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Transcript

Black Hat vs White Hat ETFs · Trillions

0:06
Speaker 1: Tis, I'm Joel Webber and I'm Eric Belchunis.
0:12
Speaker 2: What are we gonna talk about today?
0:13
Speaker 3: We wrote a note I think it was like two
0:15
Speaker 3: or three weeks ago, no industry for old analysts because
0:20
Speaker 3: the products that are coming out are getting crazier and
0:22
Speaker 3: crazier and more. They use a ton of derivatives. Now
0:26
Speaker 3: it is a very different industry in terms of new products.
0:30
Speaker 3: Now the flows still go to very vanilla, but a
0:32
Speaker 3: lot of the new stuff is getting pretty wild, and
0:34
Speaker 3: there's been some of the old dogs in the industry
0:37
Speaker 3: have been like, Hey, I don't really like this. I
0:40
Speaker 3: don't like where this is going. Athanasios on my team
0:44
Speaker 3: probably plays that role. And Dave Nadig, who I really
0:48
Speaker 3: was one of one of my biggest influences from the
0:50
Speaker 3: Index Universe days back in the back in like the
0:52
Speaker 3: two thousands, he wrote a substack called trust in a
0:55
Speaker 3: Black Hat World about this, and I thought we should
0:57
Speaker 3: really explore this idea of all of these new products
1:00
Speaker 3: being thrown at investors. I think I am more on
1:04
Speaker 3: the libertarian side here, but I also understand the arguments
1:07
Speaker 3: that some of these you know, products are not good
1:10
Speaker 3: for people, and so I thought we should mix that
1:13
Speaker 3: up right now and just get it all out in
1:14
Speaker 3: the open.
1:15
Speaker 4: So joining us on this episode Dave Nodding of Natti
1:18
Speaker 4: dot Com. He's taken to Substack. He's an ETF expert
1:22
Speaker 4: and veteran and also Wildona Hirich, processor reporter with Bloomberg News.
1:29
Speaker 2: This time on Trillions Trust. Dave Fildona, Welcome to Trillions.
1:35
Speaker 4: Thanks for having me, Thanks for having us, Uh, Dave,
1:38
Speaker 4: your paper Trust in a black hat world.
1:41
Speaker 2: Where did the idea come from?
1:43
Speaker 5: Well, look, I think it's very clear that the regulatory
1:46
Speaker 5: environment is going to be different going forward than it
1:49
Speaker 5: has been for the last at least oh, I don't know,
1:52
Speaker 5: forty years.
1:52
Speaker 2: It's saying more than regulatory, it's everything.
1:55
Speaker 5: Well, yeah, but I'm going to I'm trying to I'm
1:57
Speaker 5: trying to keep it narrow so that we don't get
1:59
Speaker 5: into a big discuss about lots of things. But just
2:02
Speaker 5: from the perspective of a financial advisor and investor buying
2:06
Speaker 5: products off the shelf, the world you're buying those products
2:09
Speaker 5: and is different. Right, We're clearly working towards a world
2:13
Speaker 5: that is more corporate friendly than it has been in
2:16
Speaker 5: the past, that is more deregulated than it has been
2:19
Speaker 5: in the past, and if we look at things like
2:21
Speaker 5: product launches and what's approved and how they're sold, the
2:24
Speaker 5: guardrails that have protected investors for a long time are
2:28
Speaker 5: being pulled down as we speak. We can argue about
2:30
Speaker 5: whether it's good or bad, and that's not really the conversation.
2:33
Speaker 5: I think that's important. The question is what do you
2:35
Speaker 5: do about it? And to me, the answer is you
2:38
Speaker 5: need to be much more careful about both what you're
2:41
Speaker 5: buying and who you're buying it from then we have
2:44
Speaker 5: been in the past. So it's not just that this
2:47
Speaker 5: kind of product or that kind of product is good
2:49
Speaker 5: or bad. It's can you trust these kinds of players
2:53
Speaker 5: to be on your side when something goes wrong, Like
2:56
Speaker 5: when the market's going up every year and everything's great,
2:58
Speaker 5: nobody cares. This is all about what happens when we
3:01
Speaker 5: have a down twenty percent day, or you have a
3:03
Speaker 5: broken trade, or something breaks in the derivatives markets.
3:06
Speaker 4: Everything that you've said is so saying, Eric, how could
3:09
Speaker 4: you take issue with any of that?
3:11
Speaker 1: Well, well, of course we got to break this down.
3:13
Speaker 2: Okay, when with the you like saw him tweet this.
3:18
Speaker 3: Well he's been ranting about it for a couple months
3:20
Speaker 3: on LinkedIn mostly and then the paper I think brought
3:23
Speaker 3: a lot of that together where I could read it
3:25
Speaker 3: all in one spot.
3:26
Speaker 1: Yeah, but he's on alone again.
