 1: and my view bond views are about of what happened. Correlation.
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Speaker 1: But the reason bonds are really easy. It should be
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Speaker 1: a number of around three percent per year over the
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Speaker 1: next decade because the only return you get on a
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Speaker 1: bond is from the interest coupon. And so you have
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Speaker 1: a portfolio half of corporate bonds and half of the
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Speaker 1: ten year the ten year treasury, very conservative with a
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Speaker 1: with a corporate half, and that gives you about three
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Speaker 1: percent today and so that that's that's what you will
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Speaker 1: get in the next ten years. Of interest rates go down,
7:16
Speaker 1: the prices will go up, but over ten years that's
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Speaker 1: up to even out. That's a huge problem for pensions
7:22
Speaker 1: with an eight a huge problem. It's totally defeating. The
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Speaker 1: pension funds are not going to be able to meet
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Speaker 1: their seven and a half or eight percent obligation. And
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Speaker 1: the curious thing is that back in the guess late eighties,
7:39
Speaker 1: don't hold me the exact date when then, when treasuries
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Speaker 1: were yielding eight and the pension plans had about a
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Speaker 1: five percent return projection eight percent for bonds, five percent
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Speaker 1: projection for pensions. And now treasurers are yielding two and
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Speaker 1: a half or three depending on whatever you take, and
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Speaker 1: engines are yielding seven. And I think it is almost
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Speaker 1: a given that it will end badly, Mr Boggle, Do
8:07
Speaker 1: you believe that artificial intelligence and robo advisors will do
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Speaker 1: away with the human touch when it comes to investment advice, Well,
8:14
Speaker 1: they will do away with some of it. Uh but
8:17
Speaker 1: but but what's what's happening mostly in then the robo
8:21
Speaker 1: area is they're using conventional index funds like the S
8:26
Speaker 1: and P five hundred Bangardis and P five hundered. I
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Speaker 1: think that's the largest investment at the betterment m or
8:33
Speaker 1: and maybe maybe some of the others. So they're they're
8:36
Speaker 1: just it's that they've been doing so far mostly asset allocation,
8:40
Speaker 1: and there's no harm done in that. Their asset allocation
8:43
Speaker 1: looks very much like you know, sort of a sixt
8:46
Speaker 1: thing generally up or down, maybe with a age or
8:49
Speaker 1: or aggressiveness of the investor. So maybe it's I think
8:54
Speaker 1: it's less art Artificial intelligence than asset allocation is a
8:58
Speaker 1: simple matter. You don't have to beat it to death
9:00
Speaker 1: with data. As for artificial intelligence out there, I read
9:05
Speaker 1: somewhere that people that are trained in artificial intelligence in college,
9:09
Speaker 1: after a couple of years gonna make a half million
9:10
Speaker 1: dollars a year, And I think that's wonderful. But I
9:14
Speaker 1: keep wondering how much people that have real intelligence will make.
9:18
Speaker 1: Now was Jack Bogel. He is the founder and retired
9:21
Speaker 1: chief executive of the Vanguard Group and the author of
9:24
Speaker 1: Common Sense on Mutual Funds, New Imperatives for the Intelligent Investor.
9:29
Speaker 1: I'm pim Fox along with Lisa Bramo wits This is Bloomberg.
9:48
Speaker 1: Protests are breaking out in Gaza, Turkey, Germany over President
9:53
Speaker 1: Trump's decision to move the US embassy in Israel to Jerusalem,
9:58
Speaker 1: recognizing that as the capital. This, of course the subject
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Speaker 1: of a longstanding debate and controversy in the region, given
10:07
Speaker 1: the tensions between the Israelis and the Palestinians. Here to
10:09
Speaker 1: talk about it is Daniel Gordis. He is a Bloomberg
10:12
Speaker 1: View columnist as well as a senior vice president and
10:15
Speaker 1: court Distinguished Fellow at shell M College in Jerusalem, and
10:18
Speaker 1: he joins us now, Daniel, thank you so much. What
10:22
Speaker 1: is it? Just to start with, what's the mood like?
