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Digital Currencies Are Entering A Third Phase: CoinShares Chair · Bloomberg Intelligence

• 0:05
  Speaker 1: Welcome to the Bloomberg P and L Podcast. I'm Pim
• 0:08
  Speaker 1: Fox along with my co host Lisa A. Bramowitz. Each
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  Speaker 1: day we bring you the most important, noteworthy, and useful
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• 0:27
  Speaker 1: The news this week, financial services giant Fidelity is taking
• 0:32
  Speaker 1: a huge step into the world of cryptocurrency. It announced
• 0:35
  Speaker 1: the launch of a separate company called Fidelity Digital Assets Services.
• 0:40
  Speaker 1: It is designed to handle cryptocurrency custody and trade execution
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  Speaker 1: for institutional investors. And I think there's probably no one
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  Speaker 1: better to comment on this than Danny Masters. Danny Masters is,
• 0:55
  Speaker 1: of course the chairman of coin Shares. He is previously
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  Speaker 1: the head of JP Morgan's New York energy trading business
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  Speaker 1: before he set up his own commodity funds. He joins
• 1:05
  Speaker 1: us here in our Bloomberg Interact or Broker Studios. Danny,
• 1:09
  Speaker 1: thank you very much for coming in. What was your
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  Speaker 1: reaction when you heard that Fidelity was offering these kinds
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  Speaker 1: of services? About time? Abby Cohen's been at the forefront
• 1:21
  Speaker 1: of distributed ledger technology. For some time, we've interacted with
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  Speaker 1: Fidelity across multiple vectors, Um Johnson, Abbie Johnson's face parton Johnson,
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  Speaker 1: You're right and she Um, I think what you know
• 1:35
  Speaker 1: in concert with her founding grandfather's view about the finances, Um,
• 1:40
  Speaker 1: you know, they think big and they think forward, and
• 1:43
  Speaker 1: she sees this as being a new industry in a
• 1:45
  Speaker 1: new way to form capital and distribute capital. Um. And
• 1:48
  Speaker 1: I think they're going to do very well with that.
• 1:51
  Speaker 1: Do you still think, given all the volatility that we've
• 1:54
  Speaker 1: seen in cryptocurrencies this year, that this asset class is
• 1:59
  Speaker 1: sort of a new commodity of sorts in a new
• 2:01
  Speaker 1: store of wealth. I think the narrative change is very
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  Speaker 1: rapidly in crypto. It is an evolutionary process, for sure,
• 2:09
  Speaker 1: maybe a revolutionary process. Uh. And the way I'm currently
• 2:13
  Speaker 1: thinking is really in that what is happening now and
• 2:17
  Speaker 1: the timely entry of Fidelity and others is really the
• 2:20
  Speaker 1: what I call the third wave of the crypto movement.
• 2:24
  Speaker 1: First wave Bitcoin arrives, it disrupts golden money. The second
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  Speaker 1: wave we see ethereum a new blockchain that has the
• 2:31
  Speaker 1: ability to form capital. That happens very rapidly in in
• 2:35
  Speaker 1: a in a very large way. The SEC don't like that.
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  Speaker 1: We're talking initial coin offering, initial coin offerings. The SEC
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  Speaker 1: don't like that for obvious reasons, and that comes to
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  Speaker 1: essentially a screeching halt. Third wave, in my opinion, will
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  Speaker 1: be this so called security token. So you cannot do
• 2:52
  Speaker 1: an initial coin offering with ease anymore, but you can
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  Speaker 1: do a security token. What does that mean? That will
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  Speaker 1: be in the first instance, one of the exemptions from
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  Speaker 1: the Securities Act, either a reg A and a plus
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  Speaker 1: reg D reg S, whereby a token will will represent
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  Speaker 1: equity in a private company and it will exist in
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  Speaker 1: this space between what has traditionally been private companies and
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  Speaker 1: public companies, and it will be a hybrid which is
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  Speaker 1: transparent and liquid and transferable. Why do we need this Well,
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  Speaker 1: I think you for the average investor um to buy
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  Speaker 1: into a fully publicly listed company, you know the S
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  Speaker 1: and P multiple will be around right now. If you
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  Speaker 1: buy into a private company, you might get the five
• 3:37
  Speaker 1: to ten P So there is potentially a tremendous value
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  Speaker 1: to be a accrued to a smaller investor coming in
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  Speaker 1: at the lower end of that of that P spread
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  Speaker 1: because those assets are typically not available to the average person.
