Flashbacks to 2008

Income is back and Van Eck has you covered with VETF to bring income to your portfolio. With Van Eck's Income Investing Yield Monitor at ThinkYield.com, you can easily track Van Eck's ETF yields, monthly flows and performance of each income ETF category. Explore Van Eck Income ETFs at ThinkYield.com. Investing risk includes principal loss, past performance is no guarantee of future results. Visit Van Eck.com to view a prospectus that includes investment objectives, risks, fees, expenses and other information that you should read and consider carefully. Van Eck ETFs are distributed by Van Eck Security Corporation, a wholly owned subsidiary of Van Eck Associates Corporation. When you stay on task with the only paper tablet that helps you focus, you'll know why there are more than 100 reasons to buy a remarkable. Here's reason number 39. Remarkable was designed to free you from distractions, no notifications, social media or email. Write your thoughts directly onto the page or add a blank one if ideas really start to flow. Just you and your thoughts. Learn more at Remarkable.com. Remarkable.com. Hello and welcome to What Goes Up, a weekly markets podcast. My name is Mike Regan. I'm a senior editor at Bloomberg. And I'm Adanna Heierk, a cross asset reporter with Bloomberg. And this week on the show, well as you've probably heard by now, for the last two weeks, trouble in the US and European banking sectors, not to mention the responses to it from authorities, has captivated the intention of investors. And it's sparking fears of a credit crunch that could ultimately drag the economy into a recession. It doesn't yet appear to be as big of a train wreck as the global financial crisis in 2008. Knock on wood, fingers crossed and all that. Still, it's hard not to get flashbacks to that troubling era. So we're going to do a little comparing and contrasting to that ugly time with a veteran market strategist who was helping to manage a $3.4 billion market making book back then. But first, Vildana, I did hear from a loyal listener because you left us with a little bit of a cliffhanger last week. And he was worried about you. You had told us you were just about to close on a mortgage with the first republic. So how to go? Tell me what was the resolution? You have no idea how stressed. I was like a nutcase last week. I was so worried about first. Just last, just last week. More so than usual, like way more so than usual. And I like when something's really weighing on me, I can't help but bring it up all the time. So I would run and I ran into the radio producer. Yes, but even like the radio producer, Paul Brennan, we took the escalator up at the Bloomberg office. He was like, how are you? And I was like, I'm not well, first republic is my bank. He was like, oh, OK. Well, it's it's stressful enough to close on a new home in normal time. So I can't even imagine. Yeah. But how to go? So we closed, we rushed it and we closed in Friday. Rushing is not a good thing. Obviously, but in this case, I think it's OK to make an exception. Yeah, yeah. So it's closed. It's done. It's good as a Friday night. Yeah. But you know, even our guests on the podcast this week, I told because I couldn't help myself, but to to to tell him about all my troubles when I was talking to him last week. And I told him, I was like, Oh, I have this mortgage pending with first republic. And all he said back was, Oh, and then we never spoke again, which was not a good sign of confidence. I thought you were going to be looking for a couch to crash. Oh, my gosh, stop it. Oh, my gosh. No, but maybe maybe I guess can explain why he just left me hanging like that when I was looking for reassurances. I want to bring in Steve Sosnick, chief strategist at interactive brokers. Thanks so much for joining us. It's great to be here, Voldana. Great to be here, Mike. If just in my own defense, I figured if I had nothing constructive to say and I could sort of sense the nervousness, even via the, you know, via the, you know, the ID messages, I figured it was best not to say anything. But fortunately, I worked out because I really had no idea what would happen. God forbid. I think nobody knows. But you did the opposite of what Mike did. Mike would find really bad stories. And then copy paste the worst parts of people panicking and he would send them to me highlighted with the worst parts and he, I'm sure you already saw this, but just FYI. I was you better start double-apping, which is a new word I learned people with pending mortgages at first Republic were applying for other mortgages, double-apping, they call it. Yeah. And I was like, Voldana, you better. Why aren't you double-apping? But hey, came through. Hey, you know, shout out to my banker, Kyle. One thing I was going to say was already too late because once you'd already closed was once they got the lifeline, you figure you got a three, four month window because they're not going anywhere for a while. They're not going immediately out. And, but, you know, not knowing how long, not knowing how far along you were in the process, I just, you