10:24
Speaker 1: There is there an increased kind of tension and expectation
10:28
Speaker 1: of violence around UH President Trump's decision. It's an interesting question.
10:34
Speaker 1: I think that yesterday, in the advance of the declaration
10:38
Speaker 1: and immediately after, there was a pretty widespread sense here
10:41
Speaker 1: that if there was any violence, it was going to
10:43
Speaker 1: be pretty sporadic and it would pretty much peter out
10:46
Speaker 1: relatively quickly. I think people are a little bit less
10:49
Speaker 1: confident about that right now. I don't think that anybody
10:52
Speaker 1: is quite panicking yet. But there have been there have
10:55
Speaker 1: been conflicts all along the border between Israel and the
10:58
Speaker 1: West Bank UM. According to the his reports, several dozen
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Speaker 1: Palestinians have been injured. I haven't read of any deaths,
11:04
Speaker 1: and I haven't read of any injuries on the side
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Speaker 1: of the israelis UM. But colleague of mine who was
11:09
Speaker 1: working from home today, who works in Maldumim, which is
11:13
Speaker 1: UH inside the West Bank. It's a city that's very
11:16
Speaker 1: much controversial because it's gone on an extension of Jerusalem
11:19
Speaker 1: into the West Bank. She told me that the city
11:21
Speaker 1: was ringed with security people, that they were just making
11:23
Speaker 1: sure that people did not get into the city. So
11:25
Speaker 1: I thought my senses and we heard, by the way,
11:28
Speaker 1: helicopter is all in the sky this afternoon. So it
11:30
Speaker 1: may be materializing into a little bit more violence than
11:34
Speaker 1: some people had expected. But there's certainly no panic on
11:36
Speaker 1: the streets and no panic. And as people are talking,
11:40
Speaker 1: Daniel Gordis, you know in your good book Israel, a
11:43
Speaker 1: Concise History of a Nation Reborn, you talk about the
11:48
Speaker 1: role that Jerusalem plays in the history of the region
11:51
Speaker 1: and specifically in the founding of the state of Israel.
11:55
Speaker 1: I'm wondering if you could just provide us with some
11:57
Speaker 1: context for Jerusalem, not only as a geographic location, but
12:04
Speaker 1: as a political location. Right. So, Jerusalem was not included
12:10
Speaker 1: actually in the borders that the United Nations gave to Israel,
12:13
Speaker 1: and that very famous photo of November nineteen seven, when
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Speaker 1: the UN General Assembly created a Jewish state and an
12:19
Speaker 1: Arab state, Jerusalem is going to be a kind of
12:21
Speaker 1: an internationally monitored area. The Israelis were very unhappy with
12:25
Speaker 1: that because they wanted Jerusalem to be their capital, but
12:27
Speaker 1: they accepted the UN deal. Uh. The Arabs, of course
12:30
Speaker 1: did not accept the deal, launched the war, and in
12:32
Speaker 1: the course of that war, Israel captured West Jerusalem. It
12:35
Speaker 1: did not capture East Jerusalem, which it did not get
12:38
Speaker 1: until the nineteen sixty seven war when Jordan's despite pleas
12:42
Speaker 1: from the Israeli government, decided to enter that war as well.
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Speaker 1: So Israel has always since nineteen forty nine recognized West
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Speaker 1: Jerusalem as its capital and as one of the rest
12:54
Speaker 1: of the world to recognize it. It's the only country
12:56
Speaker 1: in the world that other countries don't recognize its capital
12:59
Speaker 1: as its capital. When Israelis are always scratching their heads
13:01
Speaker 1: saying West Jerusalem is clearly not going back. So why
13:04
Speaker 1: can't the west of the role just acknowledge West Jerusalem
13:06
Speaker 1: as the capital of Israel and Easter Rusalaman will get
13:09
Speaker 1: resolved when the result, when the situation where the Palestinians
13:12
Speaker 1: gets resolved. Um. And so I think that you know,
13:15
Speaker 1: from a from a religious standpoint, it's very important to Jews,
13:18
Speaker 1: it's very important to Moslims, it's very important to Christians.
13:21
Speaker 1: But this is what you correctly plant on there's nothing
13:23
Speaker 1: to do with the religious issus. It's all about politics.
