On The Tape is brought to you by
On this episode of On The Tape Guy, Dan, and Peter Boockvar discuss what protests in China mean for Central Banks around the world (1:00), crude oil under pressure (5:00), S&P 500 earnings (7:30), and the yield curve inversion (11:00). Later, Peter interviews Jonathan Steinberg, CEO of WisdomTree (WT), and talk about how WisdomTree created and marketed their funds in the past and some of their current funds in a world of higher interest rates (16:00), currency swings (22:00) and whether this a time for more finesse in the ETF space given all the macro-economic cross currents (40:00).
Please rate and review and share it with your friends as this will help people find it.
And as always we want to hear your feedback. Please hit us with any comments at OnTheTape@riskreversal.com, and follow us at @OnTheTapePod. You can always tweet us individually @RiskReversal, @GuyAdami & @DMoses34.
You can give it a listen on the website or at your preferred podcast store (Apple Podcasts, Spotify, Google Podcasts, Amazon Music, and Deezer), and please subscribe to have it delivered to your devices each Friday.
 Apple |
 Spotify |
 Google |
 Amazon |
Show Transcript:
Guy Adami: [00:00:01] CME Ad. [00:00:01][0.4]
Dan Nathan: [00:00:30] iConnections Ad. [00:00:31][0.8]
Guy Adami: [00:01:21] You’re listening to a bonus episode of On the Tape, Guy Adami here, joined by Dan Nathan and of course, the great Peter Boockvar. Later, Peter is going off the tape with WisdomTree CEO Jonathan Steinberg. I think WisdomTree is probably up like $80 billion or so of assets under management. It was sort of the groundbreakers of the whole ETF world. And Jonathan and Peter have great conversation. But before we start with that, how are you, Peter. [00:01:47][26.0]
Peter Boockvar: [00:01:48] Guy Dan, great to chat with you guys. [00:01:50][2.5]
Guy Adami: [00:01:51] Listen, you had a great note out this morning. Obviously, I think what’s front and center is China. What’s going on there, the opening, reopening, not opening now, civil unrest. It makes you wonder how this whole thing is going to shake out. And for whatever reason, our market is seeming to pick up on that today. [00:02:08][16.5]
Peter Boockvar: [00:02:08] Well, what’s interesting is, you know, China’s authoritarian government is all about control, control, control. Now, we’re beginning to see that that the discussed in the dissent has brought people to wit’s end. It’s amazing how much they’re acting out and immediately I mean, it’s just within hours of some of this. I’m reading a story that China’s eased even more restrictions after the weekend’s protests and that the government is going to no longer block access to apartments where infected residents live. Now, that may not sound like that’s really going out of their way, but a couple of weeks ago, they announced 20 different initiatives to get to an easing approach to to their COVID stance. So there has been a lot of steps that have been leading to it. But now I think the hope is that it’s going to really quicken the pace. And while we still have to wait until February, March, when they get through the flu season, it’s obvious that there’s an end game here to China’s support. [00:03:10][62.3]
Dan Nathan: [00:03:11] So they’re starting the end game. It is remarkable. We are literally three years on from when they started locking stuff down in late 2019, early 2020. So literally, it will probably come on the three year anniversary of that. And you know, Peter, it’s funny, we go back to I mean, we could all talk about Fed policy and global growth and the things that have been drivers of the global economy. But go back to 2018, the last time the Fed was raising interest rates and it was in Q4, I know we’ve all talked about this a whole heck of a lot, but China growth fears were one of the things that kind of tipped a little bit. When you think about just equity markets, our market went down 20% or so and it caused the Fed to do an about face on that rate hiking cycle here. Are we about to see something very similar? Is China in the third year of lockdowns in the growth that may or may not materialize when they reopen? Right. Are we likely to see the reopening of China matched by a global recession? Because that’s obviously on the tips of kind of every economist tongue right now. [00:04:16][65.2]
Peter Boockvar: [00:04:16] Yeah, it’s very interesting to think about how that sort of scenarios can intersect. But but I think it’s the China reopening that could, at least for parts of the world, can sort of cushion that economic downturn. And when you look at the U.S., the U.S., irrespective of China’s reopening, is going to have to deal with a 7% mortgage rate in their housing market, for example. It’s still going to have to deal with the impact of record high car prices with now higher cost of borrowing, irrespective of China’s reopening. I think China’s reopening is really obviously going to help them themselves, but can also help Europe. China is Germany’s biggest trading partner. We know that the the Chinese tourist has essentially been locked up for the last three years and they’re going to be unleashed on a full reopening. And the first place they’re probably going to head to is parts of Asia, but also Europe. So I think that those parts of the world are going to benefit to a greater extent relative to the U.S. And then we wonder what this means for oil prices inflecting higher again, which they probably will. I wouldn’t be surprised if we saw triple digits again in oil when they did. So I think it’s going to be more pronounced in that side of the world relative to the U.S. And it could create an interesting situation for the Fed in that we know that where they want to take the Fed funds rate, but this would reinforce the timetable at which they keep rates high for longer. [00:05:46][89.9]