know, if I don't have anything helpful to say, it's best not to say. And I would also assume, you know, if you're, if you're getting a mortgage at, you know, I know you got a pretty good rate, but at any rate sort of a perfect prevailing market rate or close to it, they're going to want to close on that regardless of the buildings on fire, I would think, you know, at this point. So there's that. Okay. So Steve, the reason I was talking to you last week and some of my teammates is because we've been asking people, where were you in 2008 and what were some of the lessons learned that you can apply to today? And obviously we're getting a ton of comparisons to that period of time. I think Jonathan Farrow from Bloomberg TV said something just to put it a bit more in perspective because maybe it's sort of like panicky to make comparisons to 2008 at this point. So he said something like, you know, it's like saying, oh, I broke my foot. It really hurts, but it's all right. It's not as bad as like that time I got shot. You know, so like, can you can like, is it warranted at this point to be making those comparisons? And maybe you can tell us about some of those lessons learned from 2008 that you're applying to today. It's not unwarranted. You know, the problem is we're always looking for a historical precedent and, you know, it, it behooves us to think about what paradigm because we all need to think in terms of some sort of paradigm. What paradigm is most is most like what we're seeing. Well, the last bank crisis, you know, that we know, you know, that really took hold was in 2008. We're not there yet. We're not at that full and I hope we don't get there. Let me be very clear. We're not at the point where things, you know, have really begun to metastasize. And I do think because we've set up some firewalls systemically, you know, Dodd-Frank and, and, and, and, you know, some of the exotic products that are, you know, that cause the last crisis are not really as prevalent. We're not, you know, subprime mortgages are not, are not a thing this time. I assume you went through all kinds of nice credit checks to get your mortgage, Phildana. You know, they weren't just handing them out. Thanks. This time around have not been using credit default swaps to substitute for permanent capital. That sort of thing. So, so it is different. There's a lot so far, the banks that have come out under crisis. It's a little more straightforward. I mean, we'd silvergate and the culprit there is crypto as part of so the ongoing crypto troubles, which, you know, you can speak to better than I can. But then you had SBB, which, you know, we all know the story there. It's a classic mismatch. It's really they had too much. They had too many deposits that they couldn't actually loan out in sort of an efficient way, but they kept taking them in anyway. And so that was sort of a plain vanilla type of a problem, really duration risk. Which always is a risk for banks, you know, along the way, you had signature bank, which, you know, was not a little bit of crypto and a little bit of they seem to have their finger in every sort of odd pot. You know, oddball place in the banking system, taxi loans, etc, etc. And then, of course, credit Swiss, which has been, you choose my words carefully, they've been under some stress for quite some time. Let me put it that way. And so. That's a nice way to put it. So in that sense, we're not at the level where you started to work, where we started to worry about banks like Citigroup and Deutsche Bank and things like that, although I guess credit Swiss is analogous to Deutsche Bank and UBS, which ironically had its own issues back then and is now the acquirer. So there's definitely, you know, history, they say history doesn't repeat, but it often rhymes. And I think there's there's a certain rhyme to it, but we're not there yet. And I certainly hope we don't get there. But so, I mean, I was at that point, my responsibility was making markets and being a specialist in bank options. And so that was a very, it was a very challenging time. I do think we actually, I will say we did, we did rather well then. I, you know, I know that's really counterintuitive and especially when systemic risk is a foot. But the thing that really got us on the right foot was almost a random conversation I had. Yeah, tell us about this because we talked about this and I want to give credit to Katie Grafold, who originally asked you this question and you told this great story. So if you would have mind. Not at all. I mean, it's about it. We, you know, we're in a, we're in a small office building in Greenwich and you know, you park in the garage underneath because, you know, that's everybody commutes by car because it's Connecticut. And so, you know, get in the elevator and there's Thomas Patterfy who founded the firm and, you know, who my sure the listeners are familiar with. Get in the elevator. You know, what's new. And, you know, Thomas is, Thomas is not a man who's big on small talk. So it's, you know, that was, I think more, you know, I took that as a business related question