13:25
Speaker 1: And I think what the President did yesterday was basically
13:29
Speaker 1: to say, and he said it himself, you just a
13:31
Speaker 1: matter of recognizing reality. I mean, as he pointed out,
13:33
Speaker 1: the Supreme Court is here, the Parliament is here, the
13:36
Speaker 1: President lives here, the Prime Minister lives here, the vast
13:39
Speaker 1: majority of government offices are here. Always basically saying is
13:42
Speaker 1: that what we're gonna do is stop capitulating to the
13:44
Speaker 1: fear of violence, and we're gonna call reality what it is,
13:47
Speaker 1: which is that West Jerusalem is the capital of Israel.
13:50
Speaker 1: Well here, here's just just to push back on that.
13:53
Speaker 1: I mean, a lot of people are saying that this
13:55
Speaker 1: move by President Trump has undermined a US role in
13:59
Speaker 1: the peace prod, says has inflamed tensions. Uh Hamas has
14:03
Speaker 1: called for an antifata against Israel this morning, and you
14:07
Speaker 1: have to wonder, at what point is it worth it,
14:09
Speaker 1: I mean, just for to make a political statement. Well,
14:13
Speaker 1: that's a great question. So first of all, obviously if
14:15
Speaker 1: this blows up into a major conflagration, uh, then one
14:19
Speaker 1: could very reasonably ask whether it was worth it or not.
14:22
Speaker 1: I think most people who are still banking on the
14:23
Speaker 1: idea because it doesn't actually change any reality on the ground.
14:27
Speaker 1: Most people are banking on the idea that it's not
14:29
Speaker 1: going to become a major conflagration. But you're right, if
14:31
Speaker 1: this gets out of hand, then the question of whether
14:33
Speaker 1: it's worth it is certainly a very good question. I
14:37
Speaker 1: think that in terms of, you know, the question of
14:39
Speaker 1: whether or not the president has really kind of moved
14:43
Speaker 1: the United States out of being a legitimate arbiter in
14:45
Speaker 1: the in the process. I mean, first, well, let's remember that,
14:49
Speaker 1: you know, countless presidents, Republicans and Democrats alike, have seen
14:52
Speaker 1: the United States as an important arbiter and has gotten
14:55
Speaker 1: us nowhere. And I'm speaking as someone who was in
14:57
Speaker 1: favor of the creation of a Palestinian state, as someone
14:59
Speaker 1: who's not a huge fan of the current president. But
15:02
Speaker 1: I think that what he said was, uh, you know,
15:05
Speaker 1: basically true. We haven't we have we as America have
15:08
Speaker 1: not been able to move this process forward and and
15:11
Speaker 1: sort of capitulating to this Palestinian demand that we not
15:14
Speaker 1: acknowledge West Jerusalem as the capital of Israel has gotten
15:17
Speaker 1: us nowhere. So since it has gotten us nowhere, let's
15:19
Speaker 1: at least call reality on the ground where it is.
15:21
Speaker 1: That's my sense, but obviously reasonable minds cannon do differ,
15:24
Speaker 1: and there are both Disraeli leaders and as well as
15:26
Speaker 1: American Jewige leaders on both sides of this divide. Daniel,
15:29
Speaker 1: what has been the reaction, if any, in Arab capitals
15:34
Speaker 1: around the region, and is the status of Jerusalem as
15:38
Speaker 1: important to them now as it once was. Perhaps the
15:42
Speaker 1: reaction is exactly what you'd expect. They're all decrying it
15:45
Speaker 1: and saying it's a terrible idea, and so farth that's
15:47
Speaker 1: part of the sort of the ritual that has to
15:49
Speaker 1: get played here. I think the much deeper issue, and
15:52
Speaker 1: it's a sad one for the Palestinians, quite frankly, is
15:55
Speaker 1: that the Palestinian issue was simply not nearly as important
15:58
Speaker 1: to the Arab world as the palest Indians wish it
16:01
Speaker 1: would be, and it's not as important to the Arab
16:03
Speaker 1: world as it once was. I mean, take Saudi Arabia
16:05
Speaker 1: for example, which did speak out because that's what it
16:08
Speaker 1: has to do, but Suni Arabia doesn't care one little bit.
