Bloomberg Markets 06/15/2022 FED Decision Day
From the financial centers of the world. This is Bloomberg Markets with Alix Steel and Guy Johnson. It is 30 minutes into the US trading day on this Wednesday June 15th pure the top market stories that we're following for you at this hour. Hurry up and wait. The ECB is emergency meeting underwhelmed by going long on words short on action. The bank now says it will accelerate a new tool to fight against fragmentation. And the Fed plays catch up. Markets and economists increasingly expect a 75 basis point hike today as central banks fight to retain credibility and bitcoin teeters on the edge. Price bounces off of the 20000 mark as crypto investors struggle to stay afloat. We're going to speak to Michael Shannon sign grayscale investments. See I. 0 from New York. I'm Alix Steel Mike hosted in London. Guy Johnson. Welcome
to Bloomberg Markets. Whatever you think the ECB should have said they did move bond yields significantly to the downside. Over in Europe and now I feel like we have to wait and see if it can sustain that come to when we get the Fed announcement. Yeah in some ways we anticipated a lot over the ECB we didn't get it. But as you say the market reaction has priced in something and we've certainly seen spreads compressing bonds to BTC as you say though. I think we probably now move on to the
main event which is the Federal Reserve a little bit later on. Alex it feels like 75 basis points is now priced. What are the dots say about their story going forward. I think that's going to be absolutely fascinating. But we have certainly seen over the last few days is a significant repricing in the mortgage market. Mortgage rates have been going higher. We're getting
some data outright now. The National Association of Home Builders Index comes through exactly as anticipated at 67 seven. This is a gauge that goes zero to 100. Anything north of 50 is positive. But we are seeing a slowing Alex. Sixty nine was the last number 67 is this number. This could be one of those moments where Alex gets to talk about where on that charts she
took out her mortgage. Yep. It would be right at that low that you saw in the beginning a 20 21 right there. It just shows how fast it really has rerated. But I think what it is interesting is this is what the Fed does want to see right. They want to see the housing market cool off the same way that they want to see us retail sales slow a little bit. Are we starting to see the
first signs of that demand destruction that we need to see to get inflation under control. I guess it just raises the question of how fast that can re rate to the downside. So let's talk about our question of the day because we ponder this. We ruminated on exactly which question we should be asking today. And the problem was we couldn't come up with a convincing answer. So then we thought about this which mistakes or which mistake our central banks making right now. There's a number of
different ways of looking at this. Are they behind the curve. Should they be doing more. Should they be raising rates faster. Are they risking a recession if they raise rates now. Is there going to be a recession in the near future that they're going to have to reverse. There's all kinds of things going on here. But I think the problem Alex is very different on each side of the Atlantic. The ECB feels like it's got one problem. The Bank of England feels like it's got another problem. Then the Fed has
got a completely different problem. So maybe they're all making different mistakes. Well let's ask that question to Michael McKee Bloomberg's international economics and policy correspondent. We're also joined in New York by Christina Aquino in New York. Mike I'm going to ask you though the first the first response on that one get the first response on that one. Which which mistake do you think central banks are making right now. Well I have to agree with you Guy that the situation is different on both sides of the Atlantic. It is very hard to say what a mistake is except in hindsight what may be happening here is the U.S. economy is already slowing. You and Alex we're
talking about home sales starting to slow. Auto sales have slowed and retail sales came in negative in the past month. Even though inflation was up so is the Fed tightening into a slowing economy and speeding up that pace of tightening. Given the fact that we see a long and variable lag as they say with the impact of interest rates could we be seeing those impacts start to hit at a time when the economy has already really slowed. On the European side the question is are they going to fast for the
kind of monetary union they have constructed where everybody has a different economy. This gets to the question of did they make a mistake last week by not talking about fragmentation and did they come back and do something acceptable about it today. Does it look like the markets are buying it. But there are a lot of people who say you know we've seen spreads go up but they're not up anything like they were back in 2011. So it's hard to say they have made a mistake yet but there are possibilities out there. Sure. And the market definitely rerated. But we do have to wonder like why can't emergency meeting and not actually