Guy Adami: [00:05:47] Yeah, and that’s been one of the concerns. It’s not the fact that they may pause or pivot. It’s the fact that this might last a lot longer than people think. I think a lot of economists, a lot of strategists are forecasting rate cuts somewhere in 2023. But I think this might flip the narrative a bit, and I don’t think the market is necessarily prepared for that. Clearly, what the market’s not also prepared for is the fact that oil’s almost now, if you think about it, been cut in half, not really down about 40% from the highs we saw earlier this year. But oil under pressure is fascinating, something that Dan has been saying is going to happen for quite some time. And here we are. What I find, though, really intriguing, Peter, as the commodity unravels, at least until today, the oil stocks have held up incredibly well. And I think it sort of reinforces the point you just made that at some point the oil market is going to reemerge here. [00:06:38][50.8]
Peter Boockvar: [00:06:38] Right. And we also know that that oil stocks, even with a rally, were trading at very cheap multiples and assuming an oil price sustainably of $65 to $70. So even with this drop, it’s just back to where a lot of these stocks have already been pricing for. I mean, you look at some of the European oils, which we own a few of them like BP and Shell. I mean, they’re trading at half the multiples, Chevron and Exxon and even Chevron and Exxon at most, they were trading ten times earnings. And you compare that to other parts of the market, you throw in a pretty good dividend yield. And, you know, the assumption was that these stocks were never trading in embedded in the valuation was never a hundred all plus oil. You know. [00:07:23][45.1]
Dan Nathan: [00:07:23] It’s interesting, Peter, that you mention, you know, just the kind of cheapness of the energy sector. And we know that, again, they don’t make up, you know, more than 5% of S&P 500 weightings. They’ve been a disproportionate percentage of the earnings growth rate in the S&P 500 to take energy out. And you have negative growth for 2022. And, you know, we track pretty closely John Butters, he writes the earnings insight blog over there at FactSet. He’s basically suggesting that analysts are forecasting that that contribution to growth is going to start trailing off in Q2 of next year. And I guess I just wonder, given this backdrop of what you’re talking about here with higher rates, right? We have a consumer that’s getting tapped. Guy’s been talking about consumer credit is going through the roof at a time where the savings rate is coming down. And and I guess I just wonder here, if you look at S&P earnings, we’ve talked about this with you in 2023 if Entergy does not do the heavy lifting and we see some of these major tech names which are already guiding down for Q4 or have guided down for Q4, what does it look like for S&P 500 earnings? And have strategists lowered their estimates enough already? [00:08:32][68.3]
Peter Boockvar: [00:08:32] I think they’re they’re only getting around to trimming estimates after we saw third quarter earnings season. Now to the point where for at least 2022, you’re down to about $220 an S&P earnings. And I think it’s important bigger picture to understand that when you look out over the last ten years and putting aside the the cut in the corporate income tax rate at the end of 2017, it obviously was pronounced the two biggest drivers of profit margin growth profit margin expansion to what ended up being a record high was lowered interest expense and low labor costs. And now we’ve obviously inverted higher in terms of of interest rates, particularly for those companies that didn’t fully turn out for those companies that borrowed floating rate and didn’t hedge. And then on labor costs that are running at around 5%, average hourly earnings, which is double the pace in the 2025 years leading into COVID. So profit margins will be under pressure. And I think if we are now going to see a moderation inflation in 2023, which we’re already beginning to see the beginnings of. Well, inflation has been the only driver of revenue growth. And then some you look at some of the consumer products companies that saw 9% revenue growth while they had, you know, 11% pricing and a decline of 5% in volumes. Throw in some FX and net net, that’s how they got their revenue growth. So if inflation actually slows, that would inhibit revenue growth. At the same time, profit margins are compressing and that’s going to lead to lower earnings next year than I think analysts are anticipating. [00:10:11][99.1]