3:27
Speaker 3: Athanastios is very similar, and I'm sure they represent a
3:31
Speaker 3: portion of people who all feel this way. So I
3:34
Speaker 3: think we just have to go through some of these
3:36
Speaker 3: new products. Let's start with the hot topic of today,
3:38
Speaker 3: which is putting private credit in private equity into ETFs.
3:42
Speaker 3: You bring up XOVR, which is an ETF that recently
3:45
Speaker 3: changed strategies to include some private equity and it added SpaceX,
3:49
Speaker 3: and SpaceX I think is a ten percent holding. Kathy
3:53
Speaker 3: Wood has an Interval Fund, which people say is a
3:55
Speaker 3: better form, for a better format to deliver private equity
3:59
Speaker 3: in where you can only get out once in a while,
4:01
Speaker 3: but nobody cares. I mean that fund has almost nothing
4:03
Speaker 3: and it's Kathy Wood. Here comes this new fund, XOVR,
4:07
Speaker 3: and people as soon as it puts SpaceX, the flows came.
4:11
Speaker 3: And it just seems to me the market wants private
4:13
Speaker 3: equity in the ETF, even if it's not the perfect
4:16
Speaker 3: way and comes with a bunch of public equities. And
4:18
Speaker 3: again it's pretty small. But what's the problem here?
4:21
Speaker 5: Essentially, So, the problem with XOVR is not that it's
4:25
Speaker 5: doing something wrong right, it's using the same fifteen percent
4:28
Speaker 5: the liquid bucket that every fund gets a chance to
4:30
Speaker 5: own the problem is that putting SpaceX in as the
4:34
Speaker 5: point to own the fund is both disingenuous. The most
4:38
Speaker 5: you're gonna get is ten percent exposure, and that exposure
4:41
Speaker 5: could go down significantly if you're part of a big
4:43
Speaker 5: rash of money coming in. So you're selling a fund
4:46
Speaker 5: based on maybe ten percent of its exposure, and then
4:50
Speaker 5: the very thing that you're investing in is problematic to price.
4:54
Speaker 5: They price this at one eighty five in December, it's
4:57
Speaker 5: still priced at one eighty five today. You can go
5:00
Speaker 5: on Forge or any number of these sort of alternative
5:03
Speaker 5: platforms like Karta where you could trade SpaceX stock as
5:06
Speaker 5: an individual investor, and it's trading anywhere from one hundred
5:09
Speaker 5: and forty to two hundred and forty. So there's an
5:12
Speaker 5: enormous band around what the SpaceX position is actually worth.
5:17
Speaker 5: I think there's real transparency issues, among other things. These
5:21
Speaker 5: aren't even indirectly investing in SpaceX, they're investing in another
5:25
Speaker 5: vehicle called an SPV, which or may or may not
5:28
Speaker 5: have fees on it. They will not tell us whether
5:31
Speaker 5: or not that position is being eroded by a continuous
5:34
Speaker 5: feed drain. So that lack of transparency and the lack
5:37
Speaker 5: of ability to price it accurately means that there's perverse incentives.
5:41
Speaker 5: They're only ever gonna mark this up because they get
5:44
Speaker 5: paid more when they mark it up.
5:46
Speaker 2: I'm with Dave here, this is like a game of
5:48
Speaker 2: telephone that's gotten really distorted with Bildana. What do you think?
5:52
Speaker 6: I think what we're all getting at is this good
5:55
Speaker 6: for the investor?
5:56
Speaker 7: Right?
5:56
Speaker 6: So that's like the crux of the question is a
5:59
Speaker 6: good or bad I've spoken with a number of issuers
6:03
Speaker 6: recently who have, for example, single stock levered products, and
6:08
Speaker 6: I asked them, like, what if in a year you
6:10
Speaker 6: look back and one of your products has just done
6:13
Speaker 6: just really terribly and people are like retail investors are
6:17
Speaker 6: calling you and complaining or have lost tremendous amounts of money, Like,
6:21
Speaker 6: do you have a sense of guilt or I don't know,
6:25
Speaker 6: some sort of sense that maybe things should have been
6:28
Speaker 6: clearer for the end investor on how risky some of
6:31
Speaker 6: these things are and all of them to a t said,
6:34
Speaker 6: this is America, Like people are free to buy what
6:37
Speaker 6: they want and if it means losing money, sometimes that's
6:41
Speaker 6: just what happens. That's the market called risk.
6:51
Speaker 3: Your point isn't the illiquidity, it's more of what's it
6:55
Speaker 3: being priced at every day, almost like there's some you know,
6:59
Speaker 3: there's been some mets back in the day that held
7:01
Speaker 3: stuff that didn't trade, and even bond ETFs in a crisis.
7:04
Speaker 3: Sometimes those bonds are stale, they don't have pricing. So
7:08
Speaker 3: what if they marked it more often? Would that solve
7:11
Speaker 3: your problem?
