Weak Payrolls, a Productivity Boom, and Disruptive Tech

0:00Welcome to a Behind the Markets Podcast. I'm your host, Jeremy Schwartz, global salio wisdom trick. Alongside Warren Feinstein-Festor Jeremy Siegel, who's also a senior economist for wisdom trick, we tackle the latest market trends every week. I'm also joined by my deep-rooted macro colleagues, Samuel Reins, Jeff Winnerger, and Chris Canadi. Let's dive into this week's show. Our professor, another week of geopolitics, but we also got some data on the line. First negative print, and we're bigger negative print. How are you reacting to the latest data? Yeah, okay. So let's talk about the payroll report. It was, yes, extremely week, way, you know, several standard deviators in below expectation. Not only that of revision

1:03downward to previous ones by 69,000, but also a drop in the household survey. Now, let me, let me, let me talk about what is really interesting about this. What is interesting about this is this, you know, virtual non-growth. I mean, you know, if you had, you know, last month and this month, you basically got zero. Virtually non-growth of payroll and very decent growth of GDP. I mean, none of the real indicators, take a look at retail sales, it came out. No, no, that was for January at the same time. They were, you know, add or, you know, just add expectations. But more importantly,

2:05when we got the ISM reports, I mean, the ISM reports, which is for February, in contrast to the retail sales, which is for January, the ISM reports are extremely strong. Really, I mean, the service report just blew it away. So what's going on? How could we have such a strong real economy in face of all this? Now, of course, there is one explanation. I mean, there are more than one, but one that comes to mind immediately is a sharp upward move of productivity. In other words, we can produce the same GDP with less people. I mean, this is the AI story. This is the AI story. I talked about last week and that we, we have posted on our site the ability to keep real GDP

3:13the same or even increasing from the ISM reports, both the manufacturing, particularly services are at, you know, multiple years. Now, some of them seem to almost contradict some of them. We had a drop in healthcare and I haven't had time to look forward to every category. Part of that is a strike that's going on. I know in California, but even more than that, I mean, that's the biggest service sector and yet the service sector and even in the employment component of the ISM was relatively strong. So, you know, there is a timing and a little bit of a difference here. We also had, let's face it, a really cold January. I mean, like the coldest in decades that did, you know, impact some activity, but again, as I said, we tell sales in January, it's expectations.

4:14So, you know, now, you know, one thing that gave me a little bit of pause, we did get the challenger job cut layoff for February, which was a big decrease. Remember in January, we got 108,000 layoff, one of the biggest. Well, that was down to 48,000. No, so that was, that was down dramatically. Of course, the previous one was up over 100% when this one is down 71%. So, you know, that sort of said, oh, there aren't that many cuts that are going on. But, you know, that is just one private survey. So, I mean, a change in the non-farm payrolls, of course, there are revisions that could come up, but, you know, these revisions show that we are producing the same amount and maybe even more GDP with less people. Now, you have to analyze the hours. The actual hours worked was, let's see, down far, you know, average hour, weekly hours

5:18of all employees stayed actually slightly below on year over year. There doesn't seem to be so much of a change on the weekly that I see. So, it's produced the same hours worked. GDP is stable to hire with less people. That's, that's, that is an AI story there. You know, we'll see how that plays out later. But remember, keep in mind, the real indicators are strong. By the way, we should also mark that the, the jobless claims number again did not show layoffs. You know, whether they, that they all appear or not, you know, the jobless claims yesterday came in exactly expected and it's right in the middle of our sweet spot. That's just not showing the, the layoffs that is implied by this payroll. So, neither are we seeing it in the ISM. So, I'm not saying this payroll is wrong

6:23and I'm not saying there aren't adjustments that are going on here. But it is contradicted by even, even the, the labor part is being contradicted by some of the other, even higher frequency indicators that we see. On the second note, obviously the war is really prominent here. Oil going up and continuing to go up. I would have to say whether you support or don't support the around strike. There are very mixed results and one could say that some of the best case scenarios have just not come about yet. One, obviously it seems to be very little, you know, a revolution from within to change the regime. That was one hope. That seems to be very unlikely.

7:24I mean, I mean, the Kurds, et cetera, is a very different sort of a situation. The targeting of, you know, the Qatar oil and other mid-east is actually a move by Iran to try to cause maximum pain on the oil market. I think it's very important, I mean, to pump a pledge to open the streets of Hormuz with convoys and protection, that's harder than some might think, but that's important. I mean, can we get ships through there? I mean, there is bigger disruption than expected. And the oil price continues to rise. It could rise over 100, to over 100, a barrel if we don't get oil through the streets of Hormuz.

8:28This has a lot of political effects also, but we see what's happening to gas clean prices, which on the wholesale level are up about 60 cents from where they were just two weeks ago. Very visible price, and politically potent price for, for, and fighter for those that pose the war. Again, degrading the Iranian military is certainly good, but they haven't degraded it completely to either open the streets of Hormuz or prevent certain drone and other attacks, not on Israel, which has virtually stopped, but on the other midi states, which was not completely expected by the administration that they would do that. They would do US bases,

9:31but actually now targeting some of the production facilities in those other states has, you know, to cause maximum pain on that. So I would say that the market, which is selling off, you know, is dealing now with a couple of things, or what does this mean? Now, the Fed is locked into a no change. I mean, this one payroll report without a lot of other reports that show tremendous weakness will not change in two weeks what the Fed is going to do, which will be a no change on that score. But, you know, we would have to look at this. Now, in my opinion, I still think the Fed should move towards a low threes, being 100 bases points below the 10, which now the 10 year went up. 10 years going up on the