announce anything I think is puzzling many people. Christine I guess take the ECB sign when you're here in New York. But but but you cover macro over in London from the ECB side. What's that mistake. What's the biggest mistake the central banks are making. Well Alex I think from the ECB perspective especially but really this applies to all central banks is really
underestimating markets ability to overreact to what central banks are doing. I think the reaction in markets that we're seeing right now to the ECB is very much part and parcel of the initial reaction they had. When you're seeing the guard was asked a question of fragmentation at the ECB press conference last week. And clearly markets were not satisfied by that answer. They reacted appropriately. And now we see the ECB almost trying to catch up a little bit with that reaction in the
markets and finally acknowledging that yes they do have to do something very specific addressing this fragmentation risk that perhaps they may have underestimated at the time of the ECB press conference. Christine do you think markets are reading too much into central banks. You think central banks are reading too much into markets to kind of pick up on your point. The the. I find it fascinating that we got the Wall Street Journal article earlier on this week which basically took us towards the repricing for 75. The ECB seems to desperate to communicate with the market that it's got this one. Is there a danger here that the mistake the central banks are making is to try and find two things too much trying to micromanage things too much trauma over communication over communicate too much. Is that the mistake they're making. Because at the moment it's so difficult. The data is all over the place. The macro environment is incredibly difficult. Trying to fine tune this story very difficult. And the potential therefore for mistakes. Huge. Absolutely. I mean I think you know policymaking is very kind of
different tool. Right. And but when it comes to markets it's kind of this blunt force that really reacts massively in real kind of it's an unstoppable in one direction if you're really wants to go there. I mean this is exactly what we saw for instance in Fed pricing and the Fed repricing I should say over the last couple of days. I mean even before that Wall Street Journal article that you're referencing we already saw 75 basis points pricing for July for the Fed after that blow CPI figure on Friday. And that of course really just accelerated after we saw that article. But you know again it's markets kind of overreacting as you say but. There's really only one way that they usually go it's kind of overshoot that reaction once they
get some kind of catalyst and think about the consequences. Or perhaps fine tuning that reaction a little bit later. And I think this is where central banks need to understand market's tendency to kind of hit the sell or buy button for us depending on what they're selling or buying. And then think about it later. So Mike I think that also then raises the question going in to the Fed meeting in terms of the summary of economic projections and the dot plot because as traders are going to bringing forward their rate hikes to bigger and faster rate hikes than you have economist worrying about a recession in 2024. And I wonder then how we read the dot plot considering that they had to deliver their projections and stuff right before that inflation number. Well there's no reason they couldn't have adjusted their forecasts after the inflation number. I mean I think if it significantly move the dial on one of their models they would come into the meeting and say look we can't put out an old number like that. The problem with the dot plot and the SGP is that they quickly
become outdated. And we've seen that as happened since the March meeting the last time they did it. Markets react minute to minute to developments and the Fed puts out a new forecast once every three months. So it's kind of hard for them to keep up. And then the markets react to the fact that the Fed forecast is old. So it's a kind of a no win situation. What we will get today is markets a look at what the Fed is saying and see how it compares with what they think is going to happen. And for a couple of days we'll be fine. But then we'll get some more data next week and people will look around and say you know is the Fed behind the curve or maybe are they ahead of the curve. One interesting thing that I have heard over the last couple of
days is that perhaps the Fed is looking at this as if we are tightening into a slowing economy and there's some preliminary signs of that. Then maybe we front load and we move up the number of moves we're going to make and make them earlier so that by the time they hit we're not still raising rates by 50 or 75 basis points because we're looking at backward looking data. So that's also a possibility. One that I'm sure President Biden is thrilled about with the midterms coming up in November. Guys
thanks a lot. I really appreciate it. Bloomberg's Michael McKee NYSE Aquino. And tune in to Bloomberg special coverage. The Fed decide that begins at 130 p.m. New York time now. Coming up on this program more of our Question of the Day. What mistakes are central banks actually making right now. We'll discuss that. Nathan Sheets Citi Research global chief economists coming up next. This is Bloomberg. I think what's clear is central bankers need to catch up to their economies. They know they've been behind the curve.
