Oakner chains.

I'm Joel Webber and I'm Eric Belchernas.

Okay, so I'm running through things that are at all time highs.

Stock market, US, stock market, zitcoin, gold, everything just keep going up.

What are people supposed to do when things only go up?

Eric, Well, first of all, just appreciate it.

There's so much angst out there, these columnists and the economists, and everyone's like trying to be like, well, it's just something's wrong.

And I'm like, everything is going pretty good and enjoy while lasts.

But this is probably as good as it gets.

It can't last forever.

It never does.

So the question is what will derail this?

The higher the markets go, the less it takes right because there's a lot of people with itchy trigger fingers, like, well, if this little thing happens, they're more likely to take some profits quickly then rather wait.

So we'll see what that is.

But I think the more things go to all time highs, and the more everything is at all time highs, this is interesting.

Gold and stocks rarely are going up together.

I think that really makes people nervous.

But at the same time, I am pretty happy.

My four one k is loving this.

So really though, how are people supposed to navigate this?

That's the thing like as the markets go up, more and more people are starting to think, Okay, what can I use as a little bit of insurance just in case things go south quickly?

And there are various vehicles need to have market that are really good for this.

The problem is a lot of them come with like it's like you got to read the owner's manual on these.

So there's a lot of options, but some are really powerful, but they need explaining.

And I think it's a good time to go through these things because you just sense something that's going to happen soon, and instead of talking about these things after it happens, we should talk about them right now.

All right.

Well, to help us our inks, we're going to be joined by Bernard Goiter, who's an options reporter with Bloomberg News, as well as Suzanne Woolley, who's personal finance reporter with Blimberg News.

This time on train's protecting your Portfolio with ETFs.

Bernard Susanne, Welcome to Trillians.

Thank you, good to be here.

Bernard.

I want to start with you because you just published a story recently investors pile into funds betting on elusive market volatility.

Volatility has There was a little bit of that in April, I think when Trump unveiled some tariffs or talk of tariffs.

Since then kind of disappeared.

So so what are we starting to see show up in markets now?

Yeah, well, people are basically trying to allocate to what happens if volatility comes back.

There's another April situation where there's suddenly a big spike in volatility.

And I kind of think of volatility in quiet binary wand markets like it's either kind of everything's very very quiet or everything's extreme.

And part of this is going back to this idea about how easy is it to trade?

And in periods when everything's fine, kind of like it is now and the VIX, which is one of the indicators of polatility, is below about twenty, it's really easy to trade.

There's a lot of liquidity everywhere, and then when stuff gets choppy, sometimes that liquidity pulls back.

It's harder to trade, it's more expensive to hedge, and yeah, the VIX goes up, and in those situations that that's when, Yeah, that's when it kind of gets exciting, right in terms of being a volatives reporter.

So at the moment, things are kind of quiet and it's a little little dull, but back in April, like things get really exciting.

Dull, you also get a lot more clicks.

Yeah, it's like the weather channel, you know, you only tune in when there's a hurricane.

It's like dead for us too.

Okay, So what's going on beneath the surface and where our investors?

And these aren't retail investors so much as professional ones where they turned to allocate.

I'd say that some of these probably are.

There's probably some retail guys involved in because the real professionals will be directly using futures and options and all that kind of stuff.

So those investors are generally kind of they spent post a prop kind of worried about this return of fear.

And I think now we're in the greed stage, so people are allocating to like upside, that's become the big thing.

That's why volatility isn't really here, because everyone's just like getting greedy and being like, okay, but what happens if the SMB goes to seven thousand and eight thousand, what happens next?

Kind of thing?

And this is why people have been talking about this hated rally because they hadn't really allocated to it, but the rally happened anyway, and a lot of people missed out, so they're like, Okay, let's let's go all in.

So that's why you see stuff like lever dcfs where you're kind of doubling up.

That those kind of things become popular.

And there's also September was the biggest ever month for options in history basically, like that that was and that was a quiet, relatively quiet month from a volatility point of view, but the number of options it was over I think over sixty million options contracts traded in the US market.

It's been a really kind of busy time eruptions.

But people aren't necessarily that they're hedging, but they're also betting things are going to keep getting better.