• 3:50
  Speaker 1: I want to ask you about something having to do
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  Speaker 1: with access, because if and I know from your website,
• 3:57
  Speaker 1: if you have a broker that already does business on
• 4:02
  Speaker 1: the NASDAK in Sweden, you already have pretty much access
• 4:07
  Speaker 1: to a variety of trackers for cryptocurrencies. There's the Bitcoin
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  Speaker 1: Tracker one, there's one in Euros. There's also the Ether
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  Speaker 1: tracker one and one in Euros. What have you learned
• 4:20
  Speaker 1: from that experience? It's been a expt provider, has been
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  Speaker 1: a wonderful journey for us. You know, we we we
• 4:28
  Speaker 1: started very small and we got I think we peeked
• 4:30
  Speaker 1: around one point seven billion, and the prices were high
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  Speaker 1: last year and obviously receded with the price drop. Um
• 4:37
  Speaker 1: it's been an interesting episode and journey with NASDAC themselves
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  Speaker 1: because it's a controversial asset class. It has characteristics like
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  Speaker 1: security of the assets themselves which don't exist in other
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  Speaker 1: asset classes. I think you've seen NASDAC themselves now starting
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  Speaker 1: to talk about security token exchanges as well going forward.
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  Speaker 1: So you know, it was an embry on, it an
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  Speaker 1: early adoption and it got a lot of traction and
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  Speaker 1: I think it's going to be the first of not
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  Speaker 1: only trackers in other markets and other jurisdictions on bitcoin
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  Speaker 1: and other cryptos, but I think it will be that
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  Speaker 1: it will prove to be the precursor to the larger exchanges.
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  Speaker 1: Actually looking at security token markets themselves, So how does
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  Speaker 1: blockchain fit into these sort of securities token markets because
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  Speaker 1: it just listening to it, it sounds like it's a
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  Speaker 1: way to create a token that is outside of the
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  Speaker 1: public equity regulatory structure. But how does blockchain fit into
• 5:36
  Speaker 1: It's not actually outside of the regulatary structure, it's outside
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  Speaker 1: of the piping and infrastructure of the conventional marketplace. So, um,
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  Speaker 1: when you look at how the Chicago merk or the
• 5:50
  Speaker 1: New York Stock Exchange work, there is a bunch of
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  Speaker 1: electronic piping that goes around making the transfer and the
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  Speaker 1: trading of these shares happen. Um, and that is a
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  Speaker 1: con cerebral infrastructure. And there has been talk about deploying
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  Speaker 1: distributed ledger technologies to these exchanges in order to get
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  Speaker 1: the advantages of distributed ledger technology. What are the advantages?
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  Speaker 1: They are real time settlement, low latency, transferability, portability, ext
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  Speaker 1: central crisis for b andy melon right exactly. So, so
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  Speaker 1: those are the advantages. But rather than re engineer the
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  Speaker 1: CME so that they rip out all their old systems
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  Speaker 1: and put in distributed ledger databases and so on, what
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  Speaker 1: you do is you turn securities into cryptos, and you
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  Speaker 1: turn them you trade them on crypto exchanges. So we're
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  Speaker 1: seeing this with a bunch of companies out there. They're
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  Speaker 1: taking as a certain an example before the regg D environment,
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  Speaker 1: creating a security in a token. We will have an
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  Speaker 1: ice in, but it will trade in a some sort
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  Speaker 1: of walled garden that will look like a crypto exchange.
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  Speaker 1: You've seen coin based do this um. The structure that
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  Speaker 1: they're putting together is a register broker dealer, a registered
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  Speaker 1: investment advisor in all fifty states, and an automated and
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  Speaker 1: alternative trading system. Once you put those three things together,
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  Speaker 1: plus the twelve and a half million customers, they have
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  Speaker 1: their own stock market, and once they issue tokens on it.
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  Speaker 1: This is a competitor's nicely and that step just quickly.