They've acknowledged this and they need to start to get interest rates above inflation effectively or at least prospective inflation inflation expectations. That was former Bank of England Governor Mark CARNEY. So let's get back to our question of the day here which mistake the central bank's making. Joining us now Nathan Sheets Citi Research global chief economist. Joins us now. Nathan there's a lot to choose from potentially is staying with the Fed for a moment. What's the biggest mistake. I think where the fat is is that he made a monumental mistake. A generational mistake last year and let inflation surge upward
and now it's having to move vigorously to address that ad as it moves vigorously. There are consequences to the economic outlook to growth and a market performance. But in some sense I think that the Fed's path is is predetermined by previous advance. And now they really don't have many degrees of freedom. They've got to be aggressive. Okay let's talk about that Nathan where if if you're going to be ahead of the curve or at the curve where would rates need to be right now on an inflation adjusted basis. This is a a very tough question and no I can I can say they need to be a lot higher than they are at the moment. I would further say they need to be a lot higher than they're
going to be at the end of this Fed meeting. Whether that means a Fed funds rate of around 125 or they go to 75 and it's rolling 150. We know that it's likely going to need to be well above neutral to. But is that you know mid 3s like their DAX are likely to show or is it a much larger number. I mean what's scary and I think more Kearney just alluded to it. How did Paul Volcker extinguish inflation from the U.S. economy. He hiked the Fed funds rate until it was above the rate of inflation. And that is a very scary proposition right. I don't think they're going to need to go there but perhaps even on the table. But you know Nathan
let's pretend for a second that's like what eight and a half verses like a neutral rate of two and three quarters or three or three and a quarter. That's a huge band with which the Fed has to play with. And I'm wondering how much they wind up hiking to crush the economy. I mean is that necessarily the goal. Crush the economy and get inflation under control and what that actually looks like. I think it's a practical matter consistent with what I said. Fed
doesn't know where it needs to land. So what it's going to do is move very quickly to two and a half assuming that's neutral. But even neutral in this environment is probably uncertain. Right. And. And then move more gradually. But I think JPL and his colleagues are really uncertain as to what the end point of this process is. Oh yeah. We will see inflation start to reverse on some basic facts if nothing else. And we'll be looking at CAC handles you know between four and five rather than eight and a half. Nathan the Fed the ECB the Bank of England to a certain extent
trying to micromanage the market reaction here trying to micromanage market expectations as to where rates are going. We saw that with The Wall Street Journal piece earlier on this week. We've seen it today with the ECB weather with an emergency meeting that maybe didn't need to be an emergency or maybe it created an emergency when there wasn't a need for one. But but
nevertheless this seems to be this desire to micromanage. Is that a mistake. Central banks are in this in this exquisite challenge with their communication and how it's perceived by markets and this has been with us for many years that on the one hand they don't want to suggest that what they do is determined by the market. But by the same token they really like don't like to disappoint the markets. So how do you thread that needle while you communicate in guy as you suggest maybe at times even over communicate to the point of it seems like like fine tuning. Well I think that's what's going on here is they want to look like they're in control but they also don't want to disappoint or really surprise unduly because that could create volatility. And how do you read that. You know you just talk a lot. That's a great way of phrasing it. Thread the needle by saying a
lot of words. Nathan we've seen a lot of economists just for today upgrade to 75 basis points. The market seems to be expecting that kind of hike. You guys are still at 50 right. And I'm wondering why at 50. And do you think that you know by tomorrow we'll be talking about a hundred is the new seventy five.