Guy Adami: [00:10:12] Yeah, I agree with that. And I’ve talked about if you really want the real inflation rate, just look at the organic growth. And I have sort of air quotes up. I’m saying this for companies like, you know, Procter and Gamble and Kraft and General Mills and companies that have basically passed on their costs to the consumer. That’s really an accurate description, I think, of where things are. But the other thing that we’ve talked about on on the tape, on market call, on fast money, Danny Moses has brought this up as we’re sitting here right now, twos tens is probably approaching 80 basis point inversion. I’ve thought for a while we could get to 1% in the form of three and a half percent in the ten year, a sticky four and a half percent in a two year. And Peter, I say this all the time, I’m not an economist. I don’t pretend to be, but even I know that can’t be particularly good. [00:10:57][44.4]
Peter Boockvar: [00:10:57] What it’s also reflecting is, is the dependency of the U.S. economy on low interest rates, and that just as we need food to sustain ourselves, the U.S. economy over the last 20 years has needed low interest rates to have economic growth because our savings rate is so low, the consumer savings rate, as opposed to like the business savings rate, the household savings rate. So the lowest level since 2008. So you need low interest rates in order to supplement that low savings rate, in order to generate faster economic growth. So we don’t have normal economic cycles anymore. We have credit cycles that ebb and flow with the cost of capital. The cost of capital goes up. Economic growth is going to slow. And to your point, that is now being fully reflected in the yield curve inversion. [00:11:44][47.3]
Dan Nathan: [00:11:45] All right, Peter, let’s talk quickly before we get out of here. Stock market, we’ve had a nice rally. The S&P 500, what is it? Almost round tripped back to those kind of pre-pandemic highs. Okay. We had our eyes on that 3400 number and the S&P 500. And here we are. We’re right at 4000 here. You know, if you look at the charts, you see that downtrend that’s been in place. You see that declining 200 day moving average. We’re basically nearly there. I’m just curious, you know, after this, the size of the rally we had and think about just what’s going on right now in the near-term with what all that we just talked about here. But there are some things on the horizon here. We got jobs at the end of the week. We’re going to have CPI. We’re out of a Fed meeting. We see the Fed speak is already kind of indicating that at least the case for what we already know is a slower pace of increases. That’s going to happen at the December meeting. I’m just curious your thoughts in the year end, because right now the S&P is down about 16% at its lows. It was down about, what, 25% or so? You know, I’m of the belief that kind of higher we go right here is the harder we fall in the new year. But I could also see a retest of this kind of 3600 if we have the slightest hint that any of this data is hot if the jobs, unemployment doesn’t move up. You know, if we have a CPI that’s maybe a little hotter, you saw a little cooler what that did to stocks over the last couple of weeks. Thoughts here in the year end on the S&P 500. [00:13:07][81.7]
Peter Boockvar: [00:13:07] I agree to your point about what the next focus is going to be. A bear market has different multiple hills to climb before it’s over. And I think we we’ve sort of climb the first hill with the multiple compression in stocks, sort of gotten past peak inflation. We’re approaching sort of peak hawkishness and peak rate hikes. So we’ve completed that. We breathed a sigh of relief in the market that I think has driven this rally on top of the belief that, okay, it’s the market’s God given right to to rally at the end of the year. But the next hill to climb is to your point of the economic consequences of higher interest rates, the earnings consequences of a global recession. And I think that is the next challenge, the next hurdle, which we started to see the beginnings of in Q3, because earnings estimates have now slipped. But I think it’s now going to be more pronounced when we see fourth quarter earnings mid-to-late January to February and then the quarters subsequent to that. And the realization that just because the Fed’s done raising interest rates, they’re not coming down any time soon. And quantitative tightening, which no one seems to talk about anymore, is still going on. And the Fed’s balance sheet has already shrunk by about 340 billion and is about to start to pick up the pace in the sense that it hasn’t been 141 95 billion a month, that it was meant to be because of the NDS and some settlement issues. But now it starts to kick in in the sense that that is going to be a major liquidity drain that I think people need to start paying attention to if they’re not already. [00:14:38][90.6]
Guy Adami: [00:14:39] Yeah, no question about it. I mean, the Bulls will discount that without question. The Bears were point out. I think you’re right to point it out. We’ll see if the market reacts. But upon our return, that’s not when we come back, which most people say. So I’ll say upon our return, Dan and Peter, Peter’s conversation with WisdomTree CEO Jonathan Steinberg. CME Ad. [00:14:58][19.6]
Dan Nathan: [00:15:36] iConnections Ad. [00:15:37][0.8]
Guy Adami: [00:16:25] FactSet Ad. [00:16:26][0.4]