16:11
Speaker 1: Sni Arab was worried about Iran and it needs American
16:14
Speaker 1: and Israeli cooperation on the Iranian on the Irmanian issues.
16:18
Speaker 1: So they'll speak out today, they make sure that they can,
16:20
Speaker 1: you know, sort of make a check mark next do
16:22
Speaker 1: we spoke out against it. But Saudi Arabia couldn't care less.
16:25
Speaker 1: Egypt has completely suppressed Palestinian protests in the streets over
16:29
Speaker 1: the last few years under LCC. So Egypt's not a
16:32
Speaker 1: big help over the course of the years. Even when
16:34
Speaker 1: Saidat and Manacha began negotiated the return of the Sinai,
16:38
Speaker 1: said Dot insisted that if he was going to get
16:40
Speaker 1: the sign I back and sign a deal with Israel,
16:42
Speaker 1: Israel also not to create a Palestinian state, and began
16:44
Speaker 1: said no, And so that's where we are. Daniel gordis
16:49
Speaker 1: Bloomberg View, Colamus, thank you very much. He's also the
16:51
Speaker 1: author of Israel, A Concise History of a Nation. Reborn
17:10
Speaker 1: the founder, one of the co founders and the head
17:13
Speaker 1: of a Carlisle Group, the private equity firm. David Rubinstein
17:17
Speaker 1: was talking about infrastructure yesterday. He said that he hoped
17:20
Speaker 1: Congress would have passed an infrastructure bill by now. Well,
17:24
Speaker 1: let's find out about why that hasn't happened. Perhaps and
17:28
Speaker 1: what could be done to move this along. We have
17:30
Speaker 1: an expert when it comes to infrastructure. Bill Sandbrook is
17:33
Speaker 1: the chief executive of the US Concrete and he joins
17:36
Speaker 1: us here in our leven three oh studios. Bill, thank
17:39
Speaker 1: you very much for it coming in. So what would
17:41
Speaker 1: you say to someone like David Rubinstein? He says, Look,
17:44
Speaker 1: he says, you've got low rates, But most of the
17:47
Speaker 1: US infrastructure is state and local, it is not federal.
17:52
Speaker 1: Why can't we get infrastructure done? No, it's a very
17:55
Speaker 1: good question. We were very hopeful people in our industry,
17:59
Speaker 1: and obviously both parties had platforms that advocated a trillion
18:03
Speaker 1: dollar spend before either winner was announced, and in fact,
18:08
Speaker 1: at President Trump's inauguration, the second thing he mentioned was
18:11
Speaker 1: one of his top was his top priority was infrastructure spent.
18:14
Speaker 1: And we have been disappointed that it hasn't been more forthcoming. However,
18:18
Speaker 1: having said that, there were priorities that need to be chosen,
18:21
Speaker 1: and the priorities were health regulatory reform, healthcare reform, taxes,
18:26
Speaker 1: and then infrastructure came forth, and there were fourth because
18:29
Speaker 1: and there were reasons for that sequence. So I'm patient
18:33
Speaker 1: this problem has not developed overnight. This problem is not
18:36
Speaker 1: going to be fixed overnight. So if it's pushed a
18:39
Speaker 1: year or a number of months, as it looks like
18:41
Speaker 1: it's going to be pushed into next year, I'm not
18:43
Speaker 1: despondent about that. The needs continue to grow and I
18:46
Speaker 1: think the federal government's going to have to address it
18:48
Speaker 1: one way or another. And there is by parts and
18:50
Speaker 1: support for it bill. Do you have a sense of
18:54
Speaker 1: how it would take place, how big it would be,
18:56
Speaker 1: as well as where the money would go. Would it
18:58
Speaker 1: go to projects that would apply uh for funding? Would
19:01
Speaker 1: it go to public private kind of partnerships that we
19:04
Speaker 1: then invest in. What's your sense it's gonna be a
19:06
Speaker 1: combination of of all the above. The public private partnerships
19:10
Speaker 1: are one piece of it. And if you remember is
19:13
Speaker 1: this has transpired, the administration was really hanging the hat
19:16
Speaker 1: on that that would be the lynchpin of any further
19:19
Speaker 1: any additional spend or increased spending. That has moderated to
19:23
Speaker 1: some extent, there is talk about gas tax increases. At
19:27
Speaker 1: least the administration doesn't have them dead on arrival. It
19:30
Speaker 1: does come down to funding eventually, funding and priorities. There
19:34
Speaker 1: is a list of fifty top priority infrastructure projects in
19:37
Speaker 1: the country that the governors developed and has been put
19:40
Speaker 1: to the Secretary of Transportation. One critical one. It's the
19:44
Speaker 1: Gateway project that links new work in New York City
19:47
Speaker 1: with a new tunnel, a new rail tunnel and whatnot. UM.