I think we are in a world where how fast you move is is is very uncertain. And I know if it's if it's 50 or 75. Could the Fed then say well we want to get back to the territory of neutral in one step. Absolutely. In terms of 50 versus 75 at this meeting I think they're debating it and they're debating it vigorously as we speak. But based on the body language we're getting from the institution. My feeling is that the 75 is is is definitely on the table. And we know we've stuck with the 50. Because that's where we bad. But I don't think anybody would be surprised. Seventy five. It's announced this afternoon. They then I woke up this morning anticipating losses by most of my day speaking about the feds may be looking forward to the Bank of England maybe thinking about the BMJ but the ECB decided to step on that. We had an emergency meeting a little bit
earlier on. I'm not entirely sure as to why but the debates of the ECB feels like it's a different one. The debate seems to be what is our priority. Is it fighting inflation or is it fighting fragmentation. Which do you think of those two wins out. ECB as is is is an even a tougher position than the Federal Reserve is. Is you're suggesting they have to think about inflation they have to think about growth but they've got this very thorny issue with financial fragmentation. And it is very possible that financial fragmentation becomes the binding factor for them in this hiking cycle.
I do think that if they get into that world of financial fragmentation it's likely to create headwinds for economic activity more broadly than just in the works for all economies as we saw in 2011 12 and 13. And I think it's likely that it will slow the economy and likely slow inflation. But that is a very very messy process. And I'm I'm hopeful. But given all the constraints the bar is high and there's a lot of challenge facing the ECB. But I'm hopeful they'll be able to figure out some kind of a tool that restores market confidence and addresses these challenges. Well it feels like in some ways the tool is a 10 year you'll be teepees reach 4 percent. The Fed the ECB freaks out. I mean do we did we learn
anything about where the breaking point is. I appreciate it and announce anything today but the urgency with which this meeting was drawn together. Yeah I think it gets back to the point that they are deep. They felt like they needed to raise the flag in some way and say we're paying attention and we're not out of touch but they're also not quite ready to present that that instrument that they're going to use which is a little surprising. I mean they've been talking about this for a while that they need to send it out to committees to debate it. Maybe that suggests that you know for is a yellow light and there is some higher number they have in mind. That's that's a red line maybe that they may
also be calibrating it by a spread relative to boons and maybe a little over two ish yellow light but maybe they're looking for three hundred. But eventually I think they've been there. Do you think. Do you think they were worried that the Fed was going to do seventy five or maybe even more than that today and the global bond markets would react. Were they trying to get in front of the Fed today. I think that's an excellent point. You know the old saying is that the Fed is the central bank for the world. And as the Fed moves aggressively to fight inflation I think that that inevitably transmits and
undulate through expectations in global financial markets. And people in other countries look at their central banks and say what are you doing to fight inflation like the Federal Reserve has. I think a racist are in trying in some sense to be plugin in response. I think probably dead enter or the reaction function. It's hard
to say. It was just a coincidence that they called this meeting on the same day as the Fed meeting. Yeah in advance of the Fed meeting. Always a pleasure Nathan. Thanks for jumping in. Great to see you Nathan Sheets. Citi Research global chief economist. Thank you sir. This is Bloomberg. The consumer is the heart of the economy and the consumer is still strong consumers still out the consumer still is sitting on on excess savings household balance sheets are strong. We just got the latest data from the Federal Reserve flow of funds and yes household assets dipped a bit in the first quarter very modestly. Does Michelle Meyer of the MasterCard Economics
Institute earlier on Bloomberg Surveillance. All right. We're now in the U.S. trading session. Stocks up solidly although we're still down like 13 percent I should say since the last Fed meeting. So it's been a pretty bumpy ride. Bloomberg Bloomberg's Abigail Doolittle is tracking some of those moves. So to update as we'll see at 2:00 p.m.. Yeah well a bumpy ride indeed Alex since that last Fed meeting. But this we right now at least we are looking at the first update in six days. The S&P 500 right now up one point three percent. Its best day going back to June 2nd. So almost two weeks. The same deal for the tech heavy
Nasdaq faring a little bit better. And that of course has to do with yields in on the day. So providing some relief for some U.S. stocks as investors think that an extreme move by the Fed whether that's 50 75 or 100 is already priced into stocks. Six hundred doing even better up one point nine percent. Its best day in more than a month. And oil that could be another small tail when we have some inflation pressure coming off there with oil down six tenths of one percent yields though that is the story. Let's take a look at a five day board of yields. And this is not even that bad yesterday. This was really ridiculous. The
two year yield yesterday up 70 basis points over five days. Right now up fifty five basis points over one week. This could be a one year board as it is. But again we've had big consolidation in the same for 10 year old. And of course some of the European bond yields absolutely blew out. But they've come back in. More recently that 10 year Italian yield had been above 4 percent. Now at three seventy seven the German 10 year yield over the last five days up right now about twenty seven basis
points at one sixty two. So that's the inflationary picture there. Even so it does seem that investors think that the Fed whatever they do is probably priced in. This is a look at some of the inflows for the SMP. Why in the QQQ. And you can see after two brutal down weeks we're looking at an up week relative to flow. So some optimism again ahead of the Fed. Speaking of optimism we have the big banks up sharply. This is the yield curve steep ends even though yields are down.