10:37bases of, you know, first of all, the inflation that the oil produces, but also, you know, I'm diminishing hopes for cuts on the Fed funds rate. It did certainly spike downward as a result here, but if oil continues to go up, you will see that. Now, so this will feed into a scenario, a weakening economy, which again, I don't know if it's a weakened economy or just a surge of productivity. By the way, the productivity figures that did come out for the fourth quarter of GDP were higher than expected and a revision of the third quarter higher than expected. So productivity in the last six months of last year does show a definite increase from what it is. And if we, if GDP stays relatively strong in this first quarter with these payrolls, it looks like another surge in productivity, which is, you know,

11:41net positive, but you're within markets can be dealing with an awful lot of things, particularly the war, I think. And this will feed into, oh my god, the AI apocalypse were laying off people as far as that's concerned. But again, I do want to emphasize that this payroll does contradict the job numbers that we're getting from the manufacturing surveys and does contradict the layoffs that we get from the weekly jobless claims. Professor, now when coming back to the Fed for a moment, when you get these supply disruptions, should they really respond, like should they keep rates higher if it's like a, is this a transitory spike that they should not be, that they should look through and just say, hey, yeah, you don't want to, you don't want to tighten when it is a supply shock. That just seems that, I mean, a supply shock, and they get it when I cut the man. I mean,

12:50you know, no, you know, man, Phil often said, yeah, this is a relative. And we was, you know, he was talking when OPEC was controlling the price and whether that was inflationary or not. And then, you know, if you take a look at macroeconomic, should you have as a rise of price of oil and a drop in the price of everything else, if you give the money supply the same, then, you know, basically the overall price level would remain the same. And you get, it's a relative price change, not an absolute price. Now, one thing we should comment on, that few people, everyone's comment on the rise of the dollar, but that lowers import prices. So, you know, that's part of the offset, you know, we got to rise in, since we are basically energy sufficient, although we export some and import others, you know, we're going to, we're going to gain on the, everything that we import goods and services, even those that are non-tariff. So that, those prices will be going down as a result of the rise of the dollar. So you see a fall in non-oil-related prices.

13:55Now, there is stickiness on fall. And now, it is complicated by the tariffs. There's, you know, I mean, you know, Trump first said 10% than 15. I just heard a report that they're really only collecting a 10. The official at 15 hasn't come through. I don't know what it is right now. Now, it's probably net going down, which is a good factor from what it was pre, you know, Supreme Court decision, but, you know, I think that's pretty much still in a state of confusion. But no, the Fed should not tighten on a supply change on this end. Let me say if we get some positive revenue, I mean, things are not looking great right now. But if there is some sort of ceasefire and we get, you know, some, even the movement through the state of Australia of Harmuz, although Qatar, we don't know how long some of those damaged facilities,

14:58particularly natural gas and others go in line. You could, this is, this would be a market that would be coiled to go way up in anything. So it's taking a very defensive. The problem is, is that the bad case scenario keep probable is that keep on increasing here. And that is why oil continues to go up and it feeds on itself. A little bit of headlines on the private credit stress. It feels like you're seeing little signs of that. But all, I mean, I, you know, I, yeah, there is private credit sets that still doesn't, you know, I mean, as I said last week, it's not a canary in the gold mine. In my opinion, you see a slight widening and market spreads, but, you know, very, very little on that. So it seems to be related to, you know, I mean, you know, sentiment shifts. And oh, my God, the, you know, private credit is so great. And oh,

16:03maybe it isn't. And, you know, and since you don't have a market price, you don't, you know, you don't really know. I mean, that, that is in the background. And all that just, you know, shows how good the public market is to give you prices, cover it at each point in time. And, you know, people say, it's the same thing that people think they're long term. And, oh, I'm long term, I'm not going to be disturbed by short-term disturbances, but they always are anyways. You know, it's more of that, that's like, I don't think that that is, I'm just not seeing the data that basically, you know, shows that there is, you know, any widespread distress in the credit markets. I mean, mainly because, you know, GDP and earnings and everything else, I mean, at this point, we don't, we don't see, you know, anything that I think would, would stress the cash flows that would cause any general credit crisis. Yeah, it seems like a big response. All feedings is a lot of this AI story because they feel like

17:03they've, they've loaned the software, software is under extreme stress. And, yeah, and you are getting some headlines on redemptions and is that going to feed into more? But it's, I hear you take that, it doesn't feel like a major downside. It doesn't feel, I mean, I, you know, I would say, I mean, what going on in Iran is by far the most important thing now that's going to be affecting the markets. I mean, we're looking at this as payroll and, you know, someone should comment about, oh my god, this payroll was weak and why is GDP looking so strong? I mean, we're, you know, we only, what, two, three weeks away from the end of the, of this first quarter. And no one is saying that demand is falling off. In any of the indicators that we get so far. So, I mean, oh, how are we producing so many goods with, you know, so little people? Oh, wow, productivity is rising. Okay.

18:04Good for margins. So we'll keep our eyes. Good for margins. Yeah. And profits, showing the short run till it gets competed away. But in the short run, yeah. I prefer. Well, thanks for giving us some comments to start the show. Have a good, good weekend. Thank you. We turn to, I've got Sam Rines, Jeff Winner, Chris is still traveling in Europe. We'll get him back next week. Sam, since it's all about oil, you know, you and I've talked a lot about well, should we fade this pop higher that it's eventually going to come down. And it's popping again. How do you think about the professor's comments, the straightforward moves? And it does look like, you know, one of the, one of the pressure points for India who's been under stress was, you know, they've been under attack from Trump of buying Russian oil. But it feels like they're going to give him like a 30 day waiver. And maybe one of the positive sides is, does this, is there a positive verification of all this conflict actually leads to a Russian Ukrainian deal? And that actually is the offset that does bring oil back down. Are you