rather than, you know, tell them about, you know, tell them about the kids and stuff. And I said, you know, what's really interesting to me is the story that the story that that that I'm reading this morning about how airsturns may have as much as 20 billion in losses at some of their hedge funds. And he said 20 billion. I said, no, that's that's the number that's being thrown around. I don't, you know, I obviously don't know if it's 100% true, but I trust, I trust the reporting. And he said, how big is, you know, what's their market cap? And I said, I think about 20 billion. Now, at this point, it's only like a, it's only like a four story building. So we're out of the elevator at this point, walking down the hall. You know, I said, I think it's about 20 billionish. And this looks because they are you telling me, Bear Stearns is broke. And I said, I wasn't going to put it that way, but now that you, you know, this is where Thomas is, you know, this is where Thomas is the success he is, you know, because he sees right through these. situations. I said, I, I guess I am, aren't I? And he looked at me and he said, don't sell any puts on banks until you hear it, till you hear from you otherwise. And that was wow. That was probably, you know, I don't think I heard from a mother wise for about a year and a half, but which is not to say I never sold to put. It's impractical. You can't do that as a market maker. But what it means is don't be a net seller of puts. If you sell them, replace them, adjust the models so that we are not the best offer on them. And one of the interesting features that came out in 2008 was because credit default swaps were pretty new. And really, you know, I believe that every new financial innovation gets a, gets a real world test. And some of them pass and some of them fail and some of them get regenerated as a result of it. And that was credit default swaps real world test. And they were being used in inappropriate ways and the market wasn't ready for, for a full scale. Test of credit default, you know, of the, of the, how they work. But the logical hedge, if you're trading credit default swaps is to buy long term out of the money puts on equities. And so the big trade there was people buying whatever the lowest strike leap put was on insert bank name here. Because that would be, you know, if I had sold credit default swaps on Lehman Brothers, you know, the, because of the way a capital structure works, the bonds, bonds go bad before stocks. And I know that's an issue here with credits, waste and the cocoa bonds, et cetera. We'll get it, you know, I'm not a restructuring expert. My brother actually is, you know, I haven't got a straight answer. I haven't asked him actually how that all is working out. But, but what happens is, you know, what happened there is so if the bonds are going to go bad, well, then the stock is going to go bad. The stock's going to go worse. So, so people were really clamoring for those. So it just basically kept ratcheting up that volatility, kept ratcheting it up. And, and, but as a result, we, we went into this and stayed into it pretty, you know, pretty much on a decent footing, which is not to say there weren't hiccups and accidents and everything else. As a, as a market maker, you, you, you sort of expect that you're going to have your bad days and your bad weeks, you know, even your bad months, but you keep tight risk parameters and over time. If you're doing it right, it pays off, you know, you, you, you, you collect a lot of change along the way. And sometimes you, you know, sometimes you make pennies and give back dollars, but you have to manage the dollars that you give back. And we fortunately were able to not get back the dollars. And those days we ran pretty much a, we always pretty much did ran a long volatility model. Just that was the way we traded. It could be expensive. A lot of, a lot of people don't do that. But in an era where volatility was constantly, constantly rising more or less. And skew was getting extraordinarily steep. It was, it was the right. It worked for us. And we were, we were in a good place at the right time. Something to be said for taking the elevator ride with the boss, I guess. This is a good argument for everyone getting back into the office, I guess. I say, some work for most of the day, but. Income is back and Van Eck has you covered with VETFs to bring income to your portfolio. Find the yield duration and credit exposure you're looking for from Van Eck's range of income focused ETFs, which includes municipal bonds, corporate bonds, international bonds, equity income, floating rate instruments and multi asset income with Van X income investing yield monitor at thinkyield.com. You can easily track Van X ETF yields as well as the monthly flows and performance of each income ETF category. Take advantage of the back to income play. Explore Van X income ETFs at thinkyield.com and find the right ETF for you. Investing risk includes principal loss. Past performance is no guarantee of future results. Visit Van Eck.com to view a perspective that includes investment