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  Speaker 1: Should you mine or should you buy? If you're an
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  Speaker 1: individual to learn about this marketplace, buy, okay, don't go
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  Speaker 1: into the mining business. I think for coin Shares at least.
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  Speaker 1: You know, we we we occupy multiple verticals in this
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  Speaker 1: digital esset space. The one thing we don't do directly
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  Speaker 1: is mining. It's a very complex calculation in order to
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  Speaker 1: figure out the economics of mining. It is also something
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  Speaker 1: of an arms race when it comes to the chips
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  Speaker 1: and the technology that go with it, and we don't
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  Speaker 1: really want to play in that space. Danny Masters a pleasure.
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  Speaker 1: Thank you so much for coming in. We really appreciate it.
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  Speaker 1: My pleasure, thank you, Thank you guys. Danny Masters is
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  Speaker 1: a share a bit of coin Shares Group, which oversees
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  Speaker 1: about a billion dollars or more than a billion dollars
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  Speaker 1: of crypto. So it's from London, although he joins us
• 8:02
  Speaker 1: here in our eleven three oh studios, and of course
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  Speaker 1: he is a former global head of Energy and Trading
• 8:05
  Speaker 1: at the predecessor of JP Morgan and then the JP
• 8:09
  Speaker 1: Morgan Unich him. Yesterday, news came out that Uber Technologies
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  Speaker 1: is increasing the size of its debut bond offering since
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  Speaker 1: there just is so much demand. They're going from one
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  Speaker 1: and a half billion to two billion dollars of bonds.
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  Speaker 1: Joining us now, Kathleen Gaffney co director of Diversified Fixed
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  Speaker 1: Income and EAT Advance UH and GURU and all things
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  Speaker 1: fixed income and credit. Kathleen, are you out there buying
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  Speaker 1: these super bonds? We are not UH as as tantalizing
• 8:40
  Speaker 1: as eight percent is. Eight percent comes with a whole
• 8:44
  Speaker 1: lot of risk about the future. I tend to be
• 8:47
  Speaker 1: very cynical about new issue in general. The bankers have
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  Speaker 1: a good sense of timing, which is not in the
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  Speaker 1: favor of investors. Good sense of timing means knows when
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  Speaker 1: they can get the perfect pricing for the issue you're
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  Speaker 1: but probably the worst pricing for the investor. But what
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  Speaker 1: does this tell you that there is so much demand
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  Speaker 1: for this bond offering from a company that is burning
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  Speaker 1: cash and UH and has a lot of sort of
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  Speaker 1: hair around it. It's tough because there aren't a lot
• 9:19
  Speaker 1: of options. There isn't a lot of supply, and so
• 9:22
  Speaker 1: if you have to be invested in high yield and
• 9:25
  Speaker 1: those are the buyers high yield funds in general, you've
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  Speaker 1: got to buy what's coming to market, and you can
• 9:34
  Speaker 1: make the case that it's good relative value. You're getting
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  Speaker 1: paid quite a bit. But eight percent may not cover
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  Speaker 1: the risks that we see down the road. If Uber
• 9:47
  Speaker 1: isn't able to execute perfectly, I don't know how many
• 9:51
  Speaker 1: new young companies have been able to pull off executing
• 9:55
  Speaker 1: things perfectly. Even at my old age, I'm not executing
• 9:59
  Speaker 1: things per I stop. I want to put a larger
• 10:05
  Speaker 1: question to you, which is that the total US debt
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  Speaker 1: to GDP ratio is currently around three, and if you
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  Speaker 1: include state local debt contingent liabilities, this goes above five. Oh. Yes,
• 10:24
  Speaker 1: adding global debt to GDP has surged. It's over seventy
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  Speaker 1: trillion dollars was added to global debt total since two
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  Speaker 1: thousand eight. Why would people be buying an asset that
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  Speaker 1: has just swamped the market with supply. It isn't rational
• 10:47
  Speaker 1: in the long run, but in the short term, And
• 10:50
  Speaker 1: if you're only short term oriented, you can make that case.