Take a look at Citigroup up three point one percent. They of course talked about how their current quarter trading revenue up 25 percent. We see a nice lift for the other banks. What's so interesting here. Alex and Guy is the fact that Citigroup is also talking about to CU investment banking revenue being down 50 to 55 percent. So real tell on the time of the
volatility helping out the stock traders but not so much for the deal makers. All right. Thanks Sam. Abigail I appreciate that. Let's get some breaking news for you. The oil inventory numbers have crossed. There's just one thing you need to know. Gasoline inventories fell seven hundred and ten thousand barrels. Gasoline inventories continue to be drawn. Refinery utilization actually dropping a little bit. And this is so important guy because just today President Biden sent a letter to seven major U.S. oil refiners saying there's no question. Vladimir Putin is principally responsible for the intense financial pain the American people and their families are bearing. But at a time of war refinery profit margins are well above normal. Being passed
directly onto Americans are unacceptable. And this therein lies the issue. Like now we're gonna see the administration. You have the oil companies and refiners. None of that is going to help them actually do more with the refineries that are actually still operating. Maybe push back maintenance but that's kind of all they can do. It's a similar problem that we're seeing over here. The windfall tax story. Front and center in many European countries. The UK has already imposed one. And the refinery issue is a really important one here Alex because none of us use barrels of oil. We all use refined products. And you can go to the Saudis. You can go to opaque. You can talk to the oil industry tell them to
pump more. But even if they pump more you've got to have the refineries to process that capacity. And that's where we need help. But as you say building a refinery is a really long term project. Yeah and I ain't gonna be around for very long potentially. And this is where I think you can make the argument that this kind of inflationary pressure can't be transitory unless demand is totally falls out of bed for that exact reason it's gone. I don't know how you make a case as a government
official to the oil industry to do more when you're a long term goal is for them to not produce the products that you want them produce. Now I don't know how you do that. I think it is an extraordinarily confusing message. How do you create a policy that makes sense without when you're trying to convert. A lot of these refineries are now doing biofuels rather than gasoline because of mandates and because of where the industry is headed. That's a really tough situation. I do not know how you solve that. Yeah policy mistake. We seem to be hearing a lot about those right now. And maybe this is maybe this is one of those sort of to flag something else as well which is just happening in the
energy space. You guys are dealing with gas gasoline over there. We're dealing with gas nat gas over here. Gazprom early Iran halting one more compressor basically squeezing flows into Europe. Germany's economy minister Mr. Howe back IBEX just talking about this saying that Russia is trying to unsettle the energy market drive up gas prices. You've seen a spike higher in gas prices. That just raises another problem for the ECB on the inflation front which is its biggest priority now fragmentation
or fighting inflation. I don't mean we still know the answer to that question but it does take us back to what is happening with the central bank story. We're waiting for the Fed 75 basis points. Looks like the base case could get one hundred. Could get 50. Kathryn Rooney Vera Baltic Capital Markets CIO. Joining us now to give us her take on this. Catherine what do you think is priced for later. What do you think moves markets. I think if the Fed doesn't do 75 markets move to the downside because it will be a complete jolt to what is left of Federal Reserve credibility with regard to inflation fighting. There's been innumerable mistakes mistakes made by the Federal Reserve. Of course starting with inflation is transitory. There is no way