19:09still in the fade the pop camp here? I would still be in the fade the pop camp, not all at once. But if you're, if you were lucky enough to be overweight energy coming into the US Iran conflict, you probably want to start taking some of that overweight off and start looking at some of the things that have been hit to your point, consumer discretionary in the US took a bit of a day, you know, gasoline prices go up, you, you know, that's the way to typically think about it. But it's worth remembering that the US is an energy giant that, you know, we're an energy superpower, particularly oil and natural gas. So when you have the prices of both of those going up, the net effect on the economy until you get to well over $100 is not negative. You have very high paying oil field jobs, right? Those, those oil field jobs are fairly AI resistant. You have those, and by the way, those wages are very large. You have people putting

20:14money back in, you have et cetera, et cetera. So the knock on effects of higher energy prices may not be net negative for the US economy. And frankly, 30 cents, 40 cents to the consumer, which is what we've seen really hit the pump, isn't all that important to the middle upper middle and upper class in terms of spending and consumption. That's where all the spending and consumption we've seen over the past couple of years has come from. So probably speaking of dancing and subject appeal for the US economy. So I'd start kind of looking at some of those companies that got sold off from very little reason. And in Japan, we both know that we all know that there's significant importers of both oil and crude, there's significant importers of LNG. You have guitar offline, you have some other, you have a lot of force mature happening out of the Middle East, because regardless of whether or not Iran is capable of physically closing the string of hormones, for now, you have a de facto closing, because you can't get insurance

21:19to sail through there. You've had some announcements that people that seafarers can refuse to go through. That's actually a pretty rare notification to get that seafarers can take the options and not just decide not to sail there. That's a pretty big deal. So all things taken together, it's going to take some time to get this sorted out. You already have a rock apparently at the top of its storage. So it had to actually shut in production because it can't get the oil out. You have Saudi Arabia building significant storage as well. So all things considered, it's going to take a little time to unwind this, but India did get those licenses from the, from OFAC. And that is a big deal. U.S. Treasury issuing those big deal, particularly for the refiners. Yes, it's a temporary one, but when you issue temporary licenses, you tend to extend

22:22them unless something changes. So I would suggest that you're likely to continue to see those. The extended India has a lot of refining capacity that should keep the distillates diesel gasoline aviation fuel moving even if it's somewhat, even if the volumes are lower than they were prior to the Iran conflict. Jeff, how do you think about all this this market action here? Well, with the crude oil price, I think we need to remember that, I mean, we're seeing on the spot price these surges, what is it, 20, 25 points in the last, call it 10 days or so on West Texas intermediate. But you also need to remember that if you look at the, at the quotes for the futures expiring this summer, it's maybe 15 points lower than this, right? And so basically what the market is pricing in is not a permanent oil shock or some move into the 80s or 90s, at least right now, this move into this range of the 80s to 90s with both WTI and Brent, that it's more of a springtime

23:29situation and that as the conflict goes on the wane, we come back to some sense of normalcy on the crude oil price, perhaps 15 points lower than this in July or August. So I think that's one one idea to keep in mind the lack of permanency here. And then also, I mean, look, with payrolls, I mean, Jeremy, the thing about this is, we always need to make sure that we're not reacting to one print on payrolls. This is notoriously all over the place. We had some nice prints before this. I think we had three in a row of improvement on non-farm payrolls. And keep in mind as well, sometimes you can get a feel for this stuff by looking at, let's call it data points that are like the cousin. And by that, you can usually get some more guide posts, right? Like we look at ADP numbers, we look at non-farm payrolls, we look at our own headline unemployment rate, which ticked up after having ticked down. I went from 4.6 down to 4.3. I think this morning up to 4.4. So it's

24:34up, quote, quote, but first digit is still four. And the cousins here are Mexico and Canada. Those are unemployment cousins, right? If you get it, in any given time, you open up your quotes, and you're seeing the Canadian unemployment rate rising or something, the Mexican unemployment rate rising, and your own unemployment rate hasn't started to rise, you start asking questions. And so in the case of those two, I mean, the Mexican unemployment rate, you guys know, it's south of three. The Mexican unemployment rate is south of three. Now, before COVID, when it was very, very low by the standards of before COVID, you were in like the three, three point five, three, maybe get up to get up in the high three, something like that on Mexico's unemployment rate. It's a high two right now, and chopping sideways for several years, full employment by all standards down south of the border. And then much A was made north of

25:34the border because they peaked out up in Canada, seven point X. I don't know what it was. Seven points, something. When was that Jeremy? Six, nine, 12 months ago, something like that. And they've ticked down that unemployment rate up there, ticking down, down to six point five. So you always want to try to look at these things holistically. I think it's okay on a bell curve to sometimes be in the center of on a on a consensus on any given metric, you know, people that you're talking about, AI, McGadden, after the Citrani piece that we all had to talk about on all of our podcasts last week, we all had to talk about that. And then you have some people may maybe holding line and saying, oh, we're going to have this maintain full employment, Jensen's paradox and all that type of stuff. Maybe it's a situation where it's just blah, that's a highly technical term, blah, hanging out there in the mid-force, bad case scenario,

26:36the unemployment rate doesn't materially get too much into the fives in some economic slowdown. That's not the worst case scenario in the world by any stretch of the imagination, Jeremy. Well, Sam, Sam, I was just going to jump in on the labor market and the jobs report, because the one thing that I would point out is we really have to look out for March here. March could be much better than anticipated all of a sudden, because it seems like everybody is overlooking how bad the weather was in February and where the job losses in this report actually came from. We have a known strike of 31,000 people in healthcare in California. So you've got to add back a whole bunch of healthcare jobs for March. You have a strike at Starbucks nationwide, about 1,000 people, and then you have some of the most annoying weather that we have seen in New York, in Boston, all up and down the east coast. What does that mean? That means you're not going to have

27:38construction happening. You can't do a whole lot of construction with two feet of snow. That just rules it out. You have a lot of closures of restaurants, even if temporary, but when you have that much in terms of weather impact, nobody seems to want to talk about it, but 16 negative 16,000 jobs on careers and messengers. Guess what? It's really hard to career and message in two feet of snow when you're told to stay home and they actually close the roads. It's really hard to have a restaurant open when they close the roads. It's really hard to build anything with two feet of snow on the ground. So all of a sudden you add up all of this and you're not at negative 90 all of a sudden. You're a little bit in the positive when you look through the weather. So you begin to get a bounce back in March of these jobs. You almost have to start with a 90k bounce back. So if you get 90k plus 50k all of a sudden

