Bloomberg Markets Full Show (03/28/2022)

Bloomberg Markets Full Show (03/28/2022)

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From the financial centers of the world. This is Bloomberg Markets with Alix Steel and Guy Johnson. It's 30 minutes into the U.S. trading day on this Monday March 28. Here at the top market stories we're following for you at this hour. Bonds brace for impact. The sell off continues as the 10 year Treasury yield hits two and a half percent. The five

thirties curve inverts for the first time since 2006 signaling concerns about growth in Japan. The BMJ steps in driving the yen to its weakest level in seven years. Stealth rally Bitcoin erased as it's 20 22 losses with a climb above forty seven thousand. We'll have more on the trajectory for the cryptocurrency and the prospects of a spot ETF with Michael

Sunshine Grayscale CEO and the talk and the walk back. The Biden administration scrambles to reframe the president's remarks calling for Putin's removal from power. The Kremlin calls his words alarming and says no progress has been made in talks with Ukraine which continue in Turkey this week. From New York. I'm Kailey Leinz with Guy Johnson in London. Alix Steel is off today. Welcome to Bloomberg Markets and Guy. On this Monday we have our eye on the bond market. We do and trying to figure out exactly what the equity market thinks of the bond market. I think it's one of the big questions that everybody is trying to get the answer to. We came in this morning we were kicking this around. We were

trying to understand this tension this threat potentially posed by the inversions you just mentioned to the equity market. And the equity market at the moment seems to have a fairly clear answer. We're going to continue to go higher. We're going to continue to buy stocks. So CAC ISE Question of the day. Mike Kelly my

question of the day. If I get the grammar right. How long can stocks ignore an inverted curve. So Kelli here's my thoughts on this. Are recessions bad for stocks. Yes. It's an inverted curve a signal of an impending recession. Well given the state of the Fed's balance sheets and just how big it is at the moment I'm not so sure about that one. If we all going to get a recession when should stocks react to that inverted curve. Well ascent seems to be maybe not instantly. So maybe maybe the market's reaction does make sense right now. Yeah and that's the view from JP Morgan as well guy given the lag time. If you have a yield curve inversion it's still a long time into the future when you get that recession. But it really is a

question now of whether or not an inverted curve is a good signal of a recession or if it has kind of lost its ability to serve that purpose. Yeah you think about the way that the Fed's balance sheet is structured at the moment. You can kind of make that argument. Let's kick it around with the slightly wider group pleaser bandwidth. CO-HOST of Bloomberg Surveillance Christine Aquino markets editor for Bloomberg EMEA. Joining us to discuss.

Christine let me start with you. You're sitting next to me. We'll start here first. What do you think the argument is that we've got an inverted curve. We're going to get a recession that really be bad for stocks. Yet there are so many competing factors in that chain of thought at the moment that the line doesn't seem quite so clear. Absolutely guy. You know I think the the signal that we should read from this curve inversion this time around may not be the same as what previous instances of an inversion have given us because the bond market has changed completely. Guy. This is not your grandfather's bond market. Bond brands anymore. You know this is a completely different situation that we're in.

A lot of other different factors. Of course contributing to all of that is what we see from central banks over the past decade. Just a tremendous amount of buying that has really influenced the bond market in a singular way. And so it's really difficult. It's gonna make that conclusion now just because it's such a different signal. And as far as how much impact stocks or when

it will impact stocks I think it's really it has a long way to go because we don't really seen the impact of higher bond yields yet filtering its way through the real economy. Well on something else we haven't seen least as an actual inversion of the curve that everybody really watches which is the tears tense. Is that what would ultimately maybe make the difference to this equity market. Maybe although honestly I keep thinking about what Michael Barr of MKM Partners said this morning where he came out and said we're looking at the wrong yield curve. If you actually take a look at the gap between 10 year yields and three month yields it's actually widened to the widest going back to 2016. What does this tell us. It tells us the Fed hasn't