19:50
Speaker 1: I think over time these things are going to happen.
19:53
Speaker 1: The devil's in the details of funding. And it's been
19:55
Speaker 1: like that since, so no change there. You know, you've
19:59
Speaker 1: been on a little bit of an acquisition trail, and
20:02
Speaker 1: I'm wondering if you could describe what you've done, particularly
20:05
Speaker 1: in California, but also why why acquire rather than building?
20:11
Speaker 1: That kind of highlights this idea of trying to get
20:13
Speaker 1: the permits and trying to deal with local and you know,
20:16
Speaker 1: state municipalace on in order to make you business. You know,
20:20
Speaker 1: it's a very insightful question. Both coasts California particularly, it's
20:24
Speaker 1: very difficult to get through any environmental permitting process for
20:28
Speaker 1: whether it be an infrastructure project like a road, an airport,
20:31
Speaker 1: or an industrial manufacturing facility. We operate in heavily urbanized
20:36
Speaker 1: environments where permitting is extremely difficult UM. And to that end,
20:43
Speaker 1: we just made an acquisition on November seventeenth, Polaris Material
20:46
Speaker 1: is a big quarry in Canada. Because California arrogates are
20:50
Speaker 1: being depleted rapidly and there are no new quarries coming online. Therefore,
20:54
Speaker 1: the cost of arrogates are becoming ever expensive. We had
20:57
Speaker 1: an opportunity to buy this quarry and ship arrogates down
21:01
Speaker 1: into our facilities in San Francisco so we can be
21:04
Speaker 1: self sufficient. It helps our profitability. Uh and and as well,
21:08
Speaker 1: we got a terminal in in Los Angeles because we
21:11
Speaker 1: are growing through acquisition and expansion, which now gives us
21:14
Speaker 1: a beachhead into consolidate in the Los Angeles market. Considering
21:17
Speaker 1: that you made a purchase in Canada, it's important to
21:20
Speaker 1: look at what the trade relationship will be with the
21:23
Speaker 1: US and Canada and elsewhere. And I'm just wondering, have
21:28
Speaker 1: the increased tensions around trade affected you at all? Do
21:31
Speaker 1: you expect them to affect you? Do you think that
21:33
Speaker 1: they have been overblown? Now? I think they're they're valid.
21:37
Speaker 1: I don't expect them to impact arrogance. Arrogates have been
21:40
Speaker 1: shipped on both coasts from Canada because of the the
21:44
Speaker 1: inability to get new permits in the New York area,
21:47
Speaker 1: for instance, or in California. The arrogates have to come
21:49
Speaker 1: from somewhere. Um, they're very expensive to travel by truck,
21:53
Speaker 1: long distances from inland, so that sheer economics of it
21:56
Speaker 1: will underpin the ability of it long term. I'm not
22:01
Speaker 1: overly word about free trade, the Canadian Trade Pact as
22:06
Speaker 1: it relates to arrogance. Talk about the raising money, whether
22:10
Speaker 1: it's in the debt markets, you don't have a lot
22:12
Speaker 1: of that. I think about six million in total. Uh,
22:15
Speaker 1: easy to access money right now, I mean people throwing
22:18
Speaker 1: money at you to say, g you know, we're looking
22:20
Speaker 1: for yields, so why don't you borrow someone go out
22:22
Speaker 1: and buy a bunch of Yeah, that's that's very interesting. Uh.