28:39you're looking at a much better March report. So I think we're going to be talking about the bounce back in jobs and the whip sod that you spoke about in a pretty meaningful way. Because when you look at red, you look at red, you know, you and I were going back and forth on this one. Red book, right? Red book is running at seven percent year over year. That is not something to ignore. And that's a weekly number, right? So you've actually had a somewhat of a steadying to slight acceleration in same store sales and spending even with the weather. That's not something to ignore. That's a good point. And this goes into our own biases. I forgot about all of that stuff until Sam just mentioned it because I wasn't in it. I don't live out on the east coast. And you get on these calls, oh, you know, the weather last night, the sports game last night and the two-feet of snow. It's like, I don't care. I couldn't care less about your two-feet of snow. I get enough snow where I am. And then yeah, you're right. Stuff probably shut down. I mean, it was

29:42worse snow, snow, storm. A lot of people had seen in major densely populated areas. And there's my biases right there that didn't even occur to me until you just mentioned that. How adverse that was because over here where I live, we didn't get dumped on that badly by snow. And it's there's a lot of those types of biases happening in the market right now in terms of people's perception of how good or bad this stock market is right now, depending on where in the world you live. If you're living in parts of East Asia, this is the greatest stock market that you've seen in some time. If you're overloaded in tech stocks, this is just absolutely nastiness. So I think that's something we need to keep in mind. Well, let me, I wanted to take a step back from you know, this sort of micro also to, you see, and we talked geopolitics and, you know, the natural reaction is just to get defensive, go to cash. You've been working on geopolitical oriented models and frameworks to help people think through these things. You know, China is at

30:46the center of a lot of it. We've also had some China news this week. They sort of put out a GDP target 5%, you know, though they seem to be hit from Iran. And it actually seems like, you know, a lot of the Iran conflict has China in mind. I mean, a lot of it between Venezuela, what we did there. Now you had very, you had a book room down there and he talked about, you know, this, and Delsey Rodriguez sort of playing very nice with Trump. Like you had this regime change there. That seems to actually be going, well, Trump wants to get like a Venezuela style resolution with Iran was somebody he can work with. It'll be interesting to see does that come together. But the pressure on China seems real. Now, and so they're lower GDP, but they're also now sort of, budget headlines. It was interesting. Jeffrey be talking about sort of the value up program in Korea. They tried to, there's headlines about how they got a tax benefit one time this year. They brought money back to Korea from foreign. They would get no capital gains on it. And so now

31:52you have the Korean markets up 75% since they made that announcement. But, you know, so some of it, but they've actually had some real, you know, they're, they're, they're Samsung and high index that we've talked about again and again, so memory names have just been surging higher. But that's been very, very volatile this week. 10% moves plus or minus all, you know, a lot this week. But Sam on China, any news there and just maybe just the response to how to think about these geopolitics more generally. Yeah, it does appear that China is somewhat in a corner now when it comes to energy. And I would suggest that that's part of the reason why they targeted four and a half to five percent as they're, as they're growth rate this year, because it's going to be far more difficult. Right. The street of Horgoth is incredibly important to China. China had a couple of police, well, three places really of cheap sources of energy. You know, Venezuela, it had run

32:53and it's still to a degree has Russia. Right. And two of those are taking off the board at this point. Saudi Arabia is probably going to have to step in a significant amount, which Saudi is probably very happy with getting some of their market share back from Russia in China as well as India frankly. But China all of a sudden does have a problem. They were used to being able to import rather cheap energy from places that were either heavily sanctioned by the rest of the world or heavily sanctioned by the rest of the world. It's that that is somewhat problematic when you look out for an energy intensive company. They do have significant alternative resources for electricity and transportation, heavily investing in electrification vehicles, etc. But it does, it does put some significant pressure on there. And let's not forget, in a month, Trump is going to be traveling to China. And if you think that Trump is going to escort oil and gas through the

34:02straight-of-horn moons, if you think the Trump administration is going to subsidize some assurance and not bring that up to China, like, hey, China, you need to pay us for this. We did this for you. You know, we did this. You benefited pass. I would suggest you tune in in four weeks when we're talking about the headlines going into Trump and Jean meeting. Because you have built a significant amount of leverage. If you're Trump, I had of that meeting that is always what the Trump administration likes to do, build maximum leverage, make the biggest ass you possibly can, and then come to some sort of conclusion. It's what green is. If you think about it, remember a month ago we were all talking about Greenland. I haven't talked about Greenland in weeks, thank goodness. But all of a sudden, it's moved to Iran. All of a sudden, I would suggest it's going to move to China. And I'll let Jeff say something about this, too. But I don't really know how you value up communism. It's just communism. Like, yeah, you can tell people to do stuff. You can

35:09say, we're going to get consumer spending going. I'm not sure how you do that. And they talk down communist economy. I know how you do that in Japan. I know how you do that in Korea. I don't know how you do that in a communist society. So the headline, I don't know if I finished my thought. I didn't say the headline was actually, you got the headline I saw was we'd Chinese companies should increase dividends and buybacks to get more cash to shareholders. And so trying to measure, like trying to do sort of like the US style and Korea style, trying to return cash shareholders right now. Jeff, anything thoughts on that? Well, that's that is the core tenet of the, well, one of the core tenets of value up, which of course is the Korean one, which itself was the ripoff of the corporate governance reforms of the Japanese. I mean, it's one after the next. If you can get each of these nations to go in succession, that is the plan. The Koreans saw the the Japanese stock market melting up.