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  Speaker 1: That's the trouble that investors are going to get into
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  Speaker 1: that if you only think about the short term, your
• 11:02
  Speaker 1: eight percent is going to be a lot lower in
• 11:06
  Speaker 1: terms of your real return down the road. Pay attention
• 11:10
  Speaker 1: to where rates are headed long term. It's eight percent,
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  Speaker 1: you believe Do you believe that institution well could have
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  Speaker 1: divided institutional investors? Do you believe they recognize the risks
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  Speaker 1: or do they see that they can get out. I
• 11:26
  Speaker 1: think they think they can get out um. But I
• 11:29
  Speaker 1: also think they operate in a short term environment where
• 11:34
  Speaker 1: their incentives are to make it through this year. They're
• 11:40
  Speaker 1: not thinking about what do I ultimately want to be
• 11:43
  Speaker 1: able to deliver. We have come so far away from
• 11:47
  Speaker 1: what our jobs ultimately are to do uh that we
• 11:52
  Speaker 1: work in very narrow uh spaces. Well, but hold on
• 11:57
  Speaker 1: a second, because a lot of people have been sort
• 11:59
  Speaker 1: of for telling gloom and doom since given how low
• 12:04
  Speaker 1: rates were going and short term turned out to be
• 12:06
  Speaker 1: five years at least six years, so you know what
• 12:09
  Speaker 1: is short term, especially if people don't foresee a downturn.
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  Speaker 1: That That is a very good point, and I think
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  Speaker 1: it's part of what keeps people anchored um in the
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  Speaker 1: old ways and not thinking about how differently the market
• 12:21
  Speaker 1: could be. The biggest signal has been the correlation between
• 12:26
  Speaker 1: stocks and bonds of late. We saw it in February
• 12:29
  Speaker 1: stock sold off, bonds were essentially flat when they should
• 12:33
  Speaker 1: have rallied. It happened again in the last few weeks
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  Speaker 1: when we saw the equity vall pick up significantly, but
• 12:40
  Speaker 1: treasury vall and and in fact credit fall picked up
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  Speaker 1: very little. So it's not the income. The carry isn't
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  Speaker 1: serving the role that it did, and that anchor to windward,
• 12:52
  Speaker 1: that flight to quality is not working the way that
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  Speaker 1: it did. So what's your best bet right now, given
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  Speaker 1: the changing environment, It is to look to look abroad,
• 13:02
  Speaker 1: to look away from the US, to look at where
• 13:05
  Speaker 1: there's real growth and positive fundamentals and positive economic policy.
• 13:11
  Speaker 1: So emerging markets. I continue to harp on that, but
• 13:15
  Speaker 1: I think that's where you're seeing inflation coming down, reforms
• 13:19
  Speaker 1: being put in place. It's not widespread. There are still
• 13:24
  Speaker 1: countries that are struggling to become more mainstream, but there
• 13:28
  Speaker 1: are areas of the world, particularly Latin America, that look attractive.
• 13:33
  Speaker 1: And I think Asia down the road because of the
• 13:37
  Speaker 1: um differences, the long term tension that is increasing between
• 13:42
  Speaker 1: the US and China, that is going to have some
• 13:45
  Speaker 1: significant implications for countries in Asia that aren't China that
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  Speaker 1: will benefit from our need to keep our tech capabilities
• 13:58
  Speaker 1: close to home and China racing for made so lots
• 14:04
  Speaker 1: of long term implications that favor emerging markets. We've got
• 14:09
  Speaker 1: to leave it there, but we'd love to have you
• 14:10
  Speaker 1: back and spend more time. Thank you very much for
• 14:13
  Speaker 1: being here. Thanks Pam Kathen Gaffney, co director of Diversified
• 14:18