objectives, risks, fees, expenses and other information that you should read and consider carefully. Van Eck ETFs are distributed by Van Eck Securities Corporation, a wholly owned subsidiary of Van Eck Associates Corporation. Never lose track of your notes and documents again. Your notes, organized, introducing, remarkable, the paper tablet that does it all. Replace your notebooks and documents with the only tablet that actually feels like real paper. There are more than 100 reasons to buy a remarkable. Here's reason number 32. With remarkable, you can use tags to bookmark key topics or important files so you can easily find them again later. Here's reason number 74. Access documents and cloud storage apps directly from your remarkable. Plus, a full two weeks of battery life. Visit remarkable.com now and order yours today. Make remarkable part of your business for better meetings, uncluttered desks and improved workflow. Your next notebook is the last one you'll ever need. Get yours today at remarkable.com. Remarkable.com. Big picture wise too. I'm thinking about the difference in the reaction function from the government and the central banks to this occasion versus 2008. Yeah, I'm thinking back to that original vote. I think it was in the house on the TARP bill. There was a lot of optimism in the market that, of course, they're going to pass this bill, the TARP bill to inject a capital into all the biggest banks. And it failed on the first vote and the market just, you know, went down instantly in a big way. I forget the exact numbers, but this response to me seems much quicker, much more focused and targeted and sort of able to put out the fire a lot quicker. Is that your impression too? Absolutely. Yes. Yeah. Once, you know, they were writing the playbook in 2008. And I think to a certain extent, they've been using that playbook, particularly in 2020 and they're using it now. You know, and that was essentially monetary and fiscal shock and awe. And I think, you know, in 2008, you know, remember there was, you know, the ridiculed helicopter ban, but that actually he wasn't wrong, you know, and the Nobel Committee eventually agreed. But that was, you know, a real world test of one of his theories, which was essentially dropped money out of helicopters in the time of a crisis. And I think now they've realized, well, it works. And that was, you know, that was why it had worked during COVID and there really wasn't much complaint about what the Fed was doing. And it was certainly, you know, the fiscal bills were generally passed along by partisan lines. So there wasn't, so by now we sort of, we're going to use that playbook, which I think is a good thing. That's kind of the, that means we're actually learning from our, you know, from our efforts, you know, societally. Now we can argue to what extent it's appropriate. We can, you know, we can certainly question whether there was moral hazard in the way they, in the way they guaranteed all deposits, sort of with the stroke of a pen at Silicon Valley Bank and who benefited from that. I mean, you know, we're going to be arguing about this for a while. And of course we're still, you know, with the Fed meeting yesterday, we're still dealing with the idea of did the Fed and the, you know, and the Congress, the fiscal authorities overdo it in their response to COVID. I mean, these are, that'll be, that'll be the stuff, you know, when Vildana's my age, she'll be having that discussion. She'll be having that discussion with the. In a couple of years, right? You got a ways to go to catch up to me. But, but that's really the, you know, she'll still be talking about her mortgage. I think Steve. I so still be told that we're stirring. Yeah. Yeah. Well, that's, you know, mortgage. Well, you know, it added 20 years to my life. Just from stress. Yeah, Steve, one thing. There's almost this knee jerk reaction in the market, I think, to this notion of the Fed's balance sheet, you know, a bunch of banks went to the discount window at the Fed and borrowed, I don't know what the exact number is at the moment, but call it hundreds of billions of dollars. The thinking in many quarters is that, well, that's almost like quantitative easing, where at least a reversal of the quantitative tightening that the central bank was doing. I'm not sure if that's the same, the appropriate way to look at it. You know, the Fed increasing its balance sheet by extending discount window loans versus buying treasuries and mortgage securities. Is that the wrong way to think about that? Do you think it's interesting because I've had this exact debate with my colleague, Jose Torres, who's an economist and, you know, his, his, he pointed out after the last H.4.1 report, which is something I actually, you know, in a nerdy way, look, look at every Thursday afternoon, but, but you're even Mike, you're probably not old enough to remember on Thursday afternoons, everybody stopped to wait for the M2 report when I started out in the business. You know, that was the thing everybody was looking forward to. So, so we've had this debate and, you know, he