36:14So they attempted or are attempting for the last few years to do value up. And now China is basically saying, look, and this is happening because Chinese stocks, of course, are a little bit quiet here the last few months. Maybe we can do this again. It's a question of whether or not, you can declare these things. Can you get it done? The Japanese were able to get it done. And as you pointed out, Jeremy, a lot of the reason for the Korean meltup is not necessarily value up. It's just the AI trade. So let's let's keep that in mind. Now, with the big thing with China, as it pertains that global order is, or we, and I think we are, in a state of affairs, where to the extent that we have upside inflation risks or inflation is the talk of the town, do we get the benefit of what has really been for 25 years? The Chinese dump, the Chinese dump of consumer products, which persists. Now, this is a country here

37:15that in the last CPI print that I saw, unless they've printed in one in last week or so, plus 0.2% year-to-year on CPI. PPI is also in the basement in China. These are things, you know, to the extent that we hear always our tariffs going to filter in on the inflation side, or now we have to put Brent Crude and West Texas Intermediate in the conversation. I think we need to remember just how deflationary the vortex of the Chinese property bubble unwined truly is. This has been going on since, I mean, Jeremy, when are you going to put the start of the property bubble on why five years? Let's call it five years now deep into the property bubble unwined. As we saw in, not hate to harken back to Japan, but this can persist for a long time, the Chinese property bubble by some estimates, it's up for debate, was every bit as large as any of the legendary asset bubbles of recorded history, and it's China's problem. It's not the problem

38:24of somebody trying to purchase goods in Walmart. It's the benefit of that person, and I think that we should consider it if anybody's on a stagnationary thesis or perma-inflation. We need to remember that that is a country that has some problems that it needs to solve, and those problems are primarily deflationary. So, standing on how do you navigate these conflicts? You know, one of the themes we've been talking about, you know, really a sort of long-term bullish case. I mean, there's a short-term uncertainty, everything goes down, people cash, vixes spiking, volatility spiking. We've been saying one of the cases for, I call it the defense tech super cycle, where there's a lot more money on defense spend, the sort of conflict with China being front and center in Asia. So, European defense has been one of the top themes. People begin to expose you to the last 12 months. We've been saying Asian defense is really maybe the most interesting for next few years, but, you know, and you see even in, there's a, there's a sitting around some

39:25of the images last night about some of the Korean defense interceptors that the UAE was using, and from Hanwa systems and Hanwa aerospace, two big Korean names that were, you know, key suppliers for some of that equipment, but, you know, Korean defense is big story Asian defense, but it's sort of like this innovation super cycle where you see the drones, like you see, so Iran had these drones, the one-way tag drones. The US took the drone, made it more American, sent it back right at Iran, but these drone techs, you talked about delivery, drone deliveries are coming. I saw a demo of Tyline, which is a very, I think it's called Tyline, but it was one of these real interesting drone delivery systems that's going to blow our minds one day. But, you know, I think that, that innovation cycle from defense spend to consumer tech, it feels like, you know, one of the cases for international, because they've been out of the game. Europe's been, you know, the US has been the only place for tech. Europe, Asia, you're going to get more, you know, so this

40:28longer term rotation, two international feels like one of the natural winners, even though it looks very uncertain today. We've got this conflict, but it's still a super bullish cycle, I think, for the next 10 years on international innovation coming from spend. Oh, I couldn't agree more of that. It's, it's pretty, and it's pretty straightforward, if you ask me. One, we have a meeting today between the Trump administration and Trump himself with CEOs of US defense contractors. That is not what you want to see on this tape. Again, thinking back to January, what was the big announcement out of the Trump administration? Do not pay your CEOs a lot of money. Do not pay a lot of dividends. Do not do share buybacks, build out capacity. If you're a shareholder, that's, you know, maybe not paying the CEO and, you know, maybe paying more of a dividend, that'd be a positive, but don't pay the CEO that much money. Don't pay, don't pay dividends or more dividends and don't do buybacks. That's not what you

41:29want to hear as a shareholder. You know, you don't want to hear, do more half-ex please, or we'll start canceling contracts with you. That's not what's going on in Europe or Asia with defense contractors. They can barely keep up with their demands, so they're building out capacity. They're much more geared to higher revenues, equal higher earnings. They're going to put earnings to the bottom line. Then they're going to build out capacity as needed. There's plenty of spare capacity in a lot of these countries with other industries and facilities, so that you have like Ryan Mattal talking about potentially partnering with Volkswagen and other places that have spare capacity and spare manufacturing plans. Not to mention the Europeans in a much of the Asian continent really hasn't spent a whole lot of money over the past two decades, three decades, on defense. So they're not tied up in legacy, significant, large,

42:31bloated contracts. They can start right at, yeah, we want two million drones, please deliver those. Also, we'd like drone interceptors that are cheaper. We'd like to invest in cyber. We'd like to invest in capabilities to detect incoming threats, etc. So I would say the defense spending that you're seeing incrementally out of Asia, incrementally out of Europe is far more efficient than the defense spending has been traditional and at a far lower cost and at a far higher potential lethality. All of that really points to exactly what you said. What are the dual uses going to be? I have no idea, but if you don't think there's going to be dual uses and somehow we're going to come up with really cool new ways to do agriculture or to do construction or something with this type of tech, I would bet against you all day long. Yes, very interesting. I think it comes back to one

43:35things you tell our clients all the time is not just hunkering down into cash in these defensive moments is to find the catalyst and opportunities from the conflict and try to position and capitalize on some of these opportunities versus just hunkering down and being in cash. So it's very, I think a useful framework and I think that innovation cycle is going to be real. So guys, I think it's been a great overall discussion. I've got an extended conversation today and everybody's focused on AI disruption risk. I'm going to do for a second half of our conversation. I recorded something yesterday with our digital assets team. There's a lot of things happening in disrupting finance and so sort of tokenization is one of these topics and we're going to talk a little bit about the banks and some of the challenges I think they could come under pressure for these new rails. We have ondo finance and Meredith Hannon from our