  Speaker 1: Fixed Income at Eaton Vance on the world's fixed income markets. Well,
• 14:27
  Speaker 1: Canada is the second country in the world to legalize
• 14:31
  Speaker 1: recreational marijuana and just after Uruguay. And here to tell
• 14:36
  Speaker 1: us about perhaps some of the beneficiaries is on AA Grana,
• 14:40
  Speaker 1: our senior software and I T Services analyst for Bloomberg
• 14:45
  Speaker 1: Intelligence on a rag the company Shopify connect Shopify with
• 14:51
  Speaker 1: the legalization of recreational pot Hi, Pim, isn't it interesting
• 14:57
  Speaker 1: that IBM st and we're talking cannabis. But you know,
• 15:02
  Speaker 1: you look at um Shopify, which provides software and an
• 15:07
  Speaker 1: e commerce platform for companies to sell whatever they want
• 15:10
  Speaker 1: to sell. UM it's a Canadian domicile the company, so
• 15:13
  Speaker 1: it was very natural for I believe the Canadian government
• 15:16
  Speaker 1: to go out and you know, use them as one
• 15:19
  Speaker 1: of the vendors. And given that their software is cloud based,
• 15:23
  Speaker 1: and some of the requirements are that you have to
• 15:26
  Speaker 1: make sure that you know, you track the entire supply
• 15:29
  Speaker 1: chain of cannabis from you know, the seed to supply
• 15:33
  Speaker 1: and also you want to know to make sure that
• 15:36
  Speaker 1: you have you know, enough data encryption and privacy regulations
• 15:40
  Speaker 1: in place so that you know that the customer data
• 15:43
  Speaker 1: is not leaked. So because of those two reasons, I think,
• 15:46
  Speaker 1: you know, Shopify was the natural choice. All right, let's
• 15:49
  Speaker 1: if Tom Keene were speaking, let's rub up the script,
• 15:51
  Speaker 1: because you say that IBM you point out that it's
• 15:54
  Speaker 1: having its biggest one day to clients, and this comes
• 15:57
  Speaker 1: of course off their disappointing earnings a sort of point
• 16:00
  Speaker 1: to some issues with their cloud computing and artificial intelligence units.
• 16:05
  Speaker 1: Is this a huge deal or is this an overreaction
• 16:07
  Speaker 1: by markets? Oh well, we wrote about this even before
• 16:10
  Speaker 1: learnings that, you know, the last push that they got
• 16:13
  Speaker 1: from some kind of you know, you would say glimmers
• 16:15
  Speaker 1: of hope was through their systems division, which is a
• 16:17
  Speaker 1: mainframe refresh they get about two to three years. But
• 16:21
  Speaker 1: if you peel that off, you know they're they're petting
• 16:24
  Speaker 1: the entire company on Watson, an artificial intelligence and a
• 16:27
  Speaker 1: large portion of those products are in a division called
• 16:31
  Speaker 1: Cognitive Solutions. And I mean that you know, there was
• 16:34
  Speaker 1: down five in constant currency. That's a that's a massive
• 16:38
  Speaker 1: drop in our you and I think that's what striving
• 16:40
  Speaker 1: this particular UM, you know, sell off and we need
• 16:43
  Speaker 1: to understand whether they can recover from this or not.
• 16:45
  Speaker 1: So do you think that they can. It's going to
• 16:48
  Speaker 1: be tough, especially given that you know the market is
• 16:51
  Speaker 1: getting very competitive and there are enough you know, cloud
• 16:54
  Speaker 1: based software companies out there. Amazon selling it's artificial intelligence tools,
• 16:59
  Speaker 1: enterprise art visual intelligence tools, Microsoft is selling it, Google
• 17:02
  Speaker 1: is selling it UM. I mean theeed IBM people have
• 17:05
  Speaker 1: to do something drastic and something you know completely, I
• 17:09
  Speaker 1: would say, um urgently. Otherwise, you know, people not gonna
• 17:13
  Speaker 1: like sales, you know, being negative let's say in the
• 17:16
  Speaker 1: next couple of years. That's not going to go well
• 17:18
  Speaker 1: with them on the rug. How did IBM miss this?
• 17:24
  Speaker 1: It's tough him as I've said it for the last
• 17:27
  Speaker 1: several years. I mean, this is a company which has
• 17:29
  Speaker 1: a fair amount of legacy I T services business and UM.
• 17:34
  Speaker 1: Sooner or later, a large portion of data centers are
• 17:37
  Speaker 1: being closed down, People are moving workloads to the cloud.
• 17:40
  Speaker 1: People are actually sometimes renting somebody else's data. No, I
• 17:43
  Speaker 1: know all this, but how did IBM miss this trend? Oh?