actually tightened all that much. It in fact conditions are still incredibly loose. And if you actually look at a number of different measures whether it's credit spreads whether it's stocks whether it's frankly just borrowing costs more broadly they have gone down at a time when inflation is going up. They have still been buying bonds up until just earlier this month. Looking at all of this how much does this leave us with truly tightened conditions. And does that mean that stocks will be really vulnerable Caylee when we actually see some of the hikes that everyone's predicting. OK. So. So Lisa we have to wait. You have to go to the F function. You have to look at the broad measures the financial conditions. You now see that will be a better predictor of a recession coming forward as well. Or just a buy sell signal on stocks. Honestly I'm just telling you what

other people are saying. What I'm looking at is also other indicators that are on the ground that also are a bit concerning as to the when it is difficult to say. I will point out though on Friday Kai we actually saw research out of the Federal Reserve themselves saying exactly this. Don't fear the yield curve. It's not an indicative of necessarily a recession in its own right. Let me take a look. These other measures they are steepening. So clearly the Fed is trying to explain away the

flattening yield curve that a lot of people are looking at and raising alarm bells which makes you wonder. OK. Basically this isn't going to necessarily stop them from going ahead with some of the tightening plans. And then how again will stocks respond when they start to enact some of what they have basically been saying that they're going to do. Well and Christine we can talk about the stocks response to that but also in the bond market given how far we have already come I mean we're up what one hundred and thirty something basis points on the two year yield already. And it's only not even the end of March. How much further could the bond market sell off or the flattening of curves go as we see the Fed actually acting on what it says in the dot plot. Well Kelly on the question of how much further I think it's really important to take note of where the Fed terminal rate is going to end up. I think that's really crucial for kind of

drawing the line underneath this bond sell off that we're seeing because that would really kind of give you a sense of when the turn in the Fed policy path that we're currently on will start to take place. And it's possible that even if you know that that peak in the Federal Reserve terminal rate doesn't come for another year or another 16 months or so it's possible that markets will start anticipating that months ahead. And so that's really something to keep an eye on for a potential marker of relief here for bonds. Lisa the other thing that really intrigues me is the fact that the Fed is basically signaling that growth is stronger than we first thought i.e. we're going to have to step in and be more aggressive here to slow this juggernaut down. OK. You raised a really interesting question which is do they think that growth is going to accelerate or do they think that inflation is going to accelerate and be such a concern that growth will remain strong enough to justify they're moving very quickly. And I would argue it's the latter. And the question that I have is how strong is that economy. How much

momentum is there especially as you get the one two punch of both fiscal withdrawal. Right. Which we're seeing from the U.S. government at the same time that you're getting the stagflation very shock from the war in Ukraine by Russia. So all of these sort of the stew of factors the Fed is looking at and saying all we know is we have to move. They haven't yet of course but they

have to. And I think that you know when you ask whether stocks are paying attention. My question again is are they paying attention to the Fed hiking or that the Fed is going to need to slow demand to slow the economy much more than people expected in order to effect any kind of any kind of dampening of inflation. OK. So that's on the Fed side. And you could argue that the both the ECB are also in that hawkish at least moving toward tightening at camp. Christine Kuroda in the BMJ or not that has become very very clear. I'm wondering what you make of Japan's moves the BOJ Jay's moves overnight to rein in J.D.. Well Kelly I think the fact that they felt compelled to act not only once but twice today to CAC those bond yields really tells you everything that you need to know in terms of how worried the BMJ is of this latest move. The Bank of Japan has really proven

time and again it's a central bank that really does not like any market moving much faster than it is comfortable with. And they have proven time and again that they will act against any of those rapid moves. That's what we saw today. But more importantly I think it's really traders kind of turning their sights to be OJ as one of the more dovish end of the central bank spectrum that we've seen and really daring them to finally get that normalization train. The other question it occurs to me here is key is a carry trade involved in what is happening. Carry trades normally work in low volatility environments. This is a high volatility environment. How risky is this trade as you put it on. Very very risky guy. Because again you know given the broader environment you know you would usually think of for instance emerging markets as the usual targets for these carry trades for instance. Right. But in this sort of environment where the yen is doing what it is hitting its weakest levels in

in a decade or more. And then the potential targets for those carry trades would be which would be emerging markets still also undergoing a very volatile vulnerable period because of the broader risk offish sort of environment that we're in. I think on both sides of that trade on both sides of that equation there is a lot of risk that perhaps investors would be brave only the brave ones would be willing to take it at this point. All right. Bloomberg's Christine Aquino and Lisa Abramowicz thank you both for joining us. Now coming up it was a time of bell bottom pants vinyl records and oil embargoes. That is the last time we saw inflation like this. We'll talk about what that means for investors with Linda Duce all senior equity strategist at