44:38team talking about just the future of finance and what's going on there. I think it's a very interesting conversation. Got all of our biases. We talked about Jeff, our biases on table. I put them out there. I'm bearish the banks because of some of these but you'll hear. I think we had a really interesting conversation about what is tokenization going to do? Where are some of these rails heading? And I think you all will enjoy that conversation if you want to learn more about those new rails. So guys, thanks for conversation. We'll see you all next week. We have a special edition of our behind the markets podcast here. I've Ian DeBode who's the president of ondo finance Meredith Hannon who is on our team. I wisdom tree on our digital assets team leads a lot of the business development efforts for us. We're going to talk about tokenization, DeFi, a little bit about the new world of finance happening on the blockchain. I think there is a I tend to be structurally biased a little bit based on all the stuff that Meredith and her team

45:38at wisdom trees focused on on what's happening in the financial sector. You hear a lot about the regulations going through from the Clarity Act, the Genius Act, all these things, tokenization, stable coins. Are we going to pay rewards? All these things to make it to sectors in the equity markets that we talk about a lot on behind the markets. The banks is one of the sectors I'm focused on a lot. I have a little bit of a bearish bent sort of structural bearish bias because I think there's challenges happening in the new rails of finance. You see why disruption comes from startups, you know, if you're a bank, you know, and you have trillions of dollars in deposits, very hard to pay people competitive interest rates. But I think in the tokenization world, new rails, all sorts of things happening. I see it happening based on things we're working on. But I've got two great people to talk about what they see happening in Meredith. Welcome to Behind the Markets. Thanks for having me, Jeremy. Thank you so much. Looking forward to this. All right, Ian. So let's start with you. From your lens at OnDo, people give people a sense of what's

46:40happening now in tokenization? Why now? What's the trends that are making things really pop for institutions and retail? Whoever's using this tokenization world? What's happening now that makes it very relevant? Yeah, totally. So for everyone listening very briefly about OnDo, we put traditional financial assets on public blockchain rails to try to make them more accessible to a global audience. It's very similar to what stablecoins did for the US dollar. We try to do for treasury stocks and ETFs. So those are the asset classes that we focus on, treasury type assets and funds, stocks and ETFs. We put them on blockchain rails in a stablecoin-like format, meaning that anyone globally can have access to them and buy them 24, 5 right now on certain crypto exchanges, 24, 7. We are the market leader in tokenized treasuries. We have about 20% in across our treasury type products. And we are definitely the market leader in tokenized stocks

47:42and ETFs, where we will have about 60% market share that needs measured by the total value that we manage. We see right now in acceleration of actually all tokenized products quite frankly. It's very clearly that stablecoins let the way and kind of have been growing their total total value pretty dramatically. I think now we're up to 300 and something billion dollars. And that really was product market fit for tokenization of cash. And so all with all that cash floating around, people on chain want to be able to park it and invest it in different things. You see that in by the growth of tokenized treasuries. I think about two years ago tokenized treasuries of the category was about one billion dollars. Now it's more than ten billion dollars, so pretty aggressive growth in two years time. That use case really is people who would own a stablecoin otherwise are not earning any yield on it, depending on the geography that they're on. And that you just want to park it in the risk free rate. That's essentially why you would have

48:44a tokenized treasury product. You can do that as an institutional investor, you can do that as a retail investor, you think of money market funds, but essentially that's the main use case there. Obviously, people also want to be able to invest in stocks ETFs, just the broader US capital markets. So that's why we tokenize these products as well, again, a stablecoin-like format. We are seeing tremendous demand from crypto exchanges and crypto wallets that want to offer these US stocks and ETFs to their end investors. Everyone right now, think of the, you know, finances in big name, but also Coinbase, Kraken, Big Get, OKX, all these large crypto distribution platforms that globally have probably around four to five hundred million users, right? These are massive, massive distribution networks. Right now, it's all focused on crypto, but they all want to compete with the Robinhoods of the world, so they want to offer stocks in ETFs as well. These crypto distribution platforms then have the option, do they work with normal stocks via a clearing broker, or do they

49:46work with tokenized stocks in ETFs via a platform like Ondo? And for those platforms, it's significantly easier to work with tokenized versions of these things, because then their custody systems work, their existing accounting systems work, they can keep these markets open 24-7 via stablecoins and settle these things 24-7 instantly with stablecoins. So that's why a lot of these platforms are opting for tokenized stocks in ETFs, and that is where we come in. That's why we see most of our growth right now, quite frankly, is in that category. So think of tokenization right now as more liquid asset classes all making their way onto public blockchain rails, let a global audience can start investing in these things 24-7, and really most of the existing crypto distribution platforms and wallets incorporating these things to offer it to their investors and compete with normal brokerage platform. Yeah, Meredith, a lot of people think of crypto for Bitcoin and Ether and all these other crypto currencies, but what Ian is talking about here is mainstream cash and money

50:51markets and things that are offered yield. Anything you would say answer this tokenization technology, just why now, what's happening that's helping cause this to these growing use cases more recently? Absolutely, and I think to add to what Ian said was that this is beyond just crypto. I think there was a fallacy up until the last year that this was all Bitcoin, it was all Ether, it was all on crypto exchanges. These users wouldn't necessarily be interested in the US markets, and that's very much been proven not true. Many of these users are looking for the same type of investments that other investors are looking for, that wealth management or institutional investors are looking for in terms of optionality to yield in terms of diverse dedication. But I think what's really shifted is that now as more and more people are using their phones for their entire lives, it's what does that access point to get those assets? And that means it could be in a crypto wallet, it could be on a brokerage account, it's all going to live within the same interface. So I think