Peter Boockvar: [00:17:07] Welcome to another episode of the Boock Report CEO podcast. Today I have Jonathan Steinberg, who is the founder and CEO of Wisdom Tree, and I need to emphasize that Wisdom Tree used to be Wisdom Tree Investments. But the company just shifted to the New York Stock Exchange, changed its stock symbol from WETF to T and it is now just. WisdomTree Jonathan, thank you for joining me. [00:17:33][26.0]
Jonathan Steinberg: [00:17:33] Thank you for having me, Peter. [00:17:34][0.8]
Peter Boockvar: [00:17:35] Now, I remember back in the nineties, I was an avid reader of individual investor. I started out as a small cap, microcap stock market investor. It was my passion. I loved it. And I felt that you were magazine was was a go to. So can you tell me like how you got into this business and what brought you from from that which was a publicly traded company also. So WisdomTree is not your first rodeo here and how it led to creating WisdomTree. And you were very early in sort of being one of the the creators of this exchange traded fund industry. And what sort of lights went off that you said, you know what, this is the future. [00:18:17][41.7]
Jonathan Steinberg: [00:18:18] So first, Peter, it is the same company. So WisdomTree was an individual investor group that went public. So I made the transition, which was not easy to do as a public company, to go from media, financial media, which was this research based, independent, unbiased research for the masses to what is WisdomTree, the asset manager. So I was early on the retail investing side. I launched the company actually in 1988. It was before the Internet, even though I was early on retail, it was late in terms of print. So shortly after I launched WisdomTree, Netscape came out. If you remember Netscape, it was the first browser and it showed you how information was going to be free. And I thought to myself, Oh, I am in trouble that magazines, print is in, is dead or will die. And I can see that clearly now that I understand what, you know, Netscape is doing. So as I’m running individual investor, which was really just for the purpose of enhancing the investors experience. And I loved my journalism, the magazine, it was a laboratory of what worked for investors. And my director of research way back in 1999 brought me my first story on an ETF, the Qs, when the wrapper only had about $40 billion of a boom in the ETF wrapper worldwide. But I saw very clearly the wrapper, liquid transparent, tax efficient was a step function better than the mutual fund. And I thought this will be the future of asset management. And in 1999, no ishares no vanguard. There really only three funds the Spider, the MidCap and the Qs. And I thought as a research organization, I was building indexes anyway. I sold my magazines and my websites, I held my indexes, and then I started a journey to relaunch myself as an asset manager. It was a very, very hard transition. I actually went from a high of $11 a share and 142 employees, down to three employees. I touched a penny a share. I touched a penny a share. And in 2004, around the IP and the business plan that is today, WisdomTree, I got Michael Steinhardt, Jim Robinson and Jeremy Siegel to back my IP. I sold them $9 million worth of stock at a 400% premium when the stock was at three pennies. So they paid $0.16 and I announced it and I went up 38,000% in a day. I went from a $300,000 market cap to 125 million on Steinhart and Siegel and sort of WisdomTree was born. [00:21:46][207.2]
Peter Boockvar: [00:21:47] I remember those original commercials. [00:21:48][1.4]
Jonathan Steinberg: [00:21:49] You know, it was The Maverick, which was Michael Steinhart, who was, you know, yours is an investing show. So Michael Steinhardt, for those of you who might not remember him and he should be remembered. He was a peer of George Soros in the birth of the hedge fund industry. And for 29 years he delivered after fee returns of 24 and a half percent a year for 29 years. [00:22:15][26.4]
Peter Boockvar: [00:22:16] The Market Wizards book you. His interview was one of my favorite chapters. [00:22:21][4.3]
Jonathan Steinberg: [00:22:22] I mean, he but that is a good performance record in all different market cycles. So anyway, no one wanted to back my transition, no one from media to asset management. Michael really wanted to, but no one would back his idea. Everyone told him not to do it. Everyone, including his family. But he just wanted to do it. And it just shows unbelievable conviction. And it worked out incredibly well for him. He got a 16 x return on the first day and WisdomTree was born. And he was so proud of the whole experience. And I’m still working with Professor Siegel more closely than ever before. And Michael has recently, a couple of years ago, retired from the board, but we remained great friends. And today WisdomTree is an $80 billion asset manager globally, very excitingly, you know, moving into digital assets on the strength of our ETF franchise. [00:23:25][62.3]