So there's a bit of a balance between those two forces.

And I want to go over the vix ETFs and their flows, which I think is what caught your attention in the past month, Like basically all of them have taken in a good amount of money, They've they've grown their assets by about twenty percent in the past month and year to date, they've grown their assets by fifty percent.

Now, a lot of these ETFs are a lot like buying insurance.

You're kind of expecting the money to just go away unless the hurricane comes, and so the total assets in these is always deterior's like a melting ice cube.

But anyway, two billion and uri date flows for these vixytps, especially after all that's happened, and you know, they went through a lot of bad press over the years.

The reason they're the reason they're complicated as a hedge is that they don't track the vix directly.

Nothing can at tracks futures and you have to roll those, and the cost to roll can be really high, like up to forty fifty percent a year, sometimes more.

And so people buy these, I think as a hedge and then they get out of them if it didn't come.

But to me, it's I guess very akin to buying insurance that will pay off big time.

And when you think about how to rate stuff like this for the for the movies, right, our traffic.

Lights system, yeah, traffic light system.

Yeah, these are all red lights hardcore.

Anything that rolls futures is a red light, automatically red light.

There is well, we were going to have a skull and crossbones, yeah, which would be the equivalent of like an NC seventeen movie ETF style.

There was a two X VIX would be one of the very few ETFs that would be double crossbones.

And the reason for that is not it's leveraged and it rolls futures.

So all of these vixytps, if you look at their like lifetime return, they're all down.

Nine nine persaw on a Swiss ball.

Yeah, I mean it.

The look just rolling futures, whether it's Oil or VIX, is just something not many people are aware of.

And in VIX it's the roll costs are so high that you just hate someone to go in thinking that, oh, I'm buying the VIX.

You're not, You're buying VIX futures ETFs that roll them.

And then on top of that, there was one that was an ETN which automatically gets two points two leverage.

TVX was the ultimate highest score in our system.

We got seventeen dings.

That's the most you can get.

Basically anything over five is right it r.

So if we got seventeen, I mean it's literally like remember Faces a Death, that movie like from the eighties.

I think you couldn't get in the.

Video store, no, because I never found it.

It's like that TVX was that movie and TVX was rolled futures leverage and an ETN that said it blew up, it went away.

A lot of these come and gone now, but they've they're ba they're reincarnating some of these ETFs.

So now we do have another two xvix and the whole fan is there.

But again it's a very small market.

This is for a niche audience, but they still are very active.

Well, what's interesting, So to quantify that kind of skull and crossbones, you vixsy todate performance down seventy percent minus seventy.

That's where the volatility is.

Exactly, but if it could go up hundred to two hundred percent in a week, so it's it's pure.

This is kind of pure, pure gambling stuff.

Yeah, let me jump in real quick here to just just finish this off, because people need to know this.

Why would you buy something that rolls futures and loses seventy eighty percent a year and doesn't do anything.

Well, here's why.

When the market drops and there's a bad day.

So let's look at April second to the fourth, that's when the tariff tantrum was in the most palpable.

Palpable market's down ten percent in two days.

The negative three XS and P is up thirty percent.

Makes sense, right?

The VIX just one time, VIX is up fifty percent.

The two X VIX is up one hundred and seven percent in two days.

So when it works, it works.

I call it the jackpot mode, and that's why people keep using them.

Suzanne, how do you feel about all of this as a personal finance reporter?

Well, my first thought is does the world understand the term role?

We're throwing around role?

And I know that Bernard defined it really well in his recent peace, But is that a term that we think everyone is familiar with.

Let's let's break it down.

Yeah.

So basically what we're talking about here is the VIX is a projection about what the market thinks is going to happen in one month's time.

So you're constantly pushing that out one month.

And the way that these ETFs use use futures is that constantly it's like a seesaw, and you have you start with one future on the xpree and as you get nearer, you have to buy one and sell the other to keep that kind of seesaw balanced.

And what's really ironic about these products in particular is that they're kind of doing this in kind of a funky small futures market.

And futures are not like ETFs.

They're not based on like what the actual value of that thing is.

It's purely based on the supply and demand from the market for that financial contract.