7:13
Speaker 5: I mean I suggested that they go interact with these
7:16
Speaker 5: platforms on like say a weekly basis like put yourself
7:20
Speaker 5: out there that you'll trade ten basis points of your
7:22
Speaker 5: SpaceX position in or out. Once a week you'll set
7:25
Speaker 5: a new mark that's based on live trading. That would
7:28
Speaker 5: be great, that would be transparency, that would be an
7:31
Speaker 5: actual value add to the market. This is the opposite
7:35
Speaker 5: of that. Not only are they not doing that, they're
7:37
Speaker 5: obscuring the very way they're acquiring these shares. That's the issue.
7:42
Speaker 5: It's not that these securities can't and shouldn't be held
7:45
Speaker 5: by anybody I'm not against SpaceX, I'm against the way
7:48
Speaker 5: this is.
7:49
Speaker 3: Yeah, you know what, I agree with him on that detail.
7:51
Speaker 3: I think XOVR should just market. And this is what
7:54
Speaker 3: Cliff Asten is brought up actually with the State Street one,
7:57
Speaker 3: which is going to hold private credit, which is if
7:59
Speaker 3: they start marking it, this could get interesting because a
8:02
Speaker 3: lot of people buy privates in the institutional world because
8:05
Speaker 3: they don't move. They like that NAB never moving because
8:08
Speaker 3: it lowers volatility. They call it volatility laundering, or at
8:10
Speaker 3: least Cliff Astnest does so. In essence, by not marking it,
8:14
Speaker 3: you're kind of getting that institutional lowvall. But I think
8:17
Speaker 3: they should market, and why not. You're right, these other
8:20
Speaker 3: platforms have. Okay, so I'm half with Dave there.
8:24
Speaker 4: Well you're being a purist here too, Dave, Right, Like,
8:27
Speaker 4: you have this thing called it an ETF. It's got
8:29
Speaker 4: this rapper that has superpowers. One of those things that
8:34
Speaker 4: investors that come to expect has been transparency. And if
8:37
Speaker 4: you're not being fully transparent in that rapper, it's like, well,
8:39
Speaker 4: you're doing something that's against the will of the ETF.
8:42
Speaker 5: Right, And I'm not arguing that these products should be
8:45
Speaker 5: all shut down. What I'm saying is that the ETF
8:48
Speaker 5: market historically has had the characteristic of being a white hat,
8:53
Speaker 5: generally being on investor's side, and you had to be
8:56
Speaker 5: said to do your due diligence, but you could count
8:58
Speaker 5: on the fact that as an industry, ETFs were largely
9:01
Speaker 5: on investor's side. With the current raft of ETFs, I
9:05
Speaker 5: don't think you can make that claim. I think XOVR
9:08
Speaker 5: is on er share side and will always be on
9:11
Speaker 5: er share side.
9:12
Speaker 2: Well, you you already did one thing, which is you
9:14
Speaker 2: changed Eric's mind slightly.
9:16
Speaker 4: So that's a win. Yeah, you eat out a win already.
9:18
Speaker 4: So you want to keep going? Do you want to
9:20
Speaker 4: keep playing this game?
9:21
Speaker 3: Yeah? So let's look at the private credit ETF, the
9:25
Speaker 3: Share Street Apollo private product credit ETF that I won't
9:28
Speaker 3: go into the sec versus State Street shenanigans.
9:30
Speaker 1: That happened, but that's a little wonky.
9:32
Speaker 3: But this market, this product is out and according to
9:35
Speaker 3: State Street, they hold twenty one percent in privates, which
9:38
Speaker 3: goes above that fifteen percent threshold.
9:42
Speaker 1: Do you have issues with that?
9:43
Speaker 3: And State Treat obviously launched the ETF industry, and are
9:47
Speaker 3: we like, how do you deal with something like that.
9:49
Speaker 3: If you think that product is black hat but the
9:52
Speaker 3: issuer's white like, what's your take on?
9:54
Speaker 5: So again, I think there are good ways to do this,
9:57
Speaker 5: and they are bad ways to do this. As structured,
10:00
Speaker 5: I think this Apollo State Street product is problematic. The
10:04
Speaker 5: only they what they hold right now is irrelevant by prospectives.
10:07
Speaker 5: They could have thirty five percent in the Polo bonds
10:09
Speaker 5: and another fifteen percent in other liquid stuff, so half
10:13
Speaker 5: of this fund could be in what we would all
10:16
Speaker 5: rationally call illiquid private credit. That thirty five percent bucket
10:20
Speaker 5: that Apollo is going to be responsible for. The only
10:24
Speaker 5: reason we know anything about how that's going to work
10:26
Speaker 5: is because the SEC forced their hand on a bunch
10:29
Speaker 5: of disclosure they chose to leave out of their formal documents.
10:33
Speaker 5: So they're not in the SAI, they're not in the prospectus,
10:36
Speaker 5: and they're critical right, So what are they on the
10:38
Speaker 5: hook for providing a bid every fifteen minutes for up
10:42
Speaker 5: to twenty five percent of the portfolio on a given day. Now,
10:45
Speaker 5: maybe that's the right number, maybe it's not, but we
10:48
Speaker 5: have no way of knowing because they didn't show us
10:50
Speaker 5: a liquidity study. It's not like what Bitwise did with bitcoin,
10:54
Speaker 5: where they published acres of research to get everybody comfortable.