Peter Boockvar: [00:23:26] Well, what I always thought was was very unique about WisdomTree was the products that you guys created. Were were very outside the box like you, you rather than just creating in a variety of index funds and just creating a low cost way for the average person to just be a passive index buyer. It’s almost like you looked at opportunities within the market that were not being served for the retail investor and created the product for it. And I know you guys started earlier in mid 2000s, but one of the the ETFs that I just thought was genius on your part was, was the DSJ the the Japanese yen hedged equity ETF. And the timing was just spectacular that you had the at the beginning of Abenomics sort of late 2012 into 2013, where their purpose one of the purposes was let’s just have our central bank print a boatload of money, weaken the yen and goose the stock market. Well, if you were a if you bought Japanese stocks and did not hedge out the yen, well, you were working at cross-purposes. And here WisdomTree had this product that you hedged out the yen in, allowing people to to almost one for one capture the rally in Japanese stocks. [00:24:52][86.1]
Jonathan Steinberg: [00:24:53] And in that year, we took in like 14 billion of net inflows. And more impressively, in 2013, we took in $0.88 of every dollar in the United States that went into the Japanese theme, which is extraordinary for a little asset manager. But if you take it back a little bit, I saw the value of ETFs in 99 before iShares came, before Vanguard launched. I knew Vanguard was coming through the the business plan as I pitched it to investors was how to thrive in a vanguard world which incorporated going going to the ETF. Rapper, which was better than their mutual fund strength. But it also meant I would pioneer a different business model, which was called self indexing. I did not want to compete with Vanguard on the same indexes on price. And so but with self indexing, I could create. So my first set of products, the ones that Professor Siegel said to Michael Steinhardt, this is the best approach to indexing I had never seen was I dividend weighted the developed world. So in June of 2006, we launched 20 funds in a day. Six of them were U.S. equities, meaning all dividend payers in the U.S. weighted not by market cap but by their cash dividends paid. And I broke that up into large, middle and small. And then I did a specialty fund, high yield, that high yield fund today. I believe DHS is the best performing dividend fund in the United States year to date. And then I did 14 funds that were international, all dividend weighted in there. I was going up against by the time I launched, ishares was in the market. They were taking $0.99 of every dollar that went into an international ETF. And that’s because State Street and Invesco, they each had one ADR fund. I was the only one to spend any money on international exempt of relief, and I did. So I created size cots internationally. So before WisdomTree, you couldn’t buy large, mid and small internationally. And DSJ was one of my original 20, though at the time it was unhedged for currency. We then inserted the hedge a couple of years later and it was, you know, just a much better investing experience. And even today, Japanese equities go up when the Japanese currency goes down and they have an inverse correlation. [00:27:40][166.7]
Peter Boockvar: [00:27:40] Definitely helps to protect a US based investor. And I think you point out what has been unique about WisdomTree is is sort of a an index ETF type structure, but with fundamentally based decision making, you know, as opposed to if I buy IWM, for example, and I get exposure to the Russell 2000, well, a third of the companies in that are money losers, right? Well, in order to pay a dividend, you need to actually generate cash flow. And in order to generate cash flow, you have to have earnings. So I think bringing that sort of fundamentally based technique in a way to an ETF just creates the potential for outperformance relative to just the passive boring ones that a lot of the others come out with. [00:28:24][43.0]
Jonathan Steinberg: [00:28:24] And what we tried to do, because this was when we launched in 2006, the FCC had not yet approved active ETFs. We were making it rules based active today. You know, people call it smart beta. We call it Modern Alpha, but it was a smarter index. It was trying to deliver differentiated outperformance versus cap weighted beta, but you had to do it before they approved active ETFs. And now it’s all sort of blurred, but it all but it’s proven to be a very successful approach. [00:28:59][34.7]
Peter Boockvar: [00:29:00] So so what’s sort of the process behind and you know, without obviously getting detailed on an idea of of like of of thinking, okay, this is a potential investment opportunity. Let’s see how we can create a product that can tap into that. Like almost going back to your individual stock picking days, do you guys think about, okay, this there is an opportunity here and it’s not really being covered. [00:29:25][25.3]
