What Goes Up

A few years ago, an editor asked Bloomberg investigative reporter Zeke Faux to take a look at the cryptocurrency Tether, a so-called stablecoin meant to precisely track the US dollar by backing it with real-world reserves. What followed was a tour through some of the most-colorful corners of the crypto world, from Mighty Ducks actor Brock Pierce’s yacht to FTX founder Sam Bankman-Fried’s digs in the Bahamas and, finally, a hotbed for human trafficking in Cambodia. Faux joined the What Goes Up podcast to discuss his reporting, which is laid out in his new book Number Go Up: Inside Crypto’s Wild Rise and Staggering Fall. “There's actually these whole office towers, floor after floor of people who've been lured from, say, like Vietnam, with the offer of a good job,” Faux says. “Then when they get there, they're trapped. They're told they can't leave. They're beaten. They get electric shocks, other forms of torture, and they're just given like 10 phones each and made to try to lure people into scams from around the world.” See omnystudio.com/listener for privacy information.

From artificial intelligence to electric vehicles and travel stocks, some of the previously hot equity-market themes have borne the brunt of the selling during the market’s dip in August and September. Sylvia Jablonski, chief executive of Defiance ETFs LLC, joined the What Goes Up podcast to discuss why that is. She also makes the case for buying the dip. “Everyone kind of panics, sells off tech, sells off growth and goes back into cash, cash equivalents, staples and kind of the defensive types of plays,” Jablonski explains. But “these are actually great opportunities, especially if you’re a young person investing for the long term. These are amazing opportunities to dollar-cost average. That’s how I would characterize this market this year.” See omnystudio.com/listener for privacy information.

There’s a lot of excitement around AI-focused stocks right now, but market veteran Art Hogan urges caution when it comes to companies that are just trying to take advantage of the hype without having true ties to the industry. The chief market strategist at B. Riley Wealth joined the What Goes Up podcast to discuss how he views the artificial intelligence investment landscape, as well as other market trends. “If we start to see the capital markets open, and we start to have a flood of newly minted companies that are AI-specific or adjacent, I would avoid that at all costs because they likely don’t have models,” he says. See omnystudio.com/listener for privacy information.

Matt Levine, a columnist for Bloomberg Opinion who writes the Bloomberg newsletter Money Stuff, joined the What Goes Up podcast to discuss some of the hot finance topics he’s been covering and what he means when he says “everything is securities fraud.” “I have a genre of stories called ‘everything is securities fraud,’ which is where public companies do random bad things and people sue them for securities fraud,” Levine says. “It’s indicative of this really big, interesting trend in American securities laws where everything gets sort of reflected—all conduct gets reflected—through the notion of securities fraud because it’s easy to bring cases and the damages can be really large. And so you can like litigate, you can fight over, all sorts of political and social issues by calling them securities fraud.” See omnystudio.com/listener for privacy information.

Crypto fanatics have been pining for a Bitcoin exchange-traded fund for a decade now. But as the applications piled up, US regulators repeatedly declined to approve one, citing the risk of fraud and market manipulation in cryptocurrency markets. But with the entrance of BlackRock Inc. into the race, many market watchers are hopeful that one or more spot-Bitcoin ETFs will finally get the go-ahead. After all, the world’s largest asset manager has a strong track record of getting funds past regulatory roadblocks. On this week’s episode of the What Goes Up podcast, Eric Balchunas and James Seyffart from Bloomberg Intelligence join to discuss how BlackRock’s application dramatically changes the outlook for Bitcoin ETFs. “When they filed, it was a whole different ballgame in my opinion,” says Balchunas. “The fact is they generally like to bring a gun to a knife fight. This is a firm who doesn’t like to lose, who knows what they're doing, and they must see something.” See omnystudio.com/listener for privacy information.

From the renewed and growing power of American organized labor to the case for minting a $1 trillion coin to end debt-ceiling brinkmanship once and for all, Bloomberg’s Odd Lots podcast has tried to tackle some of the most important topics related to the economy and financial markets. From Modern Monetary Theory to Bidenomics, the show hasn’t found a topic it can’t chew on. Now, the podcast’s hosts get the chance to answer some questions instead of asking them. Tracy Alloway and Joe Weisenthal joined the What Goes Up podcast to give their takes on some of the hot-button issues of the day. See omnystudio.com/listener for privacy information.