10:58
Speaker 5: This is completely just trust us. We believe twenty five
11:01
Speaker 5: percent is enough. We believe these every fifteen minute bids
11:04
Speaker 5: are enough, and that's what you have to count on.
11:07
Speaker 5: And if the fund goes from one hundred billion dollars
11:09
Speaker 5: to fifty billion dollars in one day and they have
11:12
Speaker 5: to unload half the portfolio, oh well, well it seems
11:15
Speaker 5: like this is setting us up to be right back
11:17
Speaker 5: in third avenue.
11:18
Speaker 2: Yeah.
11:18
Speaker 1: Well, hold on a second, though. But here's the thing
11:20
Speaker 1: about ETFs.
11:21
Speaker 3: Even if we had that worst case scenario and only
11:24
Speaker 3: twenty five percent of the private credit, which again is
11:27
Speaker 3: only thirty five percent of the portfolio at max, so
11:29
Speaker 3: you're looking at maybe a slice of the portfolio is illiquid, frozen,
11:34
Speaker 3: the market makers of this world will still make a
11:36
Speaker 3: market in it. They'll just stretch out the arbitrage band,
11:38
Speaker 3: so it'll trade at a premium or discount, probably a discount.
11:41
Speaker 3: And you know J ANDK traded a discount at eight
11:43
Speaker 3: percent during the financial crisis for the same reason. So
11:46
Speaker 3: I just think that investors would rather have all that
11:50
Speaker 3: jazz and have the ETF turn into a semi closed
11:53
Speaker 3: end fund in those situations, then have it in a
11:57
Speaker 3: more proper wrapper like an interval fund or e a
12:00
Speaker 3: mutual fund or a hedge fund which they have no
12:02
Speaker 3: trust in.
12:03
Speaker 5: But do you know that these funds are just going
12:05
Speaker 5: to be sold on yield?
12:06
Speaker 2: Right?
12:06
Speaker 5: That's the only way this fund is being sold is hey,
12:09
Speaker 5: mister financial advisor, buy our private credit ETF because you'll
12:13
Speaker 5: get better yields for the same credit quality as you
12:15
Speaker 5: will get somewhere else. Nobody is saying we want privates
12:18
Speaker 5: because it's structurally different. They just want the better yield.
12:22
Speaker 5: So they're not buying this as a long term speculative play.
12:26
Speaker 5: They're buying yield. And when that yield locks up, as
12:28
Speaker 5: you said, I think that's going to be a problem. Again,
12:31
Speaker 5: not saying the products should go away, I'm saying advisors
12:33
Speaker 5: need to ask themselves. Do you trust Apollo to be
12:37
Speaker 5: on your side when we have a credit crisis?
12:40
Speaker 1: I don't.
12:41
Speaker 5: They're going to be very much on one side.
12:43
Speaker 3: Well follows, But do you trust State Street? State Street?
12:46
Speaker 3: Now this is an active fund. If it was passive,
12:48
Speaker 3: I would agree with you. But State Street has PMS
12:51
Speaker 3: and I talk to them. They're like, we're out there
12:53
Speaker 3: trying to find good deals, and they in the perspectives
12:55
Speaker 3: they can go beyond Apollo if they need to.
12:57
Speaker 1: So I think, in in.
12:59
Speaker 3: As essence, you are giving your trust to stay streat
13:01
Speaker 3: as an active manager to work all this out. And
13:04
Speaker 3: I think, I don't know, maybe it's a good guinea pig,
13:06
Speaker 3: like we'll see how this works.
13:07
Speaker 1: It's only a portion of privates. I don't know. I
13:10
Speaker 1: this time, I'm not convinced by Dave.
13:12
Speaker 5: Here's the positive coming back. I think it's going to
13:14
Speaker 5: be great that we get to see how they're marking
13:16
Speaker 5: these bonds every day. It's too bad that you have
13:18
Speaker 5: to have like a pH d in Excel to actually
13:21
Speaker 5: track it day to day. But we are getting I mean,
13:23
Speaker 5: already we're getting interesting pricing on private credit by digging
13:27
Speaker 5: into the fund, but you're gonna have to track it
13:29
Speaker 5: by hand because half the stuff doesn't have an icon.
13:33
Speaker 2: Bill Donald, let's send these guys back to the corners.
13:35
Speaker 2: Get some water.
13:38
Speaker 6: I have to say, this is so fun to just
13:40
Speaker 6: sit here and listen.
13:41
Speaker 2: I'm glad that we could join.
13:43
Speaker 6: Can we do this every week?
13:45
Speaker 1: Are you ready for Round three?
13:46
Speaker 2: Glad that we could join.