Jonathan Steinberg: [00:29:26] I started with, you know, I tried to do I was doing a lot of different index construction when I was individual investor magazine. I eventually got to an idea. I said, What if I did the Wilshire of Dividends? I just took all dividend payers and cap weighted it and that beat the S&P 500 by like 50 basis points over the history of the S&P 500. And then I said to myself, what if I wanted to enhance the yield? I don’t want to yield weighted because that’s not scalable. A small company with a big yield can handle a lot of capital. So I did cash, dividends paid and I reran the test. And what happened is my yields went up and my performance, instead of beating the S&P by 50 basis points over 50 years a year, I now started to beat it by 125 basis points. And so index construction is selection and weighting. That’s all that goes into it. So I got some of it from selection only dividend payers and then I weighted it differently and I got even more. And that’s how you sort of got out of cap weighting which you know, cap weighting by definition is always overweight, the most overvalued stocks. You just don’t know which ones they are at any given time by definition. So for me there was a purity to what I was doing it WisdomTree which was really again trying to create a better investing experience and that purity. So, you know, like anyone can create a back test and it always looks good. You wanted to make sure that you weren’t lying to yourself, that it would work going forward, that it had a reason to exist, not just to take money from an investor, but to enhance the investing experience. And for me, it’s always started with product. [00:31:12][105.9]
Peter Boockvar: [00:31:12] And we know that not every ETF works, not every investment strategy works. How much time do you give an ETF to work? Is it is it a performance metric? Is it an asset under management metric by a certain time? Like how do you like? So cut your losses short, so to speak, on a product that doesn’t work out. [00:31:34][21.3]
Jonathan Steinberg: [00:31:34] First of all, you would like to give it some time. And what’s very hard is to take something. It launches with a $2 million. It’s not available on any platform. Most salesmen won’t be able to actually access it or get behind it because it’s too small for their clients. That first from launch to 50 to 100 million is very, very hard. You need to work hard at it. We have certain things, whether it’s television marketing. Sometimes you just have to let time pass and you get performance over time and then you market the performance. So. Sometimes you just like we did an inflation product and we were so early that we just closed it. If I had it still today. But I mean, I might have been 15 years early, you know what I mean? So keeping it alive for 15 years where I didn’t have an interest, you know, is not so easy. This year we’re having a very strong flow year. We have something like just under 10 billion of net inflows year to date. One of the things that are working very well is floating rate treasuries. But when we launched floating rate treasuries in 2014, interest rates were zero. And so that product just sat there for a couple of years now to $12 billion fund. So we didn’t close it. We knew it wasn’t right for the market at this moment. It’s doing what it’s supposed to do. And then when we started to see even a whiff of higher rates, we got behind it hard with TV and research and and the sales team marketed it. And we just took it away from, you know, iShares, which launched on the same day at the same price. Their floating rate treasury fund. So let’s go to 2008. Markets are down. You’re even though you’re taking in money, you’re losing money as a firm. Sometimes you just have to make a hard choice and say, even though I like this fund and I know someday it’s going to be a good fund, the realities are I just have to cut the fund, reduce my expenses to live another day. Sometimes you have to make the hard choice like that. Today, we have enough scale as a firm that I don’t usually have to make those kinds of decisions. [00:33:48][133.7]
Peter Boockvar: [00:33:49] Right. You can get you can give some ideas more time. What’s very good about the Treasury floating rate is that most of the floating rate out there in the world are junky bank owned credits. The investment grade floating rate universe is very small relative to the high yield floating rate universe. To be able to actually benefit from a rise in interest rates and being in a high quality bond. [00:34:14][24.8]
Jonathan Steinberg: [00:34:15] Like seven day government paper, it’s in a rising rate environment. It’s as good as it gets. [00:34:19][4.9]
Peter Boockvar: [00:34:20] All right. So I want to shift to WisdomTree Prime, because I find this interesting, because obviously the world is talking about crypto even more so with the implosions, with FTX and so on. But you’re taking a very interesting tact, like you’re really trying to utilize the blockchain and creating sort of a digital wallet. And when you read the press release in the in the agreement that you announced with Stride Bank and Galileo, it seemed somewhat unusual compared to the exchange traded mob business model that you have and sort of creating this new, new world for your clients. [00:34:58][38.2]
Jonathan Steinberg: [00:34:59] So, you know, for the maybe the last so first of all, I break crypto is a subset of what I call digital assets. So digital assets is the all encompassing umbrella. Crypto is the asset class. Bitcoin ethereum what have you. So we WisdomTree. We are in the business with ETFs to offer hard to trade ideas, making them compliant and easy. So launching crypto ETPss in Europe where they’re allowed was easy and it was a no brainer. And we’ve done that and we’re, we have, you know, we’ve taken in like 5% of the flows in crypto ETPs And with all of the headlines about bad business habits like FTX and stuff, wisdom, trees, brand I think is resonating well in the crypto space. [00:35:53][53.6]