The price of gold tends to do well in times of elevated uncertainty about economies and financial systems—something the world has seen a lot of in the past few years. Yet each time the precious metal rallies above $2,000 an ounce, it quickly falls back below that threshold. Why is that? Joe Cavatoni, strategist at the World Gold Council, joined the What Goes Up podcast to explain what drives the price of gold, what buyers need to know and why that magic number has served as a ceiling. One main reason, he says, is that when prices go that high, they tend to reduce the real-world demand for gold—including from buyers of jewelry in China and India. “These are price-sensitive businesses and price-sensitive consumers,” Cavatoni says. “So when you start seeing those types of price levels develop, that’s when you see those types of consumers back away from buying—and investors aren’t ready to step back in in the long-term.” See omnystudio.com/listener for privacy information.

A rallying stock market and better-than-expected second-quarter economic growth are just the latest developments pointing Wall Street skeptics to the possibility of a US “soft landing.” That’s where the Federal Reserve gets inflation back down to around 2% without triggering a downturn. For more than a year, Fed Chair Jerome Powell has waged war on inflation while a chorus of adamant recession predictions has fallen flat. But even now, with inflation cooling and the economy looking to be on the glidepath, some big names remain uncertain that he can pull it off. Vanguard Group is one of them. Joseph Davis, the firm’s global chief economist and head of its Investment Strategy Group, joined the What Goes Up podcast to explain why that is, as well as offer his reaction to the latest interest-rate increase and give his outlook for the bond market. “To get inflation down that last yard to 2%, you have to see a modest weakening in the labor market, which means the unemployment rate’s going to rise—although hopefully not drastically, let’s say four-and-a-half percent over the next year,” he says. “Well, that’s a hundred basis-point rise. So by definition, that is a recession. Now, anyone who thinks that that’s a soft landing is spitting in the face of 150 years of history.” See omnystudio.com/listener for privacy information.

A slow-motion crisis is unfolding in the global commercial real-estate market, thanks to the double-whammy of higher interest rates and lower demand for office space following the Covid-19 pandemic. John Fish, who is head of the construction firm Suffolk, chair of the Real Estate Roundtable think tank and former chair of the Federal Reserve Bank of Boston, joined the What Goes Up podcast to discuss the problems facing the sector and what’s being done to help. “The biggest problem right now is the capital markets nationally have frozen,” he says of the US. “And the reason why they’ve frozen is because nobody understands value. We can’t evaluate price discovery because very few assets have traded during this period of time. Nobody understands where bottom is.” One step in the right direction, he says, is recent guidance from federal regulators that allows lenders more flexibility when it comes to borrowers who need to refinance properties. See omnystudio.com/listener for privacy information.

US Federal Reserve officials have been adamant that they’re looking to get inflation levels back down to 2%. But the path to that goal could bring pain to millions of workers, a possible trade-off that “doesn’t make sense,” according to Rick Rieder, BlackRock Inc.’s chief investment officer of global fixed income. “This whole idea of there’s a magic to 2% doesn’t make any sense to me. You just had immense stimulus—let it play out,” he says on this week’s episode of the What Goes Up podcast. “Interest rates—how much would you have to move them to get the unemployment rate to a level to slow wages? It’s not worth it. Why would you take millions of people out of work because you need to go from 2.7% to 2%?” He called the Fed goal a search for “mystical perfection.” BlackRock manages about $2.7 trillion in fixed-income assets for its clients. Rieder adds that the segment of the population that gets hurt by higher inflation is the one that would bear the brunt of any potential layoffs. Meanwhile, raising rates creates an income benefit to wealthier people who tend to be savers, he says. “It’s illogical to me.” See omnystudio.com/listener for privacy information.