13:47
Speaker 4: Yes, hold on, well, just on the private credit stuff
13:50
Speaker 4: like what if anything jumps out at you and begs
13:54
Speaker 4: for a little bit more finessing.
13:56
Speaker 6: So it's early days still, but like super early days launch.
14:00
Speaker 6: But one way to maybe track the appetite from people
14:04
Speaker 6: for this is obviously via flows, and they are not
14:08
Speaker 6: there are no, they're non existent. Yeah so far unless
14:12
Speaker 6: there's some huge delay in the data coming out, but
14:16
Speaker 6: there hasn't been much going on.
14:17
Speaker 1: The volume's ok, eight million the first year. It's not bad.
14:20
Speaker 3: It's pretty good actually, and then the assets were fifty
14:22
Speaker 3: so they had seed.
14:23
Speaker 1: But yeah, you're right. Also it's credit.
14:26
Speaker 3: I just think xov are getting private equity would be
14:29
Speaker 3: a bigger rockstar launch. This is still bonds and it's
14:31
Speaker 3: still more boring and slow moving.
14:33
Speaker 2: Hey, do you need a pep tacotol?
14:35
Speaker 1: No, I'm good, I'm ready to go.
14:36
Speaker 2: Yeah, take the towel off. You're going back in.
14:40
Speaker 1: I'm like Matt Foley.
14:41
Speaker 3: I've been down the basement eating no dos for the
14:43
Speaker 3: past five hours.
14:46
Speaker 2: Okay, get back in there.
14:47
Speaker 3: You don't take any ribshots, okay, okay, okay, ready. So
14:51
Speaker 3: here you have this thing called leverage ets for chaos goblins.
14:57
Speaker 3: So what's a chaos goblin. Yeah, that's a great visual.
15:00
Speaker 3: By the way, that sounds like a good band name.
15:02
Speaker 3: I thought pretty much.
15:04
Speaker 5: Jim Kramer. Jim Kramer is the ultimate chaos goblin. Right,
15:07
Speaker 5: He's just gonna say whatever he's gonna say. The more
15:10
Speaker 5: chaotic it is, the better. And look, a lot of
15:12
Speaker 5: a lot of Wall Street finance, a lot of Wall
15:15
Speaker 5: Street medias are just chaos goblins. And that's largely what
15:19
Speaker 5: a lot of these sort of crazy like ninety percent
15:23
Speaker 5: yield on bitcoin type products are. Four They're not actually
15:27
Speaker 5: particularly useful. They are headline grabbing, hoping to catch people
15:31
Speaker 5: unawares so that they can, you know, in the case
15:34
Speaker 5: of like the yield Max stuff, just get all their
15:36
Speaker 5: money back and wash it through their return of capital
15:40
Speaker 5: gains situation.
15:41
Speaker 3: Okay, well there's two things. There's leverage ETFs and there's
15:44
Speaker 3: yield max. Let's go yield max first, since you brought
15:46
Speaker 3: it up. Okay, yield max is basically like I was
15:49
Speaker 3: the Money Show, which is all retail like a lot
15:51
Speaker 3: of like older investors, and I spoke at the inside
15:54
Speaker 3: the booth room, which is like I feel like a
15:56
Speaker 3: carnival barkroom up there, trying to get people attracted to
15:58
Speaker 3: my whole thing.
15:59
Speaker 1: It's good practice ground to speaking honestly.
16:02
Speaker 3: So I'm going over like a presentation called etf Hot
16:05
Speaker 3: Sauce the pros and cons, and people are like, there's
16:08
Speaker 3: like twelve people there. I start going over yield Max
16:11
Speaker 3: and I show these yields and it's like ninety eighty
16:13
Speaker 3: one hundred percent, and like the people start coming over.
16:16
Speaker 3: I can see jewel. My audience doubled. It was like
16:20
Speaker 3: Pavlovian dogs. I was like ringing some bell and I
16:23
Speaker 3: was like wow, And I said, wait, guys, all you're
16:26
Speaker 3: really doing is giving your total return and taking it
16:29
Speaker 3: back in the form of yield. It's you're almost like
16:31
Speaker 3: taking from one hand and giving it to the other.
16:34
Speaker 3: I don't think they care. I think I just think,
16:37
Speaker 3: you know we have this, you know that Journey song.
16:38
Speaker 3: Anyway you want it. They some corporations have taken on
16:41
Speaker 3: that as a commercial. Any way you want it, that's
16:43
Speaker 3: the way we'll get it. I think, if if you
16:45
Speaker 3: want your return in the form of yield through these
16:48
Speaker 3: right out of the money options writing strategies, well we'll
16:51
Speaker 3: give it to you that way, If that makes you
16:52
Speaker 3: feel good, you get to all in the income. I
16:54
Speaker 3: don't know that's how I see it. I agree with you.
16:57
Speaker 3: I wouldn't tell my mom to invest in these. But
16:59
Speaker 3: if somebody was just love seeing that income versus going
17:02
Speaker 3: and seeing total return, is that Is there any harm
17:05
Speaker 3: in that?