Federated Homies next. This is Linda. As the shift in the race moves much more towards inflation equities at least relatively speaking a more attractive than a real asset the dividends will grow over time with inflation and the overall valuation of parts of the equity market I think look reasonably attractive. That was Peter Oppenheimer of Goldman Sachs earlier on Bloomberg Television saying equities can weather the current bond rout. Which takes us back to our question of the Day. How long can stocks ignore an inverted curve. Let's ask Linda do so. Federated Hermy senior equity strategist. Linda. Is the clock ticking or are we good to go no matter what the curve does. Well first of all we had Federated Servers would disagree that

we have an inverted curve because history shows that you want to look at the three months to the 10 year for clues on whether or not the curve is telling us the market's weakening into recession. And that's a steep yield curve. I think somebody in the previous second segment just mentioned that we don't think that you're seeing evidence yet from the yield curve that there's a recession on the horizon. What you see now is a booming economy with very tight supplies versus demand too much cash in the system. The Fed has to really walk a tightrope. And that is what we think is the biggest risk this year is the Fed cannot walk a tightrope and give us a soft landing so we can get this inflation down fairly dramatically. So what kind of odds would you put on that Linda if if a recession is bad for stocks. What chance is that the Fed

delivers a recession here rather than a soft landing. How would you handicap this. Yeah. Yes. Yes. And of course the Fed is the one who's given us recessions historically by going too far by tightening too far. Unfortunately we've been in an unprecedented time with unprecedented amounts of stimulus. And now they have to try and take it away as it's been spectacular. So the odds are not the odds are not good. And I think that's what's going on. Even this rally that we've seen in recent days has been more of a defensive rally. And you've seen areas like utilities break out some of the more defensive areas in the marketplaces where

people think it may be safe to invest money. And we're likely to be range bound now until we we can get some sense as to whether inflation has come down. It's the question marks the rest of this year. Well and obviously speaking of the Federal Reserve and of inflation there is a theory that the bond market is going to do worse in an environment where the Fed is acting aggressively to rein in inflation. Therefore your best bet is equities. Where do you come down on that kind of teen at the assist in this moment. Yes it we've. We've said Tina for quite some time I mean we would never suggest that somebody be completely out of government bonds. U.S. government wanted that safe haven for the world. And pretty much everybody's you know it is an agreement that yields are going up. If yields go up and you hold on. Like

to lose money and therefore there is no alternative to earning equities. And so the best thing we can do in an environment like this when we don't see recession on the horizon near term when we see long term interest rates are climbing as they should do. And the Fed's taking away the easy money is to find pockets of the market that you know where the works it's less expensive where you have some things on sale and you can always find some things on a relative sale. So we're we're suggesting numerous areas. So. So Katie's very excited about the return of flares and no boxes. She's really looking forward to it. She wants to get back to the 70s. Are we going back to the 70s. Well it's funny I was I lived in the 70s those were very interesting times. We raced to buy a home when when the double

digit interest rates came down a little bit. Little did we know we'd go 40 years with interest rates declining there for two whole generations. Never saw anything like what we're seeing right now. This is not stagflation. This is a booming economy where you have record job openings. Today we have record numbers of people working where where businesses have strong profit margins and are able to push through price increases. And again pressed to great stagflation needs. Greece needs unemployment to

go up. Unemployment is going down. We shouldn't worry about that just yet. This is not the 1970s. Not yet. It's not the 1970s. The bell bottoms are still in though. Skinny jeans guy can't confirm have been canceled at least for now until that trend comes back around as well. Linda you were talking about pricing power there and the ability for companies to pass on the higher input costs they are facing. Do you anticipate that inflation will get to a lover level that we'll start to see consumer pushback and the tolerance for those higher prices start to not be there. Well absolutely that's true and of course this is most important for the lower income cohort which is one of my biggest worries is that the price of of energy and food supplies is going up. And this is what's really really difficult particularly in a