to price spiral. The labor market needs continued support. Remember that the Fed was still buying bonds up and through March of this year. What we're not talking about beyond rates though is quantitative tightening and support. That's going to start this month to to the tune of some forty six billion dollars with the intention of that moving to ninety five billion. The economy is not in a position to withstand that double barreled approach. So I think there's a lot of potential and this is something I said I like going into this year. The biggest risk this year was Federal Reserve policy mistakes. And I think there have been many. Catherine how then do you manage the risk around this Fed
meeting. Well I think what we've been telling our clients is to be defensively positioned in defensive sectors and those have been by far the best performing ones year to date and those are energy utilities staples and health care. We've been calling stagflation as as the main base case scenario for this year and that seems to have been unfolding. And what we're seeing going forward is be diversified and be looking into alternatives because the correlation in the 60 40 portfolio we all know doesn't work anymore. It's completely broken down. You have everything falling out of bed together. What I'm most concerned about is what happens when we get that recession. What does the
Fed do with its balance sheet. Does it go back into quantitative easing or are we going to be whipsawed by Federal Reserve policy. And for that I bring something that no one has really been talking about Alex. And that's the threat to a crisis of confidence in fiat money. You know we need to unravel this expect ultra accommodative expansionary policy that we've seen for the past decade. And if we don't do it and yet get into a recession and have to revert back to the bad old ways of additional bond purchases and ETF purchases then I think it just degrades and debases even further not just monetary policy credibility but the pure value of fiat currency. Catherine and that kind of environment actually in this kind of environment and the far more in right now we may get to that ultimately you laid out a series of areas you're focusing on. Is
putting money to work in those areas enough at this point to avoid losing money. That appears to be the question right now not how do I make money. How do I not lose money. How do I not lose money. Is the question that we're getting a lot. Yes. And I think that having a cash position is a really wise move. I'm making that rotation and taking some profits in your winners. I don't think it's a bad idea moving into you if you're a dedicated equity investor moving into the defensive sectors. I enumerated but also adding to your precious metals position because if I'm right we get additional policy mistakes Brooke from the fiscal and monetary side. Then I think precious metals do very well over the long term. So let's start to accumulate those. Let's diversify. Let's get into you know KKR put out a very good piece which I thought was good. It enumerated
different asset classes that can preserve your wealth. And those can be something like private credit infrastructure real estate just diversified beyond what is historically public markets that had been really blown up by experienced and manipulative monetary policy and something that ultimately has to unwind. So I would probably move increasingly into real assets and alternatives including precious metals. Catherine I guess let me ask the same question in different ways. That's like not how to lose money. How do you then make money in that. Are there certain sectors that have priced in a recessionary fears enough that now you need to start looking. Yeah I guess you're referring to technology communication services and discretionary
because those have been walloped. I think there's still further to go because if the Fed does in fact jack up rates to the tune of 4 percent which is many in many cases the market is pricing the terminal rate. But if inflation expectations continue to move higher which they are and the Fed is unable Alex to control inflation and therefore they have to do even more I would say that that tech discretionary can come. Services have further downside to go. Of course there's always going to be tactical plays. And for that I wouldn't recommend sectors. In fact the house of New Apple Tech is to look at specific needs you know do your research work at the fundamentally strong names but maybe not go whole hog into ETF or the S&P 500. I think we're gonna have to be selective and I think there's a lot of risk to digest going forward not just from our monetary policy and the bubble that we've seen in the equity and fixed income markets but also from the economic perspective. Obviously one real quick thing. What I'm really looking for is real wages. When do they turn positive. Do they