17:05
Speaker 2: Also, Dave, did he just admit to being a chaos goblin?
17:08
Speaker 5: I think so. Look the again, nobody's doing anything illegal here.
17:14
Speaker 5: This to me is about as an advisor, where are
17:17
Speaker 5: you putting your trust relationships? As an investor, where you're
17:19
Speaker 5: putting your trust relationships. There is nothing wrong with taking
17:23
Speaker 5: a volatile asset like bitcoin and trying to turn it
17:26
Speaker 5: into yield. There are lots of people trying to do
17:28
Speaker 5: that all across the ETF industry. What's wrong, or what
17:32
Speaker 5: I have problems with, is that to find out the
17:35
Speaker 5: fact that your eighty four percent yield is actually showing
17:38
Speaker 5: up as return of your own capital every single time
17:42
Speaker 5: you have to go three pages deep and then open
17:44
Speaker 5: a PDF. They're not leading with the most critical feature
17:48
Speaker 5: of this product, which is it is a way to
17:50
Speaker 5: generate return of capital, not to generate actual meaningful income.
17:55
Speaker 5: So they're not on your side. They're trying to convince
17:58
Speaker 5: you that you're getting something that you're not actually getting.
18:00
Speaker 5: There are other ways to do that. I actually think
18:02
Speaker 5: our old friends like Direction and pro Shares and the
18:05
Speaker 5: leverage side, who now are in this game as well,
18:08
Speaker 5: are actually examples of doing this about as gray hat
18:10
Speaker 5: as you can. They're over disclosed. They're warning you against
18:14
Speaker 5: these things. They're putting the warts out front and then
18:17
Speaker 5: convincing you of the benefits of the products. They're much
18:20
Speaker 5: more on your side in this case.
18:23
Speaker 2: Who said, are you on bil Donna?
18:25
Speaker 6: I don't want to take sides here. I like both
18:29
Speaker 6: of you a lot.
18:32
Speaker 2: Okay, son right there?
18:34
Speaker 6: Yeah, exactly.
18:41
Speaker 3: Part two of this one is the double leverage stock
18:43
Speaker 3: ETFs okay, NVDL. The Donna's covered this, ye, And these
18:47
Speaker 3: have been surprise hits. Some are five six billions. I
18:49
Speaker 3: mean sometimes the team were like, dude, what are we
18:52
Speaker 3: doing here? We should just put We feel like we
18:54
Speaker 3: missed the easiest idea ever. Just slap leverage on a
18:58
Speaker 3: stock that's doing well and like and then you can
19:00
Speaker 3: just go buy an island.
19:01
Speaker 6: Okay, anyway, but there's even crazier stuff now. And I
19:04
Speaker 6: think we discussed one of them once the battle shares
19:07
Speaker 6: battle shares, yea, and now we're getting one hundred hundred like.
19:10
Speaker 3: Yeah, parlay shares, right exactly. So look, sports gambling is legal.
19:15
Speaker 3: This is a portion of that. And I'll go one further.
19:18
Speaker 1: I get it.
19:19
Speaker 3: These are not products that I would say you should
19:20
Speaker 3: buy and hold, but if you trade them, you know,
19:24
Speaker 3: I think these are for young people who are degenerates
19:27
Speaker 3: and just love gambling, and we'll learn the hard way
19:29
Speaker 3: and then become Vanguard investors in their thirties on that's
19:32
Speaker 3: one thing. Or they are hot sauce fun for board
19:36
Speaker 3: as hell Vanguard investors who are basically decided to marry
19:40
Speaker 3: Vanguard and wait thirty years for all the compounding and
19:44
Speaker 3: that magic to happen. But you know, I'm sorry, it's
19:46
Speaker 3: like watching paint dry. So they have ten percent to
19:48
Speaker 3: go hog wild, in which you could argue is a
19:50
Speaker 3: behavioral hack not to touch the other ninety percent. If
19:56
Speaker 3: that keeps them having a little fun and occupied with
19:58
Speaker 3: their speculative foem, well then maybe it's it's fine. And
20:02
Speaker 3: these products, again, they are one percent of all assets,
20:06
Speaker 3: but maybe seventy eight percent of the volume something like that.
20:08
Speaker 3: So I do see them as rated our products. I
20:11
Speaker 3: see them as dangerous, but I do see them as
20:15
Speaker 3: just like the same old story as the old days
20:17
Speaker 3: of ets with the triple leveraged index funds and people
20:20
Speaker 3: who like to have fun. And then there'll be a
20:22
Speaker 3: hard rain and it'll wash a lot of these products
20:24
Speaker 3: away and then we'll start over again.
20:26
Speaker 6: There's there's a list. I was looking at a list
20:28
Speaker 6: of upcoming ETFs like they're set to launch in the
20:31
Speaker 6: coming days, and there's some there's some really good ones.