So if you have a ton of money flowing into these products, that makes the cost of doing that stuff more expensive because because the market's like, oh, people want to buy.

People are scared, like volatinity is gonna go up, so we're going to make it more expensive to sell them, like that insurance.

So the more the more demand there is for insurance, the more expensive that insurance gets.

So these roll costs are getting worse and worse and worse the more money that goes into these particular products.

Now, I don't think that happens as badly in other in other examples of these these kind of eats.

The other one was bitcoin.

You remember before the before you had like spot bitcoin ETFs, you had futures eats that were based on the futures market, but again they had very very similar structural problems where you have the fees, but you also have these roll costs and they're not really disclosed very well in the in the paperwork around around the ETFs.

It's a big price for popularity.

But you know the term role.

I would just picture you're buying this future which is due.

Let's say what month is now October.

It's due in November.

Now as October ends in November comes, people don't want to take delivery, whether it's oil or vix, whatever it is, nobody wants because they're just the in it for the investment.

They don't want to get delivered anything.

So they sell the future rate towards the end of the month and buy the next one, and sometimes they buy two months out.

Well, the curve is always shaped where it's pricing a little more because there's more chance of volatility as you go further out, so you pay up every time you go from near month to the next month, unless there's a spike in volve, which then it goes in the opposite direction.

And everybody it's like when the guys are selling umbrellas outside of Penn Station when it's raining all of a sudden, everybody wants then it's cheaper going out and you actually get paid to roll.

But that's a very rare occasion.

And the first thing is called a state of contango, and the second thing is called a state of backwardation.

But I don't even want to introduce that.

I have written stories in my past life where I've had to try and explain contango and backwardation, and I would like you to know that unwordle the New York Times game Contango.

When I tried to use it in the game, it was not accepted.

That's why they're all rated R instantly, because I mean, who even knows what that means.

It's backwardation sounds like you know what after you taco bell.

A contango is like it's a dance thing, but you it's a contango.

It's not a real tango.

Oh I love it.

So yeah.

These are the terms that when you learn it it makes total sense and you but it takes a while.

It'd be like sometimes when my auto mechanic explains stuff to me, I'm like, dude, fine, just spend the eight hundred bucks.

This is what that sounds like.

Sen Real people are still trying to forget to talk about reference.

I know, so Suzanne come into this as the personal finance brain.

Well, you know, I'm a big believer in personal finance of keeping it simple and so this kind of product I'm sure makes sense for a lot of people, but I just sort of feel like to be like the boring, sensible person.

You know, there are a lot of actions you can take on your portfolio before you need to get involved in something like this that is very expensive, really hard to understand.

Obviously appealing right now because people are leery of getting into equities, you know, but they still, you know, want to have some participation.

And this is the word.

The ability to sort of hedge your portfolio is a great way an advisor or broker or something can like hook you in to a product.

But I just feel that there are a lot of basic things people can do, like boring old rebalancing, you know, maybe dollar cost averaging out of like mag seven and adding a little international and value to your portfolio, keeping a cast cushion so you don't have to sell into a downturn.

I mean, I'm sure everyone's like fog asleep by now.

Eric jesus Ann's point where we've been talking about our maybe NC seventeen stuff.

What are some more PG options?

Most people would use treasury bonds or a little bit of cash.

I think money market funds are great because they're just not going to move, but some people do want things that will go up when the stocks go down, and long dated treasuries are usually pretty good.

They went up thirty seven percent in two thousand and eight, but in twenty twenty two they went down with stocks, so they're they're probably the best organic hedge that's like PG.

Gold is interesting, but that's zero correlated.

Sometimes gold will go up with stocks like it is now.

That's the thing about gold.

People are buying it as a way to maybe hedge stocks and the basement as stocks keep going up.

But if it's interesting that it's working as a high beta play right now because it's going up with stocks.

But gold can sometimes go down with stocks.

It's not totally reliable.

It's more like a rebel.

It just does whatever the hell it wants, which is kind of cool for a portfolio because you get diversified.

And bitcoin is probably in between stocks and gold.

It's definitely more risky, but it's come down a little some days it'll go up when stocks are down.

So I just think that's why people are out there examining all this stuff, because they do want to have diversification, which I do believe is the only free lunch.