said, well, look, you know, the deposits went up, I think it was 300 billion or something, which, which, you know, would eradicate essentially the QT that's done year to date. Meanwhile, though, they did continue to let securities roll off the balance sheet. So I, I, I think that the differentiating factor here is the deposit stuff is meant to be a bandaid, whereas the QT is meant to be more of a permanent shift in the way the Fed is, is approaching that, you know, tightening and easing of their balance sheet. But, but they use their balance sheet in a crisis. And so I don't think it's apples to apples, but certainly it was, they did throw money into the system, you know, they, they need to do it to keep lubricating the gears. I just think it's a little bit, in theory, this 300 billion can roll itself off. I don't think it has yet. We'll, we'll, we'll know this afternoon, I guess. But I think as long as there's stress in the banking system, it's going to, the Fed, the Fed is, you know, is and can be the, the guarantor of, you know, the, the lender of last resort. And it's, to me, this is one of the fascinating things, right? We've talked about the, we haven't yet, but the Fed's dual mandate is stable prices and full employment. Yet it's very clear that the Fed's real job and why they were created was to maintain the safety and stability of the banking system. Now, without safety and stability of the banking system, you can't have stable prices and full employment. But their real mandate is sort of unspoken. Um, and I think that's, but it's important that that mandate really comes into play when there's a crisis going on. And that's what we're seeing now. Steve, I'm curious because everything keeps changing so much so fast, how your thinking has evolved since the start of the year. And obviously we even had some economists at some of the big banks coming out before this week's Fed meeting saying they're not going to be hiking rates. And obviously they raised by 25 basis points. So how are you thinking about all of the changes, everything we've seen, everything we've heard from the Fed, the bank turmoil, everything and, and how it's your thinking about what we might be seeing for the remainder of the year has evolved. My, my thinking really hasn't changed all that much. You know, I'm still of the belief that we're in a period where if the Fed is raising rates and if the Fed is shrinking their balance sheet, things are going, things are going to break and you're going to have accidents. Well, we did. You know, and I think that the problem here is that I'm going to take a little victory lap because literally what I wrote yesterday was that, um, let me just pull it up. Was that my base case was for a 25 basis point hike. The Fed doesn't typically surprise market. No, no hike would be considered a surprise if they stood Pat. We people would worry about what's wrong. Um, you know, but, but you now have the dot plot. I won't go into the whole thing, but basically then said the dot plot was going to be relatively unchanged, which was very much in odds with Fed funds futures and that, um, he would play down concerns about, you know, the banking crisis, metastasizing, um, which would actually potentially disappoint people. I think, you know, I think that all fits. Um, and I think that's still what we see. You know, we saw sort of the, the, the way that zero dated options can cause, you know, micro bursts of volatility. That's a new feature. It's not a, it's not as dire as I think a lot of other people believe it is. I, I really don't think it's a stomach. I just think it's, you know, buckle up and get used to it. But I still think this is the issue. And right now what I'm wrestling with are two basic things. One thing I didn't really foresee was that the January effect would be quite so lasting. I think we're still seeing the January effect. I think the risk on move that we're seeing, um, occurred largely because, um, some of your biggest, most, you know, most followed, most popular stocks, both within individuals and institutions got the crap kicked out of them in 2022. And that led to a lot of tax law selling in, in December, which then made it even worse. They got deeply oversold. They were the first to bounce, um, as well, they should have. And I think that that bounce then turned into a full fledged risk on rally, which I, I didn't actually foresee the amount of the legs that this would have. And I think that's where we're wrestling with now. And I think that, you know, we're, we're still seeing it. You know, we're also getting those tremendous concentration. Did you, you know, Apple and Apple and Microsoft together, just those two stocks are about 13% of S and P right now. And about 25% of, of the QQQs. That's nuts. You know, I think that, you know, you want a bigger historical precedent. Certainly I wasn't active that, but I've read up on it was the nifty 50 or the one decision stocks back in the 60s. And those, you know, eventually every time you've had narrowing leadership, it tends to work out somewhat poorly and end in a bad way. And I'm not, I don't