20:33
Speaker 6: There's Spcy Spicy and it's one hundred percent SMCI one
20:39
Speaker 6: hundred percent in the video for example. There you go,
20:41
Speaker 6: This is the type of thing that I think would
20:43
Speaker 6: fall on the discat.
20:44
Speaker 5: Yeah, and I'm sure it's free too, right.
20:47
Speaker 1: Yeah, they do all charge one percent.
20:48
Speaker 3: That's why it's Yeah, I mean, we're kind of like
20:51
Speaker 3: lottery tickets for the issuers in a way.
20:53
Speaker 1: So, but people hardly know.
20:55
Speaker 3: If you don't hold it a long time, the expense
20:57
Speaker 3: ratio isn't as meaningful versus a mutual fun one percent
21:00
Speaker 3: the whole long term.
21:01
Speaker 5: But that they still get paid, right, That's the problem
21:03
Speaker 5: is once they're trading, they get paid on the fact
21:06
Speaker 5: that there's now enough inventory out there because people are
21:08
Speaker 5: trading them like crazy. That's how you end up with
21:10
Speaker 5: five billion in there, not because people are holding five
21:13
Speaker 5: billion for six months.
21:14
Speaker 1: But is there anything wrong with being a degen as a.
21:18
Speaker 2: Young person only on the weekends?
21:20
Speaker 1: Yeah, or having ten percent to gen.
21:23
Speaker 5: Look, I'm not telling people they can't gamble, right, I'm
21:27
Speaker 5: not saying casino shouldn't exist. Again, My point here is
21:31
Speaker 5: these products are not on your side, and I also
21:34
Speaker 5: think that they hide real structural issues like the battle
21:37
Speaker 5: shares products. For example, two times Tesla minus one times Ford.
21:42
Speaker 5: That product, if you model it out, which I have,
21:45
Speaker 5: there is no world in which that looks like you
21:47
Speaker 5: think it looks.
21:48
Speaker 2: It is so.
21:49
Speaker 5: Wildly path dependent that if you hold it for more
21:52
Speaker 5: than a day or two, you're getting some strange pattern
21:55
Speaker 5: of returns, which is not Tesla winning and Ford losing.
21:59
Speaker 5: It's some it's it's just a weird pattern of returns.
22:02
Speaker 5: So these are going to be very unpredictable. People are
22:05
Speaker 5: buying them because they think they're going to get what
22:07
Speaker 5: they say on the on the hood. But you know
22:09
Speaker 5: your three x in video if you hold it for
22:11
Speaker 5: four days isn't gonna look like three X in video,
22:14
Speaker 5: because the more volatile the thing under the hood is,
22:17
Speaker 5: the less predictable the path dependency is.
22:20
Speaker 3: Now those are all like hot sauce. And I think
22:22
Speaker 3: this debate is going to go on for a long time.
22:25
Speaker 3: And thank you for giving us all your points, and
22:28
Speaker 3: you know.
22:28
Speaker 2: I agree says that.
22:30
Speaker 1: But one thing you brought up.
22:32
Speaker 3: We had a call earlier because I had so much
22:34
Speaker 3: to go over with him, and you said something like
22:37
Speaker 3: about Blackrock, and I thought that was interesting because all
22:39
Speaker 3: these are like smaller issuers.
22:41
Speaker 1: I get it.
22:41
Speaker 3: But you said Blackrock even caught your radar a little
22:45
Speaker 3: bit with their abandonment of ESG, and how maybe they
22:49
Speaker 3: have a little black hat in that case, and I
22:51
Speaker 3: wanted to explore that.
22:52
Speaker 5: Oh one hundred percent. So I look, whether you're I
22:56
Speaker 5: know you were, Eric, and you and I don't disagree.
22:58
Speaker 1: You don't.
22:58
Speaker 5: You and I don't agree on ESG very much. But
23:01
Speaker 5: my point is, if you're an institutional investor, and let's
23:03
Speaker 5: say you're on the committee for the Episcopal Church Endowment
23:06
Speaker 5: and you made a giant investment and a bunch of
23:08
Speaker 5: Blackrock funds because they met your stated mandate written into
23:12
Speaker 5: your rules about whether you can invest in oil, and
23:16
Speaker 5: now they've walked away from those very premises. They are
23:19
Speaker 5: not on your side. They have abandoned a mandate that
23:22
Speaker 5: you gave them money for. That is a black hat move.
23:26
Speaker 5: Now you can argue it's the right call, it's the
23:27
Speaker 5: right thing for the country. I'm not making any of
23:29
Speaker 5: those points. My point is if I've given money to
23:32
Speaker 5: somebody based on how they're going to run my money
23:34
Speaker 5: and they changed that and they don't immediately give me
23:37
Speaker 5: my money back, that is a black hat move. And
23:39
Speaker 5: I think it's also true that you're going to see
23:42
Speaker 5: firms like Blackrock launch whatever they need to launch to
23:45
Speaker 5: stay competitive. They've already doing it with buffered funds. You
23:48
Speaker 5: know they're going to say we'll never do single stock leverage,
23:50
Speaker 5: but I'm never going to say never.