That said, I think where the chainsaws and the NC seventeen stuff can come in handy is if you have a feeling that in the next week something real big is going to happen, then you would just put a little bit of Vicks in your portfolio.

And you only need a little because it will go up like five eight times the market going down and hedge everything, but you got to sell it after the time comes up, whether that thing happened or it didn't.

My dad had this fame experience famously.

He thought did a whole episode about this.

He thought Hillary Clinton was going to win in twenty sixteen, and he thought the market was going to go tank, and he goes, how can I play this.

I'm sure of it.

My dad's like a huge college football gambler.

So I said, okay, well, look, if you believe this, it's going to put in t vix.

TVIX will pay off big if you're right.

Trump won and the market went up, and he forgot to sell it.

So all three things went wrong, and then he called me every like six months and said, what is this thing that like loses fifty percent every month?

And I'm like, I told you to sell it.

So, if you're the kind of person here doesn't pay attention to your portfolio, don't use any of those things.

Just use the PG.

But if you are a trader, they again that jackpot mode will go really far in hedging your portfolio, and that's why the pros do like to use it.

All right, So the thing that we haven't talked about yet buffers.

What's the state of play on buffers?

What's their rating?

Where inflows look like?

Yeah, so these would be PG PG thirteen.

We debate that on the team a lot, but let's just say they're PG thirteen because they use derivatives and they're a little complicated and you have.

To do they do.

They basically use options to target an outcome.

So like if you have to buy in on when the buffer comes out, so the ETF comes out October first, you buy it on October first, and it basically says something like this, if the market goes down five percent, that's on you.

If it goes down further, the buffer will cover it.

Other times it'll say we'll take the first five percent, you eat everything after.

And in order to arrange these downsides, you have to give up some upside.

So the more downside protection you get, the more upside you give up.

And a lot of older investors, that's what we call these boomer candy.

They love this stuff because they're willing to give up some of that upside to sleep at night with the downside these would be.

These are popular because they guaranteed, as I just said, even treasuries don't guarantee a hedge.

These lock it in.

The problem is they do they're pricey.

You know, a lot of them are not over ninety basis points.

You don't get the dividend as part of the buffer, so you do give up some things.

But I think peace of mind is something people are really willing to pay up for, and that's why they're a huge hit.

And I think that should be marketed as boomer candy because I think that's kind of brilliant.

It has stuck.

I introduced this.

I I'd say one of every ten phrases I try out actually works, and that was one of them.

JP Morgan.

I think even made T shirts with it for one conference.

Yeah, and then todd Son made me a boomer candy m and ms where he brought a jar of M and ms he put like dividend income premium income buffer and so he made literal boomer candy.

It's a whole thing.

Yeah, Yeah, you had them on the show.

I know, we don't hang out as much as we used to for her all the time, and she would you'd get a kick out of all he wrote.

She was the editor of the radio how to invest based on radiohead lyrics.

Yes, that was awesome, true, Bernard, are you seeing buffers show up in any of your data yet or is it more like the vix is so different and odd that people are like, that's the thing that so just like real boom boomer can.

Just so it's like boomer crack.

Because I know you we talked a lot about like can I just get really nerdy abountions for a second.

What's fascinating about these buffers is they've started to kind of show up in the big options market.

So you get a ton of like people who are trading options talking about.

The JP Morgan roll.

Is this really exciting?

Event where because this these things kind of target what's going to happen in the market in three months time, and what ends up happening is the market kind of like looks at this as a bit of a target kind of what's going to happen, and they and they and they kind of all the all the Wall Street banks and market makers are kind of positioning around these these flows.

The other thing is that there's a there's kind of a sense of like there's that these guys might be getting the BUFFERYTF providers because they've told the world when they're going to trade.

There's a bit of a bit of an adverse selection issue because if you've told everyone on this particular date, we're going to do this massive, multi billion, multimillion dollar trade.

I think it was like twenty million net premium for the last one they did, but there was hundreds of millions of dollars of options premiums and different directions, and this is like a huge, huge thing for the rest of Wall Street.