51:54now that's really starting to push the envelope to say, well, why can't I do this at midnight on a Tuesday? Why can't I do this Saturday morning? Why do I have to wait until Monday afternoon, which is where 24-7 really comes into play? And I think also what's important too is being based in the US, we think a lot in terms of US baking and trading hours. What about the rest of the world? What about someone in Japan who wants access to the US market and the underlying exposures, whether it be treasuries or equities? They're pretty much locked out for 12 hours, unless they're playing on the futures market. This actually enables them to be able to participate in a similar manner. And so I think that's what's also really driving this. Beyond just the initial investors of two, it's also about the underlying infrastructure and architecture, which is what Ian was alluding to, and that's what we've spent a lot of time about as well, is how do you think about the efficiency, the settlement, but also the distribution of assets in a different way than beyond what ETFs can do

52:54today as an example? When you think about why things are moving on Shane, for people who have a brokerage account, what do you see as the benefit? Is this just a distribution play? The people who made money in crypto now have all this wealth, and they're just trying to diversify their assets. Is it a play on that? Or is there some other from the technology side, you think real reasons why things are going on, Shane? Yeah, I think it's a little bit of both. You really have a large investor class globally that made quite a bit of wealth by investing in Bitcoin and other digital currencies that now want to diversify as Meredith said, and ideally, they want to do it all from the same account. People don't understand why they would need to open a separate brokerage account that's for stocks in ETFs, and then have a crypto exchange account that's for crypto. If you just take a little bit of a step back, make zero sense. Why would that have to be the case? These people expect all the products they want to invest in to have them

53:54ready in the same account. Again, for these existing crypto distribution platforms, it's much easier to list tokenized stocks than normal stocks, and they also have real benefits. And then those benefits, I think you also see play out for all the people that currently have a brokerage account. The number one question I typically still get particularly from people in the US is why do tokenized stocks matter? Isn't the current investing experience already good enough? And it's kind of shocking to me that people have accepted the current investing experience, because if you take a little bit of a step back, 24 or 5 trading is pretty new. But most platforms, at least some platforms these days, at least have 24 or 5 trading, so at least I'll give them that. It's not yet 24 or 7. The least is 24 or 5. But you have complete platform lock-in. If you want to transfer your stock ETFs to a different account, because the margin rates are significantly better, which dock typically they are, right? It's very hard to do, or it will take you three weeks, right? You

54:59got to navigate a bunch of different things. If you want to have your stocks in ETFs in the same account as where you have all of your other cryptocurrencies, even in the US, most cryptos don't have an ETF yet, right? So why can't they all live on the same network? Why can't you move these things instantly between different platforms, just like you could crypto and stablecoins? Why can't you trade these things 24 or 7? And it doesn't mean that over the weekend, these things would have the same liquidity as during market hours, not at all. But at least you could have these markets be open, you could input trades if you wanted to, which is exactly what is happening now offshore on crypto exchanges with tokenized stocks, because you can settle these things over the weekend if you want to with stablecoins, right? The track by infrastructure in the US is not built for that at all. And we're in the world that we're living right now, particularly with, you know, Iran and the like, being able to express opinions, hedge trade over the weekend increasingly is

56:01actually important. We saw that with a big headline this past week, where the Perps markets is another crypto invention, perpetual futures that are open 24-7 on oil, we're very helpful over the weekend to actually get price indications of what was happening in the oil market. And so that there is real value in these 24-7 markets, there is real value in moving stocks around 24-7 instantly globally between mods and accounts. There is real value in having crypto, stock, ETFs, commodities all live on the same rails so that you can have them all in the same account. And that ultimately is what tokenization enabled. So maybe talk about a little bit how your platform has evolved. So starting with treasuries and sort of tokenizing treasuries and you expand into sort of the future products, it's what you're trying to bring on chain. How do you think about the chains that you're working with, what, you know, the and just for the product roadmap for what Ando's focused on? Yeah, so great question. We started first with treasuries because we looked

57:06at the product market fit that stablecoins had. At the time, stablecoins were already, this is back in 2022, they'd already broken through I think the $100 billion mark. Stablecoins are great products, but they were still are imperfect, right? You can just always earn yield on them in the way that you would want to. And particularly at the time, the major stablecoins were not structured in a bankruptcy remote way, right? They were being issued often out of operating companies or your investor protections were pretty poor. So we decided to launch tokenized treasuries with besting class investor protections, at least in the way that you can design them on chain so that if people wanted to park there, essentially tokenized cash into tokenized vehicle that would offer them the risk rate that you could. We did that first with a product called OUSG. I won't get into too much of the specifics, but at the time, it was pretty innovative because of the first time that you could actually invest your money into a tokenized treasury fund, yet also move that around 24 seven between other people who were allowed to hold said fund. You could do even then

58:11also shift a smart contract protocol that allowed people to do repo transactions, right? That ended up itself was also pretty significant at the time. But this was all done in a rather permissioned way. So only authorized participants, so to speak, could hold these assets. And that's still the way that the majority of tokenized treasury funds are done today. But we then pushed the envelope a little bit and said, well, one of the key benefits that we saw with stablecoins is that anyone can hold these globally, right? You can even hold them in a non-KYC wallet. They're almost like a tokenized bear instrument in that way. That's why you can use these things in DeFi as well. You can use them in these eventually software programs that run 24 seven, and that can facilitate liquidity in a wide variety of ways that can be used for margin 24 seven. That's why a stablecoin really took off is because the DeFi ecosystem emerged and all the sudden there was real utility that you could get to with these stablecoins. But in order to get to that,

59:15you need to design these things in a permissionless way, meaning that you can really transfer them in the secondary market between anyone globally 24 seven. So we pushed the envelope a little bit. We issued tokenized treasuries that you could do that with. We had to, we had to issue those outside in the US. If you want to mint and burn these things with us, you cannot be in the US, unfortunately. But that allowed us to put these things and issue them in such a way where they were permissionless in the secondary market. We then took that product structure and expanded it to stocks in ETFs. We were the this happened last year in September with a platform called Honda Global Markets. So now globally, anyone essentially with the crypto wallet and stablecoins outside the US can acquire any type of stock or ETF that they want and just hold it in their Web 3 crypto wallet crypto exchange account, whatever you want to call it. So now we're at a point where more or less most publicly liquid tradable assets have found