23:52
Speaker 1: I agree they are very opportunistic.
23:54
Speaker 3: But would you say this thing about Vanguard because Vanguard
23:56
Speaker 3: wasn't as pronounced about ESG. But they also they think
23:59
Speaker 3: they withdrew from the Climate Asset Managers thing. They did
24:02
Speaker 3: a little stepping back, but they were never that loud
24:05
Speaker 3: in the first place.
24:07
Speaker 5: Yeah, I think Vanguard is just gonna be Vanguard, and
24:10
Speaker 5: look the things Vanguard needs to be paying attention to,
24:12
Speaker 5: like say, fixing their website and updating their customer service plan,
24:15
Speaker 5: those they don't seem to be investing in those either.
24:18
Speaker 5: So it's they're clearly just going to continue to be
24:20
Speaker 5: cheap and plenty of people are gonna love that.
24:23
Speaker 2: Sing and real quick.
24:26
Speaker 3: I used to watch him and Matt Hogan go up
24:28
Speaker 3: on a stage and like I was like in the
24:31
Speaker 3: front row, and these guys gave one of the greatest
24:34
Speaker 3: presentations every year. Now Matt Hogan has gone full crypto,
24:38
Speaker 3: and I wanted to ask Dave just last about about that.
24:41
Speaker 3: You have crypto in here, your your little mix. You
24:43
Speaker 3: say it's not good for it's an anti American thing,
24:46
Speaker 3: but I know you love Matt, and I was curious
24:48
Speaker 3: of your how you've maybe.
24:50
Speaker 2: Worked out reconciled.
24:51
Speaker 3: Yeah, what about a US spot like a bit B.
24:54
Speaker 3: Let's talk BitB Matt versus. Let's just take all the
25:00
Speaker 3: crazy crypto stuff and the all coins off the table,
25:03
Speaker 3: just the straight spot bitcoin ETF thoughts.
25:06
Speaker 5: I think that there are black hat and white hat
25:08
Speaker 5: players in crypto, and I would put in not just
25:10
Speaker 5: because I love Matt. I would put bit wise very
25:12
Speaker 5: much in the white hat camp because they're the ones
25:16
Speaker 5: doing the research for the benefit of investors to get
25:19
Speaker 5: these products across the line with real information. There's a
25:22
Speaker 5: big difference between that and what we're seeing elsewhere in
25:25
Speaker 5: the crypto ecosystem. So my diss on crypto is that
25:29
Speaker 5: if you're putting all your money in crypto, you're effectively
25:32
Speaker 5: betting on the fact that America is in decline, right
25:34
Speaker 5: because you're counting on bitcoin going to five hundred thousand
25:37
Speaker 5: dollars per bitcoin. That is not good for the dollar. Like,
25:41
Speaker 5: I think we need to recognize that. I don't think
25:44
Speaker 5: all crypto is evil, and I don't think crypto shouldn't
25:46
Speaker 5: be in ets, but I do think there are good
25:48
Speaker 5: ways and bad ways.
25:48
Speaker 2: To do it.
25:49
Speaker 3: What if it's a bet against the US government not
25:52
Speaker 3: being fiscally responsible, not against the America itself, and it
25:57
Speaker 3: was invented in America, Well maybe.
26:02
Speaker 2: We don't know.
26:03
Speaker 1: Okay, No, No, I.
26:05
Speaker 5: Think I think it's a fair point. I will say
26:08
Speaker 5: that I think it is very true that if you're
26:10
Speaker 5: taking your shiny rocks out of the country and putting
26:13
Speaker 5: them on an island somewhere, you're not betting on America,
26:15
Speaker 5: You're betting on something else.
26:17
Speaker 6: But what if we have the strategic crypto Reserve?
26:20
Speaker 5: Oh god, dude, we have another hour?
26:22
Speaker 1: Yeah, I know, Damn is that an off ramp or what?
26:26
Speaker 1: I don't know. If we can do that, then we're
26:28
Speaker 1: going to go straight into the lake on that ran
26:30
Speaker 1: you know.
26:31
Speaker 2: I think that's what I've been on those. I think
26:32
Speaker 2: we call that a mic drop.
26:35
Speaker 4: It.
26:36
Speaker 2: Dave Nating, thanks for joining us on Trillions.
26:38
Speaker 6: Thanks for having us, Thanks for having me.
26:44
Speaker 7: Thanks for listening to Trillions until next time. You can
26:47
Speaker 7: find us on the Bloomberg Terminal, Bloomberg dot com, Apple Podcasts, Spotify,
26:52
Speaker 7: or wherever else.
26:53
Speaker 2: You'd like to listen. We'd love to hear from you.
26:55
Speaker 7: We're on Twitter, I'm at Joel Webber Show.
26:58
Speaker 2: He's at Airic Vultunas.
27:01
Speaker 7: This episode of Trillions was produced by Magnus Hendrickson. Bye