Global shifts in incomes and populations, geopolitics and the climate crisis are combining to drastically alter the outlook for the world’s food supply. Taimur Hyat, chief operating officer for asset manager PGIM, joined the What Goes Up podcast to discuss his research into the changing world of food and what opportunities and risks it all presents to investors. “We think food is where the energy sector and this whole talk about energy transition was about 10 years ago,” Hyat says. “We are like 10 years behind in the thinking. And it’s going to catch up with us, because the current food system is simply not fit for purpose. It is not going to work for our planet, it’s not going to work for our consumption needs for a variety of reasons.” See omnystudio.com/listener for privacy information.

The disconnect between a roaring stock market and stubborn recession predictions has left many investors scratching their heads. The equity strategists at Bloomberg Intelligence however have an intriguing explanation: Maybe the part of the economic downdraft most likely to impact stocks started last year, and the worst could already be over. That’s what an economic-regime model suggests, according to BI Chief Equity Strategist Gina Martin Adams and her team. She joined the What Goes Up podcast to explain how the model works, and offer her mid-year update on the market. The model uses month-over-month changes in capacity utilization, continuing jobless claims, ISM Manufacturing data and the University of Michigan Consumer Sentiment level to define the economy’s health. “This indicator started suggesting there were economic risks emerging for the equity market as early as June of last year,” Martin Adams says. “And then it hit just an outright low level, like a low that you never see outside of recession. We effectively had this big loss of momentum in the economy that impacted the equity market—extremely negatively—between June and December.” She says that, by the model’s measure, the economy still isn’t out of the woods. “It’s still terrible. The reading is awful. It suggests we may actually still be in some form of an economic correction or recession, but it’s off of the low,” Martin Adams says. “So this is what’s really meaningful for price direction: As we know, equity prices are driven by shifts in momentum.” See omnystudio.com/listener for privacy information.

While in some places life has mostly gotten back to normal following the Covid-19 pandemic, there are aspects of economies and markets that may have been altered permanently. Jared Gross, the head of institutional portfolio strategy at J.P. Morgan Asset Management, joined the What Goes Up podcast to discuss his team’s research into the post-pandemic landscape. According to Gross, some of the most-important legacies of the global health crisis will be disruptions to trade practices and the reaction of central banks to volatility in markets. Some highlights of the conversation: “It’s a rewiring of trade. The big pipe between China and the developed markets is being split apart. There’s a lot of reshoring, onshoring, friendshoring, nearshoring—all of that stuff is going on, and it’s a real thing, and it’s going to change the way trade happens,” Gross said. Another big change is that investors can’t expect the US Federal Reserve to come to the rescue when markets wobble, he says. “The central bank put, which everyone used to talk about, has probably been replaced with a fiscal put. If you’re looking for a backstop for market volatility, you probably can’t depend on the monetary authorities as much as you used to, because they now have to be very careful given the amount of fiscal stimulus in the economy. They can’t just cut rates because stocks go down. They can’t just cut rates because a bank is wobbling.” See omnystudio.com/listener for privacy information.

Enthusiasm for artificial intelligence has powered a breakneck rally in US equities this year, far overshadowing the US Federal Reserve’s campaign to raise interest rates. So how should investors sort out the fundamentals from the hype? Mark Baribeau, the head of global equity at PGIM’s Jennison Associates, joined the What Goes Up podcast to discuss how he’s viewing the opportunity. He’s the lead manager of the PGIM Jennison Global Opportunities Fund, which is beating 99% of its peers with a more-than 30% gain so far in 2023. “The infrastructure layer that allows for this accelerated computing to go on is the way to play AI right now. Because we’re in the R&D phase, the applications are just getting developed,” Baribeau says. “Nvidia is an easy example. We kind of refer to their earnings release on May 24 as the ‘Big Bang’ because, in my history of doing growth equities since the ‘90s, I’ve never seen a company raise guidance for a quarter by $4 billion. That’s unprecedented.” See omnystudio.com/listener for privacy information.