Unfortunately, JP Morgan's investment bank doesn't get to cash in on it because they don't trade themselves, right, But all the other banks, it's like it's a massive, massive deal these buffers like rolling over and all that kind of stuff like it it's hard to Yeah, yeah, it is like a really kind of important thing for the rest of the market.

So that popularity in the buffertf space is actually caused like kind of has a.

Direct effect on Wall Street.

It's given its scale.

What are the buffer tickers that are the ones that people are most interacting with.

The biggest then, first ever is bolt b a LT one point eight billion.

It might not be the biggest, but it was the first.

And you know what the tickers for bond alternative, which is interesting because, as I said earlier, in twenty twenty two, stocks and bonds went down together and this freaked the boomers out because they were told the bonds would cover the stocks and they all went down and it was like whoa.

So they cracked their pants.

And that's when buffer's got huge, because they come in they say, your bond.

You know, as we say in the team, the bonds don't work.

And so that's why these are mostly alternatives for bonds, although the bonds will you know, come back and say, well, since then they've gone up.

The reason the bonds and the stocks are a weird thing now is because if the fed's lowering rates, that tends to be good for both stocks and bonds, right, we all know this, So when they raise rates, it's bad for both stocks and bonds.

And so that's why the FED kind of like warped what would normally happen and bond safe haven stocks risk.

So the FED and their influence on the market actually changed the dynamics.

So buffer ETFs are pretty well timed.

And the guy who invented them is a smart guy who created power shares and he really helped put smart beta on the map, Bruce Bond.

And it's interesting.

And now all the issuers have them, including black Rock and Fidelity and JP Morgan.

So you have all these big issues now riding the buffer train.

And because the demand is there and most of the money in America is held by the boomers.

If you look at the who owns the stock market, seventy percent of it is owned by people over the age of like sixty five, and so servicing them with things that help them sleep at night is why we have this other theme about how ETFs are almost in the role of the pharmaceutical companies.

This is a drug to help you cure your anxiety and sleep at night.

How expensive is this drug?

And can I find a cheaper generic version of this?

There are a lot of competitors, So like Blackrock came in with HIDJ and I was about half the cost of First Trust and Innovator, which are the two big brands.

And we looked HIDJ did a good job.

It launched ight before a downturn, and it covered.

It did not go down with the stocks.

So I think ultimately that guarantee that comes with the options activity is very powerful.

I would just say this though, I wouldn't drop everything and buy buffers.

I would maybe, you know, experiment with a little bit.

I just really a believer of a well balanced portfolio.

I think Buffet Bogel, all the heavyweights would advise the same.

Which is ninety percent equity, ten percent the buffet model.

Well, the buffet portfolio is ninety percent SMP five hundred and ten percent short term treasuries like a money market fund.

That's what he is going to put his whole trust into when he passes away.

And that's a pretty good portfolio, honestly.

But that little bit of good for a sixty year old, that's the thing.

And you know, the boomers made so much money.

That's what the crypto people are like.

They when you bring up Buffet with crypto people, they're like, oh, try finding a Warren buffet in Nigeria or Argentina.

There are none.

Look.

In other words, Buffett only exists because the US stock market is so badass.

He just happens.

They have been ride that whole, like fifty year bull market.

There's a point there.

But Buffett still is smart guy.

And I would just say that I would take heed to what he says for sure, but I don't know.

I think a little gold if you like it is pretty good little treasuries.

If you want to try a little buffer out, go ahead gold.

You can get a cheaper version of that too.

You've got GLD, which all the treats is right, but can't get the gold the mini the.

G oh yeah, they got mini me's all over the place in the gold area.

G L with the Hell's DM GLDM is way cheaper.

So shop around is probably the more expensive gold ETFs.

But yeah, this idea of how to protect your portfolio is big, and that's why, as you said, the options market is very popular.

It's not all people losing their mind.

A lot of times you just buy a put option for a little while.

Yeah, and that's a sleep at night drug if you will as well.

Yeah, Or you could sell calls as well.

You could do coal overwriting, and there's a bunch of funds that do that.

But basically, you can earn premium on your if you if you own a big stock, you can you can say, right, I'm prepared to above, I don't mind selling this if it goes up twenty percent, like I'm happy with that.

And if it goes up twenty five percent, you sell it.

But you've earned a premium from that activity.