• 17:49
  Speaker 1: You mean to say from a large I would have
• 17:51
  Speaker 1: to go back to Mr Sam Paulisono and ask him
• 17:53
  Speaker 1: this thing. This goes way beyond you know, even earlier
• 17:56
  Speaker 1: than gineer Maries days, because um, this this move, it
• 18:00
  Speaker 1: has been going on for over ten years, and IBM,
• 18:03
  Speaker 1: I think, you know, was was a lagged at that point.
• 18:06
  Speaker 1: So I'm just looking right now. So IBM is considered
• 18:08
  Speaker 1: one of the big giants, the stalwarts of the Czech universe.
• 18:12
  Speaker 1: In the United States, hasn't a rating, has a whole
• 18:15
  Speaker 1: bunch of debt. Do you see this sort of miss
• 18:18
  Speaker 1: and they're missing of the trend to be a permanent
• 18:21
  Speaker 1: blemish that going forward they cannot recover from, will end
• 18:24
  Speaker 1: up degrading their credit rating and create a downward spiral
• 18:28
  Speaker 1: for them. So I'm not sure about the credit rating
• 18:31
  Speaker 1: part of it, because at the end of the day,
• 18:32
  Speaker 1: you know, one division was down five the other one
• 18:35
  Speaker 1: was too. You know, if you're going to be looking
• 18:37
  Speaker 1: at zero two percent growth, you mean you're gonna probably
• 18:39
  Speaker 1: make the same amount of money next year to the
• 18:41
  Speaker 1: year after. But if you're a tech company, you know
• 18:44
  Speaker 1: mrs want to see growth at least equity investors do.
• 18:47
  Speaker 1: So from that point of view, I think the biggest
• 18:49
  Speaker 1: question is can they show positive growth over the next
• 18:52
  Speaker 1: couple of years, and yesterday's results puts a big question
• 18:55
  Speaker 1: mark to it because you know, as I said, one
• 18:57
  Speaker 1: of the most promising divisions, that's the one where the photos. Yeah,
• 19:01
  Speaker 1: Annora Grana, thank you so much for being with us.
• 19:03
  Speaker 1: Annora Grana, Senior analyst of Software and I T Services
• 19:06
  Speaker 1: at Bloomberg Intelligence. And IBM does have more than forty
• 19:10
  Speaker 1: one billion dollars of debt um, which you know isn't
• 19:14
  Speaker 1: massive compared to their cap market cap compared to say,
• 19:17
  Speaker 1: I don't know a Netflix out there or one of
• 19:19
  Speaker 1: the others, but definitely interesting and shares are plunging today
• 19:22
  Speaker 1: after their disappointing earnings last night. Our guest is Ben Emmons.
• 19:28
  Speaker 1: He is the chief economist and head of Credit Portfolio
• 19:31
  Speaker 1: Management and Intellectist Partners. He is also a contributor to
• 19:35
  Speaker 1: Bloomberg Opinion. He's based in Los Angeles. Ben, thank you
• 19:39
  Speaker 1: very much for being with us. Talk if you can
• 19:42
  Speaker 1: about the independence of the Federal Reserve and how many
• 19:45
  Speaker 1: interest rate increases you see in twenty nineteen after the
• 19:51
  Speaker 1: mid term elections. Good morning, Bim, and thanks very much
• 19:55
  Speaker 1: for having me. Um. Well, the defend independence is very much.
• 19:58
  Speaker 1: Dare I think that that the v in comments by
• 20:00
  Speaker 1: bus Stage or even Kaplan have indicated clearly that you know,
• 20:03
  Speaker 1: we're staying the course here. Paul will not come out
• 20:06
  Speaker 1: himselves maybe saying this, but clearly they're going to stay
• 20:09
  Speaker 1: the course. Um. And that's really cement about his labor
• 20:12
  Speaker 1: market strength, like for example, Jolt State yesterday shows that
• 20:15
  Speaker 1: that you know, they can keep that gradual rate hike
• 20:17
  Speaker 1: patients intact, which I think we will see another three
• 20:21
  Speaker 1: rate hikes into the middle of twenty nineteen, which will
• 20:24
  Speaker 1: bring us closer to that three number on the fat
• 20:28
  Speaker 1: fronds rate, which is sort of the long term neutral rate.