Peter Boockvar: [00:35:54] And those are cash products as opposed to in the U.S. where they’re basically futures on. [00:35:58][4.3]
Jonathan Steinberg: [00:35:59] Yes right. So in the United States. Crypto is not going to, in my opinion, emerge as an ETF or an ETP product line because the SEC, at least under this administration, won’t allow it. So we are trying to offer for the RIAA custom indexes for in the SMAs format so that they can access it through SMAs. So we think that’s how it’s going to emerge. And in WisdomTree Prime, which is how you started the question, we will also have within Prime the ability to hold crypto. But Prime was were my digital asset push in general was asking a question. Is there anything coming that can do to ETFs what ETFs did to mutual funds? And after a few years of investigation, it came to us that blockchain enabled financial services, which means tokenization. You know, we’re so early in tokenization right now, so we launched a fund to Treasury fund short duration treasuries. There’s no exchange that has the license today for tokenized securities? None. So you need the wallet to put the token in to be able to offer it to consumers. So that shows you how early we are. And if you think about my ETF journey, I launched in 2006, but I was 13 years after Stage Street Spider and seven years after iShares. So though I got in somewhat early, a lot of people got in earlier than me. With digital assets, we wanted to be first. And we think blockchain enabled financial services is really a big opportunity. So we’ll hopefully with WisdomTree Prime go from just being, let’s say, a sponsor of ETFs to more of WisdomTree Prime could be a direct to consumer RIAA. It could be called a neobank. It’s a place where investing, savings and payments are all in the same mobile app where we are. We’re in beta test today and in the towards the end of Q1 of next year, I think it’ll roll out nationally and we’re we’re very excited about where we are in this journey. [00:38:37][157.5]
Peter Boockvar: [00:38:37] So so someone would come to WisdomTree Prime and open up an account like they would at a brokerage firm or they would at their local bank. [00:38:45][8.3]
Jonathan Steinberg: [00:38:46] It’ll look at the experience will be done virtually. We’ll going to make sure that you, Peter, are who you say you are. You will have to have some documentation to make sure that crypto bitcoin they talk defi decentralized finance. What they mean is there’s no intermediaries, there’s no compliance. We don’t believe in that. What we believe in is responsible defi. So responsible defi means that one we need to it has to be regulated. We can’t we can’t allow for money laundering or we can’t let assets travel improperly through different jurisdictions. And so compliance is a roadblock that we accept. Now, we can still give you defi experience like peer to peer exchange of value. Take that treasury fund or that gold token or that dollar token and send it to your son or your wife who’s traveling abroad. You’ll be able to. If they have a wallet and you have a wallet very safely, you’ll be able to send money. Not only that, but you’ll be able to take that money and buy a go to Starbucks and buy a coffee or go to the car dealership and buy a car. That’s what we’re hoping for. So we hope to have a more primary relationship with you, the customer. So you actually, Peter, I have a very long relationship with. First you were a subscriber to my magazine, so I was very removed, but I was an input in your investing process. I became more central to you in the journey when you bought DSG. Now you were buying directly from WisdomTree. You’re, you’re engaged with WisdomTree. I’m in your portfolio and with Prime it’ll be more so than that. Floating rate Treasuries will look a lot like a savings account. [00:40:48][122.3]
Peter Boockvar: [00:40:49] Right? So you’ll be able to own a WisdomTree ETF within this wallet along. [00:40:54][5.0]
Jonathan Steinberg: [00:40:54] Well, this will be this will be yes, you’ll be able to do that. But really, the first wave of product, we are not tokenizing ETFs. We’re creating new tokenized exposures completely separate from the ETFs. [00:41:06][12.1]
Peter Boockvar: [00:41:07] Right. Okay. Got it. Got it. All right. As we wrap this up, I just want to get your $0.02 on the state of the world. When you think about 40 years highs, inflation, most aggressive fed in 40 years, and you sort of look at the the menu of ETFs that you provide, do you have any any, any not now. Looking for a market opinion like we would ask Jeremy Siegel. But just any macro thoughts here? [00:41:31][23.7]