And that kind of that's how a lot of these a lot of these buffers and other ones kind of there's a whole.

Well, now you're getting into premium income, which is JEPPI, which all it does is what he just said.

It sells call options a little bit out of the money.

So if the stock goes up, you get a little bit of it.

But at some point the call option gets hit in the money and people want to exercise it.

At that point you lose your upside.

But the whole time you're getting income from the option, from the premium, which gives you an income of nine ten percent depending on the index.

That also is boomer candy.

But the buffers are even more powerful because they lock it in.

It's like locked in because of the options.

The guarantee is what is so powerful.

And guess who just launched buffers ARC Wow, and yours truly influenced.

Their name Isabelle called me, or was Emily, I can't remember, and they said what do you think of these?

And I said, this is like diet arc and so they call them diet ARC.

This ran with it, Joel, how do you like that?

I mean, I knew you were an influencer, but I didn't know like that.

But the arcs are a little different in that you get only fifty percent of the downside, but on the upside you get like fifty to eighty percent.

So they designed them differently.

Pointing if you're going to even play with buffery TIFs, I would almost consultant advisor or really make sure you read up on what exactly they're doing and by them on the day they come out.

That way you get the whole thing, because if as time goes on, the numbers change on what's buffer because the market's.

Moved, She's closing thought, I don't know, Eric's making me think I should go buy a buffer ETF and which is very sort of anti me because.

I very much balanced financial advice.

I think, yeah, and anything else that where we we missed that.

Yeah, I'm you're part of the options.

To bring up Jack Bogel because what I think is fun about the fixed ETF stuff is it's the most anti Bogel thing I think you could possibly ever do this, which is.

Trying nutshell trying to talk about Bogel and the other side.

This is the antithesis.

This is like the Yeah, it's the the anti rolling over in his grave.

Is just basically, try and time the market.

You are you you you are, you are a genius and you can time the market.

And if you buy one of these things, it doesn't matter that it's going to cost you loads of money, because you are going to make loads loads more money because of your because of your crystal ball that you're holding.

And this is you know, this is this is what good financial advice is.

It's this idea that you can you are smarter than everyone else in Wall Street, and Wall Street doesn't have tons of PhDs and rocket scientists who who built a system specifically to take your money.

I remember I was chanting to a guy, a very large market maker in a senior role, and he said I was in an uber go to the airport, and the driver was explaining, I've had this conversation with with drivers as well.

You know, I'm training these options and I'm doing so well, like and this guy's job is to take that options flow and basically buys it from the retail brokers and trades it.

And he's just like, yeah, this is a bad idea.

Well, I mean to be to be also with Bogle, what he would probably say is don't buy anything, just buy the S and P and use patience as your diversifier.

But and he said, you don't need you don't even need international.

But that takes a lot of intestinal fortitude to survive what seems like a ski couple weeks or a year.

But that's what Bogol would recommend if you're younger.

That's why I think low cost index funds are a godsend because a lot of people they buy them and they know they got the best deal and so they can survive the downturns easier, going Yeah, what am I gonna do try to trade around this.

I'll just hold it.

US stocks usually go up, and that's why the flows are so sticky.

So patience is also a hedge and away, Joel, that's why.

Yeah, I said, they've got to teach like meditation and Buddhism in the business schools or something, because just not trading.

By the way, I pitched the show for Bloomberg TV called it was It was, It was.

It was.

You know, Seinfeld's a show about nothing.

This is a show about doing nothing, and there's gonna have people come on and just talk about why they didn't trade that day.

Hobbies they got.

That because that's still waiting for a callback, aren't.

Yeah, No, it didn't.

Way too boring.

I like how we started with vix and we ended up with patients, Like we've gone every possible place.

So Bernard Suzanne, thanks for joining us on Trillions.

Thanks you for having us, Thanks thanks for listening to Trillions until next time.

You can find us on the Bloomberg terminal, Bloomberg dot com, Apple Podcasts, Spotify, or wherever else you'd.

Like to listen.

We'd love to hear from you.

Hit us up on social I'm at Joel Weber Show, He's at Eric Balchina's Trillions is produced by Magnus Hendrickson.

Sage Bauman is the head of Bloomberg Podcast