know. I'm not going quite so far, but, but if we're, but if we're that top heavy in two stocks, that's not a, that's not a great sign. Um, but another thesis of mine that I've really been laying out recently is that I think it's generational. Um, and I think, you know, we can debate that with different generations here on this podcast. Um, I think if you were not around in 2008, um, well, if you were around in 2008, you're, you're, you're wary because you've, you've been through this before. And as we said, it's not the same. It's not as bad yet, but it could, it's too early to give the all clear. It could get worse before it gets better. You know, my, my theory, which I've, I've grossed out two of your colleagues, but I'm going to say it again anyway. Um, is, you know, if you see one, if you see one cockroach, there's probably plenty more hiding out of hiding just out of sight. Um, and so I think the older crowd, those who've, those who've been through a crisis, like this have that in the back of their mind. And I was out to dinner with some friends of mine a week ago. Um, you know, and that was sort of the theory, you know, what, what else is lurking out there? If you're younger, you've only really ever lived through a period where the fed has been your friend and where there's been no inflation. You know, that's the part of, that's the part of my main thesis that, that I think is still has to be worked out is that they're not the fed is at every given turn. They're telling you that they're fighting inflation first. And Powell told us that yesterday and yet, and yet there's a certain amount of disbelief and there's certainly a big amount of disbelief in the Fed funds futures, which, which I think we can battle merit its own part of the conversation. But, you know, generationally, you look at anything that might look as the fed coming into the market as fed, you know, fed easing, this is good. And, and like you said, Mike, it's, it's tough to say it's exactly the same thing. The feds, not necessarily easing for the best reasons. And it's not clear. They're, they're really easing, um, especially if they're, um, they're raising rates at the same time. You know, any investor who's sort of under 40 has never been in a period where the Fed has not been a tailwind with the exception of like a few months here and there. Um, and that's a very, it's, it's, so I think you're getting two very different mindsets at work. Um, not a bad thing, but, but it'll have to get resolved. You know, we find out if it gets in favor of the, the younger set or the older set. And the problem also is none of us, unless you're, you know, unless you're sort of in your 70s or older have, have been investing in a period where inflation was problematic. Right. And so no one knows what that playbook is like firsthand. You know, I can talk about what the playbook was like firsthand in 20, you know, in 2008, I can't talk about what the playbook was like in 1978, 1979. And the historical data is not as complete for back then. You know, it's, it's hard to even as if you're a quant to go back and, and, you know, parse it and pick it apart the way you do with modern data. Um, one note to listeners, we are recording this episode on a Thursday, March 23rd. So keep that in mind when any references to yesterday and today, in case, I don't know if I'll doubt it. Maybe some people are listening to this on Saturday night and they're having a party. And this is their soundtrack. I listened to podcast on Saturday night. I am sure you do. Income is back and Van Eck has you covered with V ETFs to bring income to your portfolio. Find the yield duration and credit exposure you're looking for from Van Eck's range of income focused ETFs, which includes municipal bonds, corporate bonds, international bonds, equity income, floating rate instruments and multi asset income with Van Eck's income investing yield monitor at thinkyield.com. You can easily track Van Eck's ETF yields as well as the monthly flows and performance of each income ETF category. Take advantage of the back to income play. Explore Van Eck's income ETFs at thinkyield.com and find the right ETF for you. Investing risk includes principal loss. Past performance is no guarantee of future results. Visit vanack.com to view a perspective that includes investment objectives, risks, fees, expenses and other information that you should read and consider carefully. Van Eck ETFs are distributed by Van Eck Securities Corporation, a wholly owned subsidiary of Van Eck Associates Corporation. Imagine working on that breakthrough idea of yours uninterrupted for hours on end. When your job is that demanding, you need to stay focused. Remarkable is a digital notebook with the feel of paper designed for tasks that demand focus. Forget about cluttered folders of handwritten notes. You can't even understand or complex digital files where you can never find what you need. With remarkable, you can convert your handwritten notes to text with a simple tap and keep all your work digitized, organized and easily accessible. Share your thoughts live, visualize and bring