turn positive because that would be a plus. That would be a positive for consumer sentiment. And that could ultimately make that precipitous drop that we've seen in consumer sentiment. Finally reach a bottom and possibly turn a corner. So watch for real wages. Is it possible even at a granular level at a single stock level
to get a handle on ultimately where we kind of go next. If we don't know where the Fed how aggressive the Fed is going to have to be here. Catherine. Yeah that's why I would say you know be more defensive. But for guys that want to play tactically that would be my recommendation. Look at specific names for people that like me. We don't know what's going to happen but we have a good idea of where things could go. And the worst case scenario right. The worst case scenario being of course recession and high inflation which is stagflation. So under that scenario I do think that you want to have a nice cash position. I do think you want to have alternative exposure. You want to have real assets. You want to
have real estate. You want to have gold. And I think this is what makes sense at this point. I don't think we need to be trying to time the market because that's the strictly impossible to do. Guys can say that but the fact is they can't. So I think we just need to be very careful and be defensively position. Catherine it's really great to see you. Thank you so much for
joining us. Kathryn Rooney Vera don't take capital markets. Good to see them. All right. Coming up the bear market for bitcoin is definitely entered its so-called deepest darkest phase. We're going to get more from Michael Sunshine and Grayscale Investments C E O. Coming up next. This is Bloomberg. This is Bloomberg Markets arm which can get better. You're looking at a live shot of the principal room coming up. Bill Dudley the former New York Fed president joining Bloomberg Television 330 p.m. New York time. Don't miss it. This is back.
Keeping you up to date with news from around the world here's the first word you can get. French President Emmanuel Macron says the lines of communication to the Kremlin have to stay open. Speaking during a visit to a military base in Romania the French leader said ISE discussions between Ukraine and the European Union were needed to send a clear signal of support in a critical moment.
His comments came after he caused an uproar by saying that the allies shouldn't quote humiliate Moscow and risk a peaceful solution. A vague tweet today by the founder of Three Arrows Capital an influential hedge fund that has been liquidating crypto holdings. As prices plummeted is creating new apprehension in the industry. Former Credit Suisse Group trader Suzy tweeted his group was quote fully committed to work this out without providing further details has been no further comment from companies 24 hours a day on air and on Bloomberg Quicktake powered by more than twenty seven hundred journalists and analysts and more than 120 countries. IBEX DAX has been back Alex. All right. Thanks so much Riddick. Appreciate that. So let's say with Bitcoin for a second the bear market for Bitcoin has entered its deepest darkest phase and that's according to some strategists over a glass node. They contract the fair value of bitcoin which they estimate is about thousand dollars a lower than where it's trading at. So let's get more on the overall market on Michael Barr sunshine and grayscale investments. CEO Grayscale Scales the world's largest crypto fund. And Michael thank you for joining us. And I just want to start in that three
hours capital tweet because they're the biggest investor in grayscale investments. I wonder can you tell me about it. Like what are they liquidating. What's happening. Yes. So first of all great to be here and happy to chat with you guys as always. What I can share about three hours capital is that they are in fact a client of course consistent with company policy. I have to direct you to the publicly available information around three arrows. They did of course disclose that they do hold shares of grayscale bitcoin trust. But I believe that is about a year and a half if not longer ago that it was originally filed.