midterm election year for the lower income cohort. So that is very much a problem. You're also seeing people looking to buy homes that are saying sticker shock. This is I can't do this. There's no way that I can do this. And that pulls back. And we know that there is you know there's no better solution to high prices a ban high prices and demand goes down. So we're seeing that ripples through our economy a bit. But now service prices are going up as we know as the economy's

opened more and more. So on a scale of one to 10 how much risk are you advising. Is this an economy you want to be all in on growth. You don't want to worry about the inflation. You want to be owning stocks with an exposure to that growth. Give me some of those names. Why would I want to be right now Linda. Yes. Yes. And your Covid about should we go all in where we're going to play right now. We at Federated Herbie Square we're suggesting an equity

overweight. But the amount of our equity overweight is really as low as it was when we were just coming out of that 2008 2009 recession. So we're basically in a neutral situation right now. And what we're suggesting people do in a neutral situation is you want to under under weight bonds. Interest rates are going up. It's not it's not favorable at all. But you want to look for areas where there is value and there is still value in the high quality dividend or in pockets of the marketplace. So you saw starting the fourth quarter of last year the Staples sector which is whole area has been avoided completely. Staples started to go up. Lately you've seen utilities start to go up. Energy Patch has some good pretty good yields in it. And there's no

particular end at the moment in sight there. But look at high quality pharmaceuticals. Look at telco stocks. Nobody much cares about those either. And so. So these are some of the areas where we think there is still value to be had and still in some of the staples areas high quality dividend oriented just to give you the yield that you want. It's a turtle wins the race type thing.

It's not worried your fangs are going to be back in play again. After we get some of this volatility out people sell some more of those fangs lost all the performance that they gain in through the pandemic. So they're back kind of on sale but we're more in the value camp than growth. Cameron. Federated. Hermes. Linda it's great to catch you up. Really appreciate the time today. Is this all a federated Hermes. Really appreciate the time. What are we going to talk about next. Tesla looking for shareholder approval for its second stock split in a couple of years. Shares are up on the news which was John has been pointing out in some ways seems nonsensical. But there is maybe method to the

madness. We'll talk about this next. This is Bloomberg. Tesla Tesla today the electric carmaker plans to ask for shareholder approval for a stock split. Bloomberg's at Ludlow is in San Francisco. We need to talk about this. We need to talk about what is happening in Shanghai and probably the fact that Moscow appears to have Covid again. But let's certainly focus first of all ad on what is happening with the stock split. Must talks about this as being an accessibility issue. I split the stock allow more people to buy it. The units are cheaper in

theory. Mathematically this should have no impact. My question is why now. Why do this right now. Do they feel the stock needs a boost or is it something else. The timing is interesting. Of course they communicated that they wanted to do a stock split via tweet but in the subsequent 8-K filing they said they would give more details in advance of the annual shareholders meeting. Right. We don't have a date for the annual shareholders meeting in past years. It's been in October June September. Wall Street

analysts seem to think it will be in October. You're right that it's about lowering the barrier to entry. You know Elon Musk and other Tester executives has talked about how the retail investor which are often people that own Tesla cars test the products understand the company so much better than Wall Street does. Right. He doesn't really give a lot of credit to institutional investors on how they analyze the company and its different units. So you know they did this in August of 2020. A subsequent run up in the stock followed but very much about it pairs lowering the barrier to entry. All right. Well let's talk about Tesla's actual business which at the end of the day is producing cars. That's going to be harder to do in China this week until

April 1st. That Shanghai factory had to close due to those Covid curbs. Can you just contextualize how important that is to the company. Yeah. So Tesla's Shanghai plant accounts for almost half of annual production at the moment right. Because Austin and Berlin the new plants are coming online. But we don't know what their installed capacity is annually and we don't know how many vehicles they're going to produce in the near time. What you have in Shanghai is a first phase of a lockdown for days

through April 1st. And sources tell us that Shanghai in Shanghai Tesla has halted production east of the Wang Poo River is where test is located in Shanghai. And the reason your question is so good. Kailey Leinz because Tester has spent a lot of time on localizing supply chain in