• 20:30
  Speaker 1: I think that's where they're heading. It does seem like
• 20:33
  Speaker 1: that's what is being priced into the market. But I'd
• 20:36
  Speaker 1: love to get your opinion. Just on something that happened
• 20:39
  Speaker 1: yesterday to not a lot of fanfare. There was the
• 20:42
  Speaker 1: first time ever that the Treasury Department sold eight week
• 20:45
  Speaker 1: treasury bills two month treasury bills. And I don't know
• 20:49
  Speaker 1: if this is wrong to say, but it was not
• 20:51
  Speaker 1: a good auction and I've seen sort of some distortions
• 20:55
  Speaker 1: in the front end of the treasury market. In a
• 20:57
  Speaker 1: response with three month treasury yield climbing at a disproportionate rate.
• 21:02
  Speaker 1: Do you think this was a mistake at the Treasury
• 21:03
  Speaker 1: Department's part. So it's an interesting dynamic that as you're highlighting, Lisa,
• 21:09
  Speaker 1: because you know, this is like a really short term
• 21:11
  Speaker 1: gap measure if you think about it, right, you financed
• 21:13
  Speaker 1: the deficit really short term, and not all of it
• 21:16
  Speaker 1: of course, but like it's one of those measures and
• 21:19
  Speaker 1: two months, right, which binks is you know, basically at
• 21:21
  Speaker 1: the end of the year. So you know, I think
• 21:24
  Speaker 1: what the market is trying to indicate it is like
• 21:26
  Speaker 1: all this sort of supply that then needs to be
• 21:28
  Speaker 1: rolled over again. It is what I think causes some
• 21:31
  Speaker 1: of that distortion. The other part I think is happening
• 21:34
  Speaker 1: is that we're going again towards this year and effect
• 21:37
  Speaker 1: on bank balance sheets, right, that that tends to be
• 21:39
  Speaker 1: the case when they withdraw some of the balance sheet
• 21:41
  Speaker 1: to fund other people's balunce sheets, And therefore I think
• 21:45
  Speaker 1: you get some distortion and money market rates to which
• 21:48
  Speaker 1: includes treasury bills. Why maybe some of his bidding wasn't
• 21:51
  Speaker 1: that strong in the in the treasury bill market. That
• 21:54
  Speaker 1: being said, though, if you think about treasury bills is
• 21:56
  Speaker 1: and safe assets. It's still very much in demand, right,
• 21:59
  Speaker 1: So I don't think that the distortionself isn't signal that
• 22:03
  Speaker 1: the demand for safe as is a necessarily change. But
• 22:06
  Speaker 1: let's go overseas if we can for just a moment.
• 22:09
  Speaker 1: I want to get your thoughts on what is happening
• 22:10
  Speaker 1: in Italy and the European Union and the Italian government's budget. Yeah,
• 22:16
  Speaker 1: so you know, the headlinesing and today are just very
• 22:19
  Speaker 1: European bim if you think about that, you have the
• 22:23
  Speaker 1: European Commission that wants Italy to stick with the rules,
• 22:26
  Speaker 1: and of course Italy proposes a budget that's you know,
• 22:29
  Speaker 1: not sticking with the rules. And you see Salvini just
• 22:31
  Speaker 1: out now saying let us just do the work. And
• 22:34
  Speaker 1: then you have the entaser, you know, chairman coming out like, wow,
• 22:38
  Speaker 1: we don't know, we're going to support and the idea
• 22:40
  Speaker 1: of rules and we're gonna stick with that. So you
• 22:41
  Speaker 1: have this noise, right, and what it does is in
• 22:45
  Speaker 1: particularly European bomb markets, gives this perception that there will
• 22:49
  Speaker 1: be a standoff idea that just like Shablow with treesa
• 22:53
  Speaker 1: trip us in the past and Greece, that that creates
• 22:56
  Speaker 1: and widening of spreads, just uncertainty gets priced in there.