It took a it took me about what you are seeing in the market right now. Michael what is the picture. We've obviously seen some significant price action to the downside over the last few days. What are you hearing. You've got your ear to the ground. Indeed. Well there is certainly volatility in this market. But I think to really examine what's going on with crypto we really have to think about it in the context of the broader market over the last few months. We've certainly seen a lot of volatility across asset classes beginning with the fact that you've of course seen rising rates in the U.S. you've seen inflation. And as a result of that you've seen turbulence across pretty much every single asset class. There's really not anything that in particular could kind
of shelter itself from that volatility in crypto. We have seen increased selling price selling pressure on prices recently and some of that is certainly due to recent events such as the terror. And then we experienced a few weeks ago and now seeing some other individuals and other businesses that perhaps had too much leverage in this ecosystem beginning to unwind some of those positions which is leading to adding selling pressure in crypto. So I know that people are going to say that cryptos weathered a crypto winter before that. You guys have done this. It's OK. Like it's it's OK as an asset class. But my problem is what's different now is that the era of easy money is over. That is 100 percent going to be over. And that is different. And there's so many more products now in the crypto market. And I'm wondering where the liquidation
systemic risk may lie. I think it actually speaks more to opportunity within the crypto ecosystem. Alex I think if you're seeing players that do not have the proper governance in place or we're employing too much leverage ultimately getting flushed out of the ecosystem as those other players that remain continue to whether a crypto winter that are continuing to build that are continuing to add to the application layers that are continuing to add to the real world use cases you are going to see a variety of winners coming out of this crypto winter. And I think certainly for an investor perspective they're really thinking hard and fast about their counter parties are and what types of applications and protocols are important to have in their portfolios in this kind of environment. One of the what are the use cases for crypto has long been touted as being a store of value. Michael is crypto still a store of value. I think over a longer term horizon that you know Bitcoin in particular has demonstrated that it has the properties of a store of value or of a digital gold and that over a shorter term period which we've seen recently it has faced criticism that is in fact not acting in that regard. I do believe over a longer term time
horizon we have and will continue to see investors flock to assets like Bitcoin as a store of value as an inflation hedge and particularly in turbulent markets or when they typically have gone to. It's like gold and bonds and and other stores of value. I do think that Bitcoin can act in that capacity in their portfolios. So that's a bit different though than like the crypto lending market and margin and such which is some of the areas of crypto that have gotten hit really hard. Have to do
with margin lending. And I'm wondering if you how you see the lending environment right now as it relates to crypto and also how it relates to grayscale. Well grayscale I think certainly and what we've been hearing from our investors over the past few days is actually a really strong appreciation for the way that we run our investment products. We don't employ any leverage. We do not have any type of lending out at any of the underlying assets. Instead when investors put capital to work in a grayscale product. It is invested one for one in that underlying
token. I do think that as you're looking at the crypto lenders that are out there some of them have perhaps employed too much leverage. And of course as prices have become suppressed they will of course have to face margin calls. Mike Novogratz compared what's happening now to LTC M in 1998. Mike what do you think of that. I think that it's a that's a you know probably too early to make that kind of analogy. You know I think crypto continues to face
all kinds of criticism and there will continue to be comparisons to the dot com bubble or to the meltdown at our LTC M or others. But ultimately crypto is here to stay. And there is no question about it. I think you're seeing a lot more attention being paid to it from the regulatory community community which really will add to the asset class the staying power. I was going to say yes
crypto will stay but in what form will it stay in. And when we see these kind of intense price moves with this volatility when regular people lose a lot of money. Then comes the regulators and then they put regulation on it and then it changes what it becomes. What kind of regulation can we realistically expect. Well now you're seeing bipartisan support in D.C.. There was a recent bill introduced from Senators Gillibrand and Lummis that actually puts forward new rules and regulations and establishes authority over our crypto commodities. I think that these are
the beginnings of conversations that are long overdue in Washington. On the heels of the White House executive order that really is calling into action all of the federal agencies and asking them to ensure that they're paying attention to this and that as a country that we stay competitive and that we are fostering innovation. It really is time for the U.S. Regulatory Committee to step up to the plate and ensure that these types of products and these types of businesses aren't moving outside of the U.S. because there aren't enough rules and regulations to govern how those businesses should operate. Michael thanks for stopping by.
Really appreciate the time. Michael Solemn Time Grayscale Investments CEO Oh thank you very much. This is Bloomberg. Thirty five minutes the European closed. Let's talk about the price action on this side of the Atlantic. Stocks are up. That's
very interesting though. The real interest is over here. BP is really reacting massively went through 4 percent. ECB comes out announces an emergency meeting. BP is absolutely catch a massive bid. Yields come down. We're moving by 37 basis points right now. The other story is we get another compressor turned off by Gazprom. Gas flows into Europe are getting squeezed. The Germans are worried that Dutch Dutch gas from months. Twenty three percent to the upside. Lots of volatility there and so on of a IAG senior rate strategist joining us next. This is Bloomberg.