China. And it's not just about the volume of vehicles that tests are produced there but also the profit profile. The margins on motorways and all 3s out of China are much higher than they are out of Fremont California because the cost of doing things is cheaper than the technology and the plan is more advanced. So if they are to hold for several days it could have a substantive impact because they've had a lot of momentum there in building cars not just for domestic market but exporting them as well. All right. Bloomberg's at Ludlow in San Francisco. Thank you so much. And Guy we didn't get a chance to ask out about it but Elon Musk tweeting today. He's supposedly operative word being supposedly has Covid again although I feel like it's like a lot of hours felt after we'd been previously Covid positive and then get it again with a new variant. It's not a great feeling. Not a

great feeling but he seems to be having his mind certainly focused elsewhere. I don't know. As an investor Katie how you look at Tesla it was really into what Ed said about people who own the cars maybe have a better understanding of the business the Wall Street does right now. Wall Street must be really confused getting tweets out of left field trying to figure out what is happening out of Shanghai. Does Elon Musk having Covid have any material impact. I don't it really hard to analyze and just go buy a car. And should Tesla be trading at the multiple. It is I think an open question.

Coming up we'll turn to geopolitics and domestic politics. Terry Haynes Pandya policy founder will be joining us next. This is no. We're an hour into the U.S. trading session Bloomberg's Abigail Doolittle is tracking the moves and Abigail I got to say. Stock action not all that exciting. It seems to be in other asset classes. It does indeed. And we'll be getting to one of those asset classes in a moment. But first take a look at what is working for stocks. We do have tech outperforming that Nasdaq 100 up about four tenths of one percent being helped out by Tesla up 6 percent as the company is proposing. A possible stock

split which of course makes it more friendly to retail investors helps the optics takes it from a greater than a thousand dollar stock per share to some number well below. The last time I think it was cut down to about 400 up 80 percent since that last stock split back in August of 2020. Amazon up 1 percent now higher on the year. Tech of course being helped out as yields fall. That 10 year yield down about three basis points right now at two point forty three percent. Still unbelievably high. As for what's not working what Kelly is talking about. I think oil. Take a look at this. Down 7 percent. WTI crude weighing on the Bloomberg Commodity Index down two and a half percent and weighing on many of the energy movers including Apache and Halliburton. As for oil we've been watching these technicals closely. It still seems as though we are going to see a move back from that parabolic uptrend. Here we have oil relative to its 200 day moving average not showing the 50 day moving average

at about ninety five dollars per barrel. It seems as though oil will very quickly go down to that. Ninety five dollars per barrel mark. But it really seems likely as happened the last two times at the RSI went down to oversold territory that we could see crude oil go back to its 200 day moving average. Of course it's rising. So right now guys right below 80 dollars per

barrel. But there are many who continue to think that you could see oil go even lower than that. Stay tuned. But certainly another tailwind for stocks. Plenty to think it could go a lot higher as well. Abigail thank you very much indeed. Abigail Doolittle. Let's talk about what what is being perceived as a gaffe over the weekend from

the president. The Biden administration basically spending the last few hours backtracking after the president made this remark at the end of his speech in Poland. We will have a different future a brighter future rooted in democracy inferential hope and right of decency and dignity of freedom and possibilities. For God's sake this man cannot remain power. Bloomberg's Annmarie Horden is in Warsaw for us joins us now. Anne-Marie clearly being perceived as a mistake. But was it a reflection maybe of what the current thinking is within the

White House. So yes it was a mistake to say it's. But is this actually a fair reflection of what is being thought about within the corridors of power in D.C.. I'm not sure I go as far to say that just yet guy because the White House has done a lot to not exactly say they don't agree with what the president was saying but just say this is not U.S. policy. And Secretary of State Entity Blinken made that very clear yesterday while he's on a visit in Israel saying this is

not U.S. policy. That's not what the president was trying to reflect. Also it's not U.S. policy in Russia or anywhere else for that matter. Potentially one U.S. official offered up that this was the president maybe speaking a little bit from the heart after the fact that he had just met refugees who have fled Ukraine who have friend fled the assault that what Russia is doing on that country. And also we should note President Biden when asked as he was meeting those refugees what does he now think of President Putin. And he said he's a butcher. So this just goes a little bit further from already that heightened