22:26
Speaker 1: We've been very successful over the last six years with
22:28
Speaker 1: our strategy. With success comes the the benefits of having
22:35
Speaker 1: people want to loan your money so you can continue
22:38
Speaker 1: to be successful. So I think it would be easy
22:41
Speaker 1: to access at this time. Whether we would take that
22:43
Speaker 1: on as debt or equity would depend on the amount
22:45
Speaker 1: of money we need. And we are a cyclical business though,
22:47
Speaker 1: so we have to be very cognizant that the good
22:50
Speaker 1: times that we have now, you know, they won't last forever.
22:53
Speaker 1: Despite any governmental policy. Despite our hope, construction is a
22:58
Speaker 1: cyclical business and we have to be mindful that real quick.
23:00
Speaker 1: When do you think that the cycle will start turning
23:03
Speaker 1: well with the tax reform? I continue to move that,
23:07
Speaker 1: I continue to move this out. You have to remember
23:09
Speaker 1: this has been a historically slow recovery at very low rates,
23:14
Speaker 1: which is act think good because we're preventing new new
23:18
Speaker 1: peaks and new bubbles, and the extent it continues at
23:21
Speaker 1: this gradual pace. I think the tax reform is going
23:23
Speaker 1: to extend in another two years. I'm looking into two.
23:28
Speaker 1: But that's I'm not a I'm not a clairvoyant. Well
23:33
Speaker 1: you'll have to I'll pull out by Christo Ball and
23:35
Speaker 1: you can try your hand. Bill Sandbrook, thank you so
23:37
Speaker 1: much for joining us. Bill sandbrooks CEO of US Concrete
23:41
Speaker 1: here talking about the infrastructure plans that are evidently in
23:45
Speaker 1: the works. We just are going to have to wait
23:47
Speaker 1: to see them. A Lisa brom WIT's along with pim Fox,
23:49
Speaker 1: this is Bloomberg. Individual investors are plowing their money into
24:10
Speaker 1: US stocks at a record pace, at least by one measure,
24:14
Speaker 1: raising a big question are they coming in too late
24:17
Speaker 1: when the stocks are too valuable and are destined to
24:21
Speaker 1: cool off. Here to answer that question is Randy Frederick.
24:23
Speaker 1: He is vice president of Trading Undervatives for the Schwab
24:27
Speaker 1: Center for Financial Research, which is based in Austin, but
24:29
Speaker 1: he joins us here in our eleven three oh studios. Randy, um,
24:33
Speaker 1: are you concerned about the flood of retail cash and
24:38
Speaker 1: just sort of the general increase and allocations to US equities?
24:42
Speaker 1: Not yet? So the question is are they coming in
24:44
Speaker 1: too late? I would say they're coming in late in
24:46
Speaker 1: the game, but it's probably not too late. I would say.
24:49
Speaker 1: For the first eight years of this bullmarket, the big
24:51
Speaker 1: question that I got at all the client events I
24:54
Speaker 1: got and my counterparts heard the same thing, was what's
24:56
Speaker 1: the next shoe to drop? When is this all going
24:58
Speaker 1: to in? What's going to cause the max ash. It's
25:01
Speaker 1: only been within about the last quarter, last three or
25:03
Speaker 1: four months that we've actually seen a shift and investor
25:06
Speaker 1: sentiment to, oh, this rally is legitimate. This bullmarket does
25:10
Speaker 1: have some legs, and part of that, I think is
25:12
Speaker 1: that we've got an incredibly solid fundamental backdrop and we
25:15
Speaker 1: frankly think that's going to continue at least into the
25:17
Speaker 1: first half of next year. Doesn't worry you that now
25:19
Speaker 1: you've got people who were bearished turning bullish to some extent.
25:23
Speaker 1: It does what. It doesn't mean we're at the end.