your colleagues into the conversation. Remarkable. The paper tablet is your favorite thinking spot to take notes, draft, read, organize and more. It's having all you need to succeed right at the palm of your hand. Are you ready to change the way you work? Learn more at remarkable.com. Remarkable. The paper tablet. But Steve, I always love to sort of cut to the chase here and get to the, well, man, just tell me what to do with my money right now. What are you advising? What's the best way to position right now? Well, I'm not going to be on the markets. I mean, you've got money market funds that are finally sporting a yield. That's three or four percent. Is it cash? Is it excited about long duration bonds? Is it defensive stocks? What would you be doing right now? I've tended toward risk averse, which has meant that I missed a lot of the NASDAQ move higher. I don't feel like I've missed too much in terms of the S&P, etc. Let's go back and think of what the theses have been for investing over the last few years. Number one, don't fight the Fed. So what does that mean right now? Does that mean loading up on risk? No, because the Fed is not your friend at this point and whatever market-friendly things they may be doing now, it's crisis response, not true stimulus. There is no alternative. Yes, there is. Now there is. I think we're in the situation we're in is because for so long, there was no alternative. So money, liquidity, like financial liquidity is like real liquids. It finds the lowest level. We're still working through a lot of liquidity that found the lowest level during 2020, 2021, etc. The economy is generally robust. I think we can argue whether we're going to come in for a soft landing or hard landing. My gut tells me this probably doesn't end all that well, but the question of course is when. And the question is how much? Now I think it's great that on the job front, things are going along swimmingly. It's also not so terrible, by the way, if you have a job to see the fact that wages are strong. Let me preface it that way. But I think the problem you have now is you've got a lot of, you really have this dissonant factor going on. You've got stock markets happy because they see the idea that rates might come down. But you have to ask yourself, why are they going to come down? The Fed, as we mentioned in the dot plot, the Fed governors who have been saying all along, we don't see any rate hikes through the end of the year, pretty much said the same thing yesterday. The dot plot is telling us, a rate cuts rather. We're not cutting rates by the end of the year. Yet, at one point at the end of the day, late in the day, it's bounced back a little bit. The Fed funds futures for the January 24 meeting were showing $3.99. That's a lot of cuts. So ask yourself, what do we have to do to get those cuts? More cockroaches. Well, that's my worry is nothing good. Unless we magically beat inflation, in which case, I still don't think the Fed is going to be racing to cut rates. If you've just won the war, you're not going to start a new one, which is what rate cutting would do if you just arbitrarily said, let me just say this one. Pause does not mean pivot under normal circumstances. So otherwise, what we would need to be is you'd either have to have some sort of financial accident or some sort of recession, neither of which is particularly market-friendly. So that to me is a huge cognitive dissonance out there in terms of what's being priced in in certain places, what's being priced in in order to justify the rallies we're having. If stocks are supposed to be looking six to 12 months down the road, what are you looking at? And that's the tricky part right now. Steve Sosnick, Chief Strategist at Interactive Brokers. All right, Steve, well, we can't let you go just yet as a veteran of the show. We've got to hear about the craziest thing you saw in markets. Well, Donna, I have a funny feeling we're all going to pick the same crazy thing. So I'm going to scoop us all and go first. How about that? We often talk about these futures contracts in the market, oil, soybeans, corn, whatever it is. You don't often think about what it means to take the livery of those contracts. And at the London Metal Exchange, they had a little bit of an issue on that front. They, announced they had canceled nine nickel contracts worth about $1.3 million after discovering quote unquote irregularities. Now, you know what the irregularities were? When they went and looked at these bags of nickel, it was just a bunch of bags of rocks. I knew you were going to go with this story, which is why I... One of my favorite stories ever of JP Morgan turned out to be the owner of, I think at least some of these nickel contracts. Whenever there's a crazy nickel story in the market, you can count on JP Morgan and the LME being at the center of it. So I don't think they've figured out why there were bags of rocks instead of bags of nickel. But I'm dying to know. I wonder if that's something to do with that short squeeze. I would love to know who found it. Who found the bags of rocks? Yeah, I don't know. There's so much more we need to know about this story. Absolutely. Well, first of all, just think of all the craziness. When nickel prices were going insane, it would behoove some scammy person to say, what if I just delivered a bet? What if I just sell short and sell them? And I got nothing to deliver. Maybe no one will catch me. Someone had to sneak into this warehouse, remove the... I don't know. Where maybe it came from the spire? Who knows? We'll have to stay tuned and see how this all resolves itself. Hopefully, they figure out what happened. But I don't know. One of my favorites. That's a good one. So what do you got? I knew you were going to go with it. Mine is not markets related. Okay. This is seriously. I'll happily be a loser of this game this week because it has absolutely nothing to do with anything. It's just my favorite story of the week. It's a 90-year-old tortoise named Mr. Pickles. He's the new dad of three. So he has three brand new tortoise babies. And they're named Dil Gherkin and Jalapeño. Dil Gherkin at age 98? He's 90 years old. And his wife is 53, I think. Why? Why? The wife is a generous term. I just really like this story. And they're so small and extremely cute and they can fit in the palm of your hand. They're so tiny. All right. Well, that's pretty good. I mean, I'm looking at pictures. I'm sure there's a market for, I don't know, turtle meat. So maybe that's how... Stop it. Oh my God. They're an endangered species. And one of the reasons that Galapagos turtles are endangered is because there was a market for it because if you were sailing along and stuck in the middle of Pacific, Galapagos in Spanish means tortoise and they would land on the Galapagos Islands, put a couple tortoises on the boat. They didn't need much care and feeding and you could feed your crew for months. That actually is just... See where you brought the conversation, Mike? I know. We were talking about nice little turtles and I should have gone there. Sorry. This is how you become a chief strategist, by the way. If you... You need a meal on a boat near the Galapagos. Steve's got you covered. Not anymore. If they're endangered, I wouldn't do that. How about you, Steve? What's the craziest thing you saw? I came with two because I figured one of you might beat me to the bag of rock story. So mine is that perhaps the best investment in markets right now is swag in defunct banks. You know, as someone I know who still has a Solomon Brothers rugby shirt and I think I have from my summer intern days, an Ella Rothschild umbrella still, I know from my defunct securities firm, swag. And apparently, there was some sort of credit-suisse hat that was very popular that's going for good money and they're not even defunct. They're not even defunct. But S.V.B. stuff. So I think the eBayers are having some fun with the swag. And so that's... I think that's financially market. Financial markets related enough. No? That's pretty good. Yeah. No. Yeah. In fact, I think that's been a contender in the past. So it's always good to revisit that market. I once found an MF Global golf ball out on the course and I've meant to throw that up on eBay, but I think I lost it. I have a country that I found and I keep it in my golf bag just as a reminder of what can go wrong on the golf course too. It's a good metaphor. The takeaway at the end of all of the... of this segment always is that it's good and it pays off to be a hoarder. That's right. That's right. That's right. I'm hoping one day my wife will listen and realize why I hoard so much stuff around here. But hey, you know, take that free hat when you're at the conference, Vildana. You never know. You never know. I should go through my crypto swag. Yeah. Yeah. Don't throw it out. Don't throw it out. I throw everything out. Steve Sosnick of Interactive Brokers. Always a pleasure to catch up with you, Steve. Thanks so much. My pleasure, Mike. My pleasure, Vildana. Thank you so much for inviting me today. I can't remember. I can't believe how fast the time went. I hope it went as fast for the listeners as it did for me sitting here. We'll catch you next time. What goes up? We'll be back next week. And so then you can find us on the Bloomberg Terminal website and app or wherever you get your podcasts. We love it if you took the time to rate and review the show on Apple Podcasts so more listeners can find us. And you can find us on Twitter. Follow me at Reganonimus. Vildana Hirek is at Vildana Hirek. You can also follow Bloomberg podcasts at podcasts. What goes up is produced by Stacy Wong. Thanks for listening. See you next time. ♪ ♪ ♪ Hosted in Doha in May, the Qatar Economic Forum powered by Bloomberg returns, featuring conversations surrounding investing in emerging markets, the new economic statecraft, the new technology frontier, the business of sports and more. Join global business leaders heads of state and emerging voices from energy, finance, technology and sports in identifying the latest trends set to drive resilient economic growth and optimism into the next decade. Visit Qatar Economic Forum.com to learn more.