rhetoric. Well and obviously the allies that the president and the U.S. has warned all too pleased with these remarks and where you had Emanuel Macro of France for example warning against any kind of escalation including a verbal escalation. Did it do any damage to the diplomatic efforts and advancements that had been made in the prior days on his trip to Europe. Well that's the concern of some of the. So some of these leaders in Europe especially Emmanuel Macron as you said there he said there should be no escalation verbal or not then yet all of Schultz saying the president said what he said. But he said it doesn't reflect what NATO including the United States and the president think in terms of trying to move forward in regime change. That is not the goal. That's what they are saying. And when it comes to the Kremlin wall they'll say that this is now

airing the windows of opportunity for diplomacy and it doesn't help. We should note that President Putin already thinks this. He's thought this for years. There were mass protests in Russia in 2011. And he directly thought that the United States was behind this. He thought the United States was also behind the Orange Revolution in Ukraine in 2004. So for the Kremlin hearing this would not be something new.

But there is a concern that potentially at least when it comes to the coverage of it what the president said those last nine words really overshadowed the entire speech and his entire trip. All right. Bloomberg's Annmarie Horden in Warsaw. Thank you so much for your great reporting over the last several days. Now joining us now with more is Teri Heinz Fangio policy founder. So Terry give us your take. How much damage did that one remark from the president do over the weekend.

Well I'm sorry to say Kelly that I think it's a big deal for a variety of reasons. You know presidents regardless of party or policy should always be precise about what American policy is. And you know the best thing you can say about this is it was imprecise but it was imprecise on a very grave matter the matter of whether regime change or not. And you know it's and it's not a small thing. If you look back historically for example you know the entirety of the Cold War we had normalized relationships with Russia. We had a normalized relationship with China since 1971. We have not called for regime change lightly in in most cases. So to do it now is bad. To do it off

the cuff frankly is worse because then you've got the backfilling and all the rest. Have you come for NATO summit which actually compounds it. Because you know all by all the allies thought they knew where they were going when they left the summit. And hours later the president is is freelancing. You know generally speaking it's not a good thing it drives. Yeah. And it has consequences. It drives kind words Russia and vice versa. All kinds of things. Terry do you think it was a mistake. And I ask the question with relation to the sanctions policy going forward if we were to see a cease fire if we were to see the war in Ukraine coming to an end do you think. The the fact that Putin would still be in power in Russia would mean largely that those sanctions would remain in place. I just

wonder what the conversation is within the White House what the conversation is in Washington D.C. in order to get the sanctions lifted. Does the war have to end or do we need to see regime change ultimately in Russia. I think it's it's by day. Start with the start of the end. I think United States policy is that the sanctions continue until President Putin is no longer there but that you know and now the White House is backfilling and saying well of course we're not interested in regime change. But they said to your other question the question of what United States policy is as it's

coming from the White House has been it has been a moving target for for quite a long time. Firstly we had to see what the incursion was. The nature of the incursion. Then you know then we changed that. Then just in the last week we've got we've had three different gaffes from the president not just one. The first one was the

purpose of the sanctions whether it was deterrence or not. There's long you know the administration did saying deterrence for weeks and always said OK. Now that sort of thing. So you know they they need to get their acts together. Sorry. Just click click Spike. Coming to the first part of that answer though yes. If sanctions stay in place until there is

regime change once the war is over. It's the it's the objective of those sanctions regime change because that would you could certainly draw a fairly clear line therefore between one and the other. And therefore that would imply tacitly that the policy of the White House the policy of America is regime change the most. Very good question. And the most direct answer I can give you is that we do not know what the policy of their assets is to day. To answer that question you know certainly there will be an interest in wanting to maintain sanctions to ensure good behavior. So we know now we're back to deterrence. Yay or nay

again. But again you know things are not going to be you know go back to square one pre invasion as a result of any sort of cease fire or final peace agreement. I think there will continue to be Russian sanctions for quite some time. And again I say I don't think we know what the policy of the United States would be going. I would absence. All right. That's on the foreign policy side of things Terry. Let's talk about domestic policy as well because later on today we are expecting the president to unveil his budget proposals. I know you don't think that it is a big deal to the markets but the billionaires tax component in it.

Could that be. Yeah I put out a note this morning just basically saying it is you know saying you know the budgets do not matter regardless of the president regardless of anything they just don't matter. Because what matters is the spending deals that are between Congress and the administration. The budgets are our wish lists and partisan wish lists that regardless of the president. So there's that. The billionaires tax though I think does not.