25:25
Speaker 1: It may mean that we're at the very beginning stages
25:28
Speaker 1: of what could end up being the end, but the
25:29
Speaker 1: end could well be a year into the future. And
25:31
Speaker 1: in fact, historically, when you start to see all of
25:34
Speaker 1: the even the most ardent skeptics come into the market,
25:38
Speaker 1: it may be the sign of the beginning, but many
25:39
Speaker 1: times that has lasted more than a year, maybe even
25:42
Speaker 1: a year and a half to two years after that.
25:43
Speaker 1: So it does have some sort of assignment. It does
25:46
Speaker 1: definitely does not point to a top just yet. All right,
25:49
Speaker 1: I want to ask you about something that we met
25:50
Speaker 1: we report on on a regular basis, and this has
25:53
Speaker 1: to do with the VIX, the volatility index. Does this
25:57
Speaker 1: really matter anymore to people still use the options that
26:02
Speaker 1: are linked to the VIX in order to speculate, or
26:06
Speaker 1: has this become an indicator whose time is kind of
26:09
Speaker 1: come and gone. Well, so, I've been studying the VIX
26:11
Speaker 1: ever since first and came out in fact that it
26:13
Speaker 1: was it was created the month before I started working
26:16
Speaker 1: with Charles Schwaback in so I've been and being involved
26:19
Speaker 1: in derivatives and and volatility and all these things. I've
26:21
Speaker 1: sort of been studying it every day since then. So yes,
26:24
Speaker 1: I think it still matters because what it really tells us,
26:27
Speaker 1: and this is where the problem comes in, I think
26:28
Speaker 1: with retail investors and some of these products that are
26:31
Speaker 1: allegedly linked to the VIX, is that it really tells
26:34
Speaker 1: you how much the institutional funds are hedging a large
26:37
Speaker 1: market downturn, and the fact that we've had historically low
26:39
Speaker 1: levels of the VIX forty five days I think it
26:42
Speaker 1: is that we've closed below ten this year, where right
26:45
Speaker 1: now just ten point one five roundheard of. It just
26:48
Speaker 1: simply means that those who run the big institutional hedge
26:51
Speaker 1: funds are not concerned of a major downturn. That doesn't
26:53
Speaker 1: mean we couldn't get a five percent pullback, and frankly,
26:55
Speaker 1: that might even be a healthy thing. But the problem
26:58
Speaker 1: with investors who trade or spec layers who trade products
27:01
Speaker 1: linked to the VIX, whether it's vixed futures, VIX options
27:04
Speaker 1: or even a VIX ct F E t in is
27:05
Speaker 1: that they think it's tied directly to the VIX index,
27:08
Speaker 1: and they don't really understand in most cases that is
27:10
Speaker 1: actually tied to vixed futures, which don't move nearly as
27:13
Speaker 1: much as the VIX. So unfortunately, I when I often
27:16
Speaker 1: caution investors about this when I speak at seminars, is
27:19
Speaker 1: you shouldn't spend all of your time trying to predict
27:21
Speaker 1: when the next big VIX spike will happen, because it's very,
27:24
Speaker 1: very difficult to do. Instead, wait until the VIX happens
27:27
Speaker 1: and then take a position that can benefit when the
27:29
Speaker 1: VIX comes back down, because we see the VIX come
27:31
Speaker 1: back down every time. It's bikes pretty much. So, given
27:34
Speaker 1: your experience with derivatives, let's talk about one that's gotten
27:37
Speaker 1: a lot of attention. It's gonna start trading on Sunday.