According to Seema Shah, the chief global strategist for Principal Asset Management, the US economy will enter a recession, likely at the end of this year. Though she says it could be mild and short-lived. Shah joined the What Goes Up podcast to discuss why she thinks there will be a downturn, and why it could last just two quarters. Earnings have come down and could continue to do so, she says, which may “weigh on asset prices.” And while the labor market looks strong right now, she warns that it’s a lagging indicator and could weaken fairly quickly. “I know a lot of people out there who are expecting recession—they expect it to come in Q3. I look at the labor market, the strength of it, and I say that that's almost impossible,” Shah says. “By Q4, we would expect fairly mild negative growth, and then in Q1, a deeper downturn. But then by Q2, this is back to recovery. So this is historically a very short recession and historically a very, very mild recession.” See omnystudio.com/listener for privacy information.

Artificial intelligence is all the rage on Wall Street. Some strategists see AI trends driving further gains for stocks as others point to how big banks are beginning to use it to automate some jobs. MarketReader, founded by Jens Nordvig, is leveraging AI to analyze US equity market trends and help predict why a stock might be moving a certain way. He joined the What Goes Up podcast to discuss how he sees AI helping investors digest information at a faster pace. “What’s happened this year is that actually applying AI has become so much easier than it was six months ago.” Nordvig says. “Our original plan was more focused on structural modeling, traditional fundamental modeling. But we’ve really seen how this actually allows us to do stuff that we just can’t do with traditional models.” See omnystudio.com/listener for privacy information.

Investing in farmland has historically offered an attractive and stable source of returns, yet it’s not an easy asset class for most investors to access. Carter Malloy founded a platform called AcreTrader in an effort to make it easier to purchase fractional ownership of a farm. He joined the What Goes Up podcast to discuss some of the benefits and risks of this type of farmland investing. “You don’t have big, huge up years and huge down years that you do across so many other mainstream asset classes,” Malloy says. “So the consistency of the returns and that relative lack of volatility—in investor speak, the Sharpe ratio—of farmland can be very, very attractive.” See omnystudio.com/listener for privacy information.

A lot of investors are sitting on piles of cash. In fact, J.P. Morgan Wealth Management estimates its clients are more overweight with cash now than they’ve been in a decade. But attractive buying opportunities could be lurking, including in fixed income, US mid-cap stocks and European equities, according to Chief Investment Strategist Tom Kennedy. He joined the What Goes Up podcast to discuss corners of the market—in the US and abroad—that look enticing. He also talks about how Europe managed to avoid a recession, and why the US Federal Reserve is likely done with its hiking campaign, among other things. “Cash very rarely outperforms, and it takes a long time for rates to go up, but they can come down really fast,” he said. “The last seven business cycles, when you have the last rate hike from the Fed, in the two years after that, cash tends to underperform duration assets.” See omnystudio.com/listener for privacy information.

As the US government debt-ceiling standoff heats up and markets grow more volatile, veteran Loomis Sayles & Co. portfolio manager Elaine Stokes has some advice for investors in the corporate-bond market: Get ready to buy. Stokes joined the What Goes Up podcast to discuss the opportunities the drama in Washington may create, the potential for a credit crunch stemming from regional-bank turmoil, and how high-yield bonds may not be as risky as they seem, given recession concerns. “The volatility that I think we’re going to have over the next couple weeks is going to be the opportunity. So take advantage of that opportunity to buy a little further out the curve, to buy low dollar-price bonds, to build in real return for a long time,” she said on the podcast. With regard to high-yield bonds, she added: “I don’t believe that this time around it’s going to be the traditional high-yield market that’s going to see the big wave of defaults. That is going to happen in either the bank-loan market or the private market. That’s where the weaker issuance has come, the lower-quality issuance. So the traditional high-yield market is actually setting up to look pretty attractive.” See omnystudio.com/listener for privacy information.

Brace for a US recession to start next quarter and worsen at the end of the year, and don’t bet on the Federal Reserve to react immediately to prop up growth. That’s according to Sarah House, senior economist at Wells Fargo & Co. She joined the What Goes Up podcast to give her appraisal of the economy, and discuss what to expect for the rest of 2023. “It’s likely to be kind of more of a slow drag in terms of economic activity, just given that we also don’t think the Fed’s going to be riding to the rescue as soon as you do see that weakness,” she said on the podcast. “The nature of the inflation that we’re seeing right now, we think that the Fed’s actually going to be pretty reluctant to ease policy even as the economy is entering a recession.” See omnystudio.com/listener for privacy information.