Almost certainly does not become law as proposed. But what I've been telling markets is all along is that some some sort of. Tax on the wealthy ends up about 60 percent today ends up becoming law because Democrats will want to do is they will want to pass something called build back better regardless almost regardless of what that is. And by the way I think the thing that markets will be surprised at is it will continue to involve some sort of drug pricing regulation. But there will be a very

small build back better piece of legislation that will be paid for in part by some sort of tax on the wealthy. And I think it will be less grandiose than the one that the president's proposed now which isn't particularly big 360 billion over 10 years. Yes those are 30 is 36 billion tax hall. So it'll be tiny. But you know they're all all Democrats are aligned on the question I think except for maybe Senator cinema on you know being OK with additional taxation of some kind to do some list of small things. I think they want that going into the election. And today doubt it's likely not that they get it.

Bashing millionaires and billionaires even into the midterms maybe something they think is a good idea. Terry great to get you your updates. Really enjoyed the note this morning. Thank you very much indeed. Terry Haynes Pandya policy founder. Thanks very much. Coming up Bitcoin has had something of a stealthy rally over the last couple of weeks. It's wiped away this year's losses. We're going to talk to the CEO of grayscale Michael SOMMERSTEIN joining us next. This is Bloomberg. This is Bloomberg Markets. I'm Angel Feliciano. You're looking at the principal room coming up. Libby Cantrell PIMCO head of

public policy. That's on balance of power at 12:00 p.m. in New York. This is Bloomberg. Keeping you up to date with the news from around the world. Here is the first word. I'm Angel Feliciano. The city of Shanghai will be looked at. We locked down in two phases to conduct a mass testing blitz for the Corona virus. The outbreak is

challenging China's zero tolerance approach to the virus like never before. Residents will be barred from leaving their homes. Meanwhile public transport and car hailing services will be suspended. The U.S. has a revival of a nuclear deal with Iran. May not happen soon. Iran has made a number of requests recently including that Washington removed the Islamic Revolutionary Guard Corp from its list of terrorist organizations. The U.S. is reassessing the political costs of reviving the 2015 pact. The agreement limited Iran's nuclear activities in return for sanctions relief including on oil exports. And a stunning moment

at the Oscars. Actor Will Smith Slap presenter Chris Rock and was later awarded the Oscar for best actor. Rock had joked that Smith's wife Jada Pinkett Smith could be in the next G.I. Jane movie. That was a reference to her very short hair. She has alopecia a disease which causes hair loss. Will Smith later apologize but didn't mention rock global news 24 hours a day on

air. Anton Bloomberg Quicktake powered by more than twenty seven hundred journalists and analysts and more than 120 countries. I made you follow S.A.. This is Bloomberg Kelly Angel. Thank you. I would love to discuss Will Smith and Chris Walk and everything that went down at the Oscars but unfortunately we do need to talk about the markets and focus on crypto currencies in particular because Bitcoin has now erased all of this year's losses. That has the cryptocurrency polls predicting it could go past fifty thousand soon. Joining us now the CEO of grayscale Michael Shannon Shine. So Michael break it 47000. We've

obviously been an arranged for basically the duration of this year. What is your assumptions about the trajectory as we move forward through 2022. Well it's been a choppy start to the year not just for crypto but across all asset classes. So I think certainly it's an exciting morning in the crypto community to see that year you know long so far of losses erased and also seeing Bitcoin break out above that psychological forty five thousand dollars level. I think what we're seeing is a couple of native crypto buyers like Terra buying for their own reserves as well as now we're actually seeing in the trad 5 space in the CMB futures all time open interest on that side as well which is leading to a little bit of a short squeeze in the futures and us the bitcoin prices this morning. Michael there was a lot of talk about the fact that institutions

were going to be stepping into this market in a big way. What are you seeing from institutions. Which ones are stepping up. Which ones are. What's really encouraging to see from RTS is really some of the traditional players beginning to get into crypto trading. Some new firms like Cowin and others have begun trading crypto and offering crypto custody services as well. And