1:00:17their way onto crypto rails. We have done in such a way that people can always buy these things at more or less NBBL pricing. So you the price that you pay on chain, more or less the price that you would pay in a brokerage account anyway, you could do this inside millions of dollars at a time. So what's next really is making sure that these assets can also work in this whole DeFi ecosystem. So people can get 24 seven margin on these products. People can get 24 seven leverage on these products and express their opinions in different ways. And the other big thing we're starting to focus on more and more is really doing, you know, asset and wealth management in different ways, portfolio construction in different ways. Because now you have these assets, stocks, ETFs, commodities, crypto, everything living on public blockchain rails, you can start combining these things in portfolios in different ways and even rebalance them over the weekend if you so want to, doing that fully programmatically so that there's a lot less human involvement and significantly

1:01:19more operational efficiencies. So that down the line, you can offer these things at a much lower cost-based and traditional asset management code. So it's going to be a very interesting wallet 12 to 18 months. I think we'll see a lot of innovation in how people can express ultimately kind of do prime brokerage globally, aren't you? As well as how portfolio construction works, how well management works, the types of portfolios that people can invest in and how efficient these things can get. Well, it's interesting. I was looking at the margin rates at my brokerage the other day and what the top brokerage is for, you know, individual investors. I try to make an investment. I really have a lot of cash to do. So I looked at it. It was 10% rate. It's like 10% percent. It's absurd. I mean, I'm a decent client of this firm and now maybe if I call somebody, actually, I'd try to call somebody, he'd call me back. So it's like 10%. Wow. Merit. Well, you collateralize, right? There's no reason why it should be that expensive. And then you go look

1:02:21at another brokerage platform and you're probably going to get a rate of 6%. The good luck moving your assets over and that's why these platforms can charge you 10 to 12%. Right. Merit, one of the things Ian just said there and he talked about some of this stuff that they were working on had to be outside the US, you know, and say, well, why, you know, why that? Well, it's obviously the regulatory dynamics in the US. Now, the regulatory dynamics have been changing. I mean, I was sort of, it was very interesting moment in the last few weeks that head of the SEC, Mr. Mr. Ackins put out a post on X related to wisdom. I look, wow, this is really a post. And he talked about how when, you know, firms bringing innovative solutions to the SEC, they are very pro innovation. So it's like kudos to the head of the SEC for saying that, but maybe talk through what they did give regulatory approval on sort of 24, seven, give some background on the recent dynamics at you see in the US and where things you see, you see going in the US regulation.

1:03:24Absolutely. And yes, it was thrilling to see that come through and what a shift from the last few years. So we were granted exemptive relief for our money market fund, which essentially means that now it can trade 24, seven, three, 65 for instant reductions. So that means that whether it's to a lot of Ian's points, Saturday at 10 a.m. or Monday night or right now, it's, you know, 630 on a Thursday here on the East Coast, you would be able to access USDC or effectively cash by selling your shares. So this is really a foundational starting point for us to be able to get to 24, seven across all of our products, some of them being floating nabs. So to Ian's point, being able to have 24, seven and trading and availability is really a key focus for us. So it's a huge change, especially the fact that from a money market fund, it's a 1940 act rule two a seven

1:04:26as standard and regulated as it possibly can be from a rigor perspective for risk management and bankruptcy remoteness and really ensuring investor protections to now also be able to be one of the most innovative products of 24, seven sales. It's a very cool dynamic to see how both of those can coexist, especially for US retail and institutional investors. We also started doing continuous interest accrual as well, which is also important as you start to think about this is a 24, seven type of global market that we're moving to. So instead of having only earning interest, you know, from now straight to now straight, now you're able to earn interest every second. It's something we just really see as a pivotal and really important change to meet our clients where they are. And I will actually just for a second go back to what Ian was saying to around portfolio management and smart contracts and smart contracts being self-executing pretty much if then

1:05:31statements are really important in this too because it means that once you decide to make a trade or in any sort of platform, make a decision on rebalancing or what have you that that instantly happens. So no longer are there these processes that require multiple steps or phone calls or faxes or emails, you can actually just do it instantly, which is also really, really powerful. So to Ian's point around really defining what portfolio management looks like, but also what customization could look like. I think that's also something that's really powerful that was talked about for a few years. We did some POCs and testing things out and now it's actually being able to be done live with the amount of assets that we have on chain, with the structures that we now have on chain that can actually deliver that, that it's not just a concept, you can actually effectively do that for yourself or potentially for your clients. I want to tie it back to one of my opening statements where it's like, well, I tend to be a little bearish the banks,

1:06:32but when you think about this dynamic and what Meredith's talking about, and I see it as a personal user of the app that Meredith works hard about on sort of this wisdom tree prime app, where it's basically, all right, it's a wallet, it's a blockchain wallet that it's built on the blockchain. It's almost irrelevant, but in a way, you know, it's a, it's using these tokenization strategies that I'm paying all my bills from this type of strategy that's earning interest. You know, so it's like, now it's interesting because you hear Chris Waller, one of the Fed governors talk about payments, and he's sort of like one of the leading crypto digital asset thought leaders at the Fed, and you know, in his, he tries to really go to payments to say money market fund is very different, or treasuries are very different than payments. It's like, well, does it have to be? I mean, if you can make payments from a stable thing that's earning interest, and you keep your interest versus the bank keep the interest,

1:07:34you know, it's a very consumer friendly. So like, oh, yes, they are different assets, and cash out of bank is very different than a fund or a treasury. But like, why can't you make payments off treasuries? Like, very stable treasuries earn interest. So this is where the blockchain connection, and now now it's very disruptive to