• 22:59
  Speaker 1: Ultimately Italy will likely go its way and does this
• 23:02
  Speaker 1: budget of two point four percent, and then there's a
• 23:05
  Speaker 1: question about how they're going to moderate it over the
• 23:07
  Speaker 1: over the time that comes after that in terms of
• 23:10
  Speaker 1: controlling the deficit, because clearly Italian rates have risen much
• 23:14
  Speaker 1: higher with this view that that death load is becoming
• 23:16
  Speaker 1: more problematic. From here, how much further do you expect
• 23:20
  Speaker 1: the Italian yields to rise though? I mean, are we
• 23:22
  Speaker 1: just sort of at the beginning or middle end of
• 23:24
  Speaker 1: the widening. So if you think about what happened in
• 23:27
  Speaker 1: the in the death crisis a number of years ago,
• 23:30
  Speaker 1: when we were at seven percent in the Italian yields,
• 23:32
  Speaker 1: that was really pricing Italy essentially being out of the Eurozone,
• 23:36
  Speaker 1: out of the monetary Union. And so I don't think
• 23:38
  Speaker 1: we'll go to death directions as yet. This three and
• 23:41
  Speaker 1: a half percent seems to me more like what markets
• 23:43
  Speaker 1: are indicating that in order to run the deficits like
• 23:47
  Speaker 1: like two point four percent and the debt GDP rates
• 23:50
  Speaker 1: you're well over hunters in order to stabilize the death
• 23:53
  Speaker 1: GDP ratio, that needs to be higher risk beaming right
• 23:56
  Speaker 1: in order to to compensate for that. I think this
• 23:58
  Speaker 1: is why three and a half percent the ten years
• 24:00
  Speaker 1: sort of reflecting, and we could go up a little
• 24:03
  Speaker 1: bit more from here, because if this uncertainty remains about,
• 24:07
  Speaker 1: you know, approving this budget, markets will price and uncertainty
• 24:10
  Speaker 1: into the higher yields. So, since we're in Europe and
• 24:13
  Speaker 1: we're overseas, I want to get your thoughts on Turkey,
• 24:16
  Speaker 1: which has been dealing with a currency crisis and then decides,
• 24:19
  Speaker 1: well it's ebbed a little bit. We've released that pastor uh,
• 24:22
  Speaker 1: we're gonna now sell dollar bonds two billion dollars of them.
• 24:25
  Speaker 1: Would you be a buyer of Turkish dollar bonds right now? So?
• 24:29
  Speaker 1: I think that that greatly depends upon the stability of
• 24:31
  Speaker 1: the Turkish layer itself. That the central bank has responded,
• 24:35
  Speaker 1: and there's been some you know, if you think about
• 24:38
  Speaker 1: the debate about central bank independence, which clearly was at
• 24:41
  Speaker 1: stake it in Turkey, given the relationship with Oregon and
• 24:43
  Speaker 1: the central bank, I would be very cautious about dollar
• 24:47
  Speaker 1: bonds as yet for Turkey because I'm not so sure
• 24:49
  Speaker 1: if the central bank will follow on with more rate
• 24:52
  Speaker 1: high measures to control the inflation, which is really spiring
• 24:55
  Speaker 1: right now, and so the Turkish layer has been temporarily
• 24:58
  Speaker 1: I think stabilized that stage very weak right. It hasn't
• 25:01
  Speaker 1: really rallied any further from here, So I would not
• 25:05
  Speaker 1: be necessarily and investor in dollar bones in Turkey at
• 25:07
  Speaker 1: there's a moment. Ben Emmon's, thank you so much for
• 25:09
  Speaker 1: being with us. Van Emmon's is chief economist and head
• 25:12
  Speaker 1: of a credit portfolio management and Intellectus Partners LLC in
• 25:16
  Speaker 1: Los Angeles. He's also a contributor to Bloomberg Opinion. Thanks
• 25:21
  Speaker 1: for listening to the Bloomberg P and L podcast. You
• 25:23
  Speaker 1: can subscribe and listen to interviews at Apple Podcasts, SoundCloud,
• 25:27
  Speaker 1: or whatever podcast platform you prefer. I'm pim Fox. I'm
• 25:31
  Speaker 1: on Twitter at pim Fox. I'm on Twitter at Lisa Abramo.
• 25:35
  Speaker 1: It's one before the podcast. You can always catch us
• 25:38
  Speaker 1: worldwide on Bloomberg Radio.