27:40
Speaker 1: It's the Bitcoin futures contract. It's come under a lot
27:44
Speaker 1: of criticism by a number of big firms. I worried,
27:48
Speaker 1: are you about this? Well? I think it's again it's
27:51
Speaker 1: definitely a speculative instrument. It's something that we're keeping an
27:53
Speaker 1: eye on at Charles Schwab. We we don't aren't prepared
27:56
Speaker 1: to make any changes at this point. Um. I think
27:59
Speaker 1: what has been driving the bitcoin price, and the reason
28:01
Speaker 1: it's we've seen such a dramatic rise, not just this
28:04
Speaker 1: year it's but in just really the last few weeks
28:07
Speaker 1: is the introduction of the VIX futures. I think those
28:09
Speaker 1: who own I'm sorry, of bitcoin futures. Those who own bitcoin,
28:13
Speaker 1: I believe think that that if futures are launched and
28:17
Speaker 1: it provides the avenue for many more investors to get
28:20
Speaker 1: into bitcoin than who are currently in it, that it
28:23
Speaker 1: will likely drive the price higher. That may or may
28:25
Speaker 1: not be the case, but I think that's what what
28:27
Speaker 1: may be driving the price of bitcoin right now. All right,
28:29
Speaker 1: as you are an expert in the world of trading
28:33
Speaker 1: and derivatives, have you seen a convergence between futures and
28:38
Speaker 1: options because they used to be pretty separate in terms
28:41
Speaker 1: of the way you would position of portfolio and as
28:44
Speaker 1: a manager, you wouldn't necessarily mix the two. But that
28:48
Speaker 1: line seems to have been blurred completely. Well. Back in
28:52
Speaker 1: the old days, futurest firms were separate and unique in
28:55
Speaker 1: most cases from regular brokerage firms that would typically trade
28:58
Speaker 1: stocks ETFs options, but the futures business was kind of separate.
29:01
Speaker 1: What happened in many cases and and Charles Schwab is
29:03
Speaker 1: a good example of that is that firms that were
29:07
Speaker 1: traditionally stock and option and mutual fund brokers have also
29:10
Speaker 1: acquired or gotten into the futures business. We acquired a
29:12
Speaker 1: company called Options Express, with most people know, we recently
29:15
Speaker 1: finished the final integration and so futures is a part
29:18
Speaker 1: of our product mix and it's become a much more
29:21
Speaker 1: broadly accepted product to mainstream investors, where in the old
29:24
Speaker 1: days it really wasn't in it. I think it was
29:26
Speaker 1: the introduction this probably goes back maybe almost ten to
29:29
Speaker 1: fifteen years, the introduction of the mini stized contracts, which
29:32
Speaker 1: really made futures um accessible to We didn't have to
29:35
Speaker 1: put a huge amounts of collateral and with the many
29:38
Speaker 1: size contracts that's no longer necessary. So that made it
29:40
Speaker 1: really much more acceptable and and really um attainable product.
29:45
Speaker 1: If you will, to a retail investor, do you watch
29:47
Speaker 1: the volume levels? Do you watch the interest level that
29:50
Speaker 1: customers expressed by using that that platform. At schwap, certainly
29:55
Speaker 1: we do um. We don't publish those numbers. We try
29:58
Speaker 1: to group them all together with our trading ball milliames.
30:00
Speaker 1: But I will say that one thing that has limited
30:04
Speaker 1: to some extent the growth and futures to retail investors.
30:07
Speaker 1: Is also the introduction of many, many E t f
30:09
Speaker 1: s and e t n s that have access to
30:11
Speaker 1: the futures market. So those who don't want to provide
30:15
Speaker 1: that ability to trade futures directly can get access to
30:18
Speaker 1: that through their regular equity positions using e t n
30:21
Speaker 1: s and e t f So I think to some
30:22
Speaker 1: extent that has cannibalized a bit of the futures business.
30:25
Speaker 1: All right, well, well done, Thank you very much for
30:26
Speaker 1: being with us. Randy Frederick, vice president of Trading and
30:30
Speaker 1: Derivatives for the Schwab Center for Financial Research based in Austin, Texas,
30:35
Speaker 1: and you can follow Randy on Twitter at Randy A.
30:38
Speaker 1: Frederick and that's F R E D E R I
30:42
Speaker 1: C K. Thank you very much for being here. Looking
30:44
Speaker 1: forward to, of course, so speaking with you in the future.
30:52
Speaker 1: Thanks for listening to the Bloomberg P and L podcast.
30:55
Speaker 1: You can subscribe and listen to interviews at Apple Podcasts, SoundCloud,
30:59
Speaker 1: or whatever podcast platform you prefer. I'm pim Fox. I'm
31:02
Speaker 1: on Twitter at pim Fox. I'm on Twitter at Lisa Abramo.
31:07
Speaker 1: It's one before the podcast. You can always catch us
31:09
Speaker 1: worldwide on Bluebirg Radio