on the investor side you know there is no question amongst investors that crypto is an asset class is here to stay. So all of the firms that they work with for advisory or for custodianship they're all beginning to offer crypto products and services. And that's also leading to greater adoption as well as investor appetite to diversify into the asset class. Well and speaking of how investors can get into this asset class and you were talking about bitcoin futures earlier. There obviously is an ETF for that. What there is not yet is a spot ETF and that is obviously something that grayscale has been actively pursuing. You have asked people to write into the SCC. What do you expect the consequence of those letters to be and ultimately how this is going to end up when it comes to S.E.C. approval. Well the grayscale team has been putting the full resources of our firm

behind converting BTC our flagship fund into an ETF. It's really important that investors know that we have and will continue to advocate for them but their voice can actually be heard through this process as well. And so the S.E.C. has opened up this comment period for investors to advocate why they want an ETF wilder offer greater protections. And this is really really important part of the process. BTC today is owned by investors in all 50 states and there's actually now over 800000 accounts in the US all waiting patiently to have it convert into an ETF. Michael what do you think Gary Gensler actually wants here. What is his objective in terms of what happens next. With you with the market do you think he needs or wants control of the

underlying market before he's willing to take the step of giving you guys that option. Well the S.E.C. has certainly encouraged a lot of crypto participants including crypto exchanges to come in and register with them. And Gary and the current S.E.C. administration has moved the ball forward. It was really a very exciting announcement that we now have Bitcoin futures ETF is out in the market but unfortunately that's forced investors into those Bitcoin futures products because those are the only ones that exist. And so we're really encouraged by that as well as the recent executive order that's causing more federal agencies

to focus on crypto. And ultimately we believe it's a matter of when not a matter of if a spot bitcoin ETF is approved. If it is not if it is denied. Would you look at the option of an EPA lawsuit. I think all options are on the table. I think certainly it's important that between now and the end of that 240 day process which ends in early July that the S.E.C. hears from as many investors as possible as well as academics policy makers everybody has an opportunity to weigh in on this issue. And all of that is in fact considered as the FCC weighs the issue in front of them. In terms of the most likely routes to get to an ETF being approved what does it look like. What do you think the most

obvious trajectory that we're on right now. What is what do you think is the most likely outcome here. If you were to pick an outcome of how you get from where you are now to that ETF being approved. What does it look like. Or guy BTC today has been treated since 2015 and it's been an FTSE reporting company since January of 2020. So every single day that it is trading and being bought and sold by investors and is not being folded into the familiarity and the protections of the ETF wrapper we really don't feel that the S.E.C. is doing everything they can to actually protect investors. What's missing is those last two key components that we're seeking from the S.E.C. GTC can move up to a national exchange like the New York Stock Exchange and then

could also have that simultaneous creation and redemption process that would keep the shares trading in line with its net asset value. Well on the subject of BTC it has traded at a 25 to 30 percent discount for the entire month of March and your like Quinn Horizon Ze Cash Trust. Also we're trading at sizable discounts. Has that influenced demand at all. Well I think what's so exciting about the opportunity around this for investors is that when they think about putting on crypto exposure they can take a dollar and put it into the spot market or they can take a dollar and put it into BTC and buy Bitcoin exposure at about 75 cents on the dollar. And so investors understand that over time if and when BTC converts that will converge and that discount will actually close up to the net asset value. So for most investors there's a tradeoff there. And those that have that longer term time horizon for their bitcoin exposure actually see it as a really big and exciting potential for them. In terms of the discount that there currently exists is that an

opportunity for you. You basically are trading at a discount to the underlying asset. How. How do you take advantage of that Michael in some shape or form. Well it's an opportunity for investors as I mentioned. If you have a long enough time horizon you have conviction that the FCC will approve BTC another spot Bitcoin ETF applications. Then you

do have the ability to buy bitcoin exposure at a discount to the prevailing market. And you've seen that be the case where BTC is held inside mutual funds inside ETF inside retirement accounts and today is owned by institutional and retail investors alike. All right. Michael Sonenshein grayscale CEO thank you so much for joining us here in the New York studio today. Thank you. You get it. And of course if you're more interested in more crypto conversation you can turn in tune into Bloomberg. That's

tomorrow at 1:00 p.m. New York time. We'll be speaking with Melton Demir as a queen shares and Katie Stockton founder and managing partner Lead Strategies. This is.

2022-03-30 16:43

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