Jonathan Steinberg: [00:41:32] Well, I mean, it’s it’s certainly a very unsettling time. Doesn’t feel like people feel good. Certainly, if you’re talking about it from the perspective of just investors, almost all asset classes are down. You have had really sharply higher interest rates, which have forced a change in leadership in the market. So we’re benefiting today from short duration, fixed income and a shift to value versus growth. Rates no matter what I don’t think they’re going down in the short term. They may go up more slowly, but it may be that with these kinds of interest. Rates and maybe you get, you know, another hundred basis points by the end of next year. Maybe value seems to be where there’s some real interest, even though certain unprofitable companies are down a lot, I’m not sure that’s where I would be heading. The other thing is, if if you thought of your old 60, 40, the 40, which was fixed income, you can now invest in fixed income for interest instead of capital appreciation, which you’re now starting to go to longer duration. You know, we have fundamental fixed income. You know, our high yield bond has like an 8% yield. It’s it is of interest in this world. So I think that they’re going to remain very unsettled times. I think that there’s the market still looking for a shift in leadership. You know, I don’t know if you can have leadership when the markets are purely down. I mean, you could do less badly, but that’s not good enough as an investor. I mean, energy, you went to a real small subset, energy up. Most sectors are down, but I think well diversified portfolios. I believe in fundamentals. I believe in valuation, interest like dividend paying securities. I think that’s a very good bet. It feels like markets are very constructive for WisdomTree at the moment. It seems that way. [00:43:35][123.8]
Peter Boockvar: [00:43:36] I have to agree on on the dividend thing in particular, if we’re about to enter, call it a decade of lost capital gains in the sense of just as we we topped in 2000, we didn’t regain that high until 2013. If you bought the Dow in 1929, you didn’t get your money back till 1954, 1960, 1982. But during those times, dividends and interest income become a very important part of total return. Dividends in particular, and I’ve been making that argument here with with our portfolios in our clients is that the importance of dividends to generate return? Because it’s possible that ten years from now the S&P 500 may not be that far off from where it is today. But if you collected dividends, if you reinvested them, that is where you are going to set your portfolio apart. [00:44:25][49.0]
Jonathan Steinberg: [00:44:25] I completely agree with you. And, you know, it’s what it’s what brought Jeremy Siegel to Wisdom Tree way back when in 2004. Complete agreement with that concept that most of your long term equity returns historically came from dividends and dividend reinvestment. [00:44:42][16.9]
Peter Boockvar: [00:44:43] Right. And particularly dividends that that actually or noteworthy, the S&P 500 dividend yield is just 1.7%. You can buy things that have dividends of two, three, 4%. You’re setting yourself apart from the S&P, which may have a lost decade because of its dominance of of big cap tech, which seems to be fine for a rest and a shift to more value related investments. [00:45:07][23.9]
Jonathan Steinberg: [00:45:08] Let me just say, before we before DSJ got hot, I had a fund called DEEM, which was emerging markets. The highest yield was within emerging markets and it was my biggest fund before it took off. Still like a $3 billion fund, but it’s got like a 10% yield. [00:45:24][16.3]
Peter Boockvar: [00:45:25] I was actually looking at it today. I did see that. And so [00:45:28][3.0]
Jonathan Steinberg: [00:45:28] There are opportunities and it’s it’s just a good metric to keep an eye on. I listen, I believe in income. [00:45:35][7.0]
Peter Boockvar: [00:45:36] Yeah, agreed. Same. Well, Johno, I can’t thank you enough for for joining me. I thought your, your career has been pretty amazing and just a pioneer in the exchange traded fund business. And I’m going to be watching the WisdomTree prime with with a lot of interest. We know blockchain irrespective of where the price of crypto goes, blockchain is the technology that will outlast everything else. [00:45:57][21.5]
Jonathan Steinberg: [00:45:58] Peter I so appreciate the opportunity and I look forward to coming back. Thank you. [00:46:03][5.9]
Peter Boockvar: [00:46:08] Nothing in this broadcast should be construed as investment advice nor a recommendation to buy or sell securities. The discussion is for informational purposes only, and past performance is not indicative of future results. The specific securities discussed may be held by Peter Boockvar personally and or purchased, sold or recommended to weekly clients. [00:46:28][20.2]
Guy Adami: [00:46:30] Thanks once again to CME Group and I connections for sponsoring this episode of On the Tape. If you like what you heard, make sure you hit, follow and leave us a review. It helps people find our show and we love hearing from you can also email us at on the tape at risk reversal dot.com any time follow and connect with us on Twitter at on the tape pod and we’ll see you next time. [00:46:53][23.5]
Dan Nathan: [00:46:54] On the tape is a risk reversal media production. This podcast is for informational purposes only. All opinions expressed by me and Nathan Guy, Danny, Danny Moses and any other participants are solely our opinions and should not be relied upon for specific investment decisions. [00:46:54][0.0]
See what adding futures can do for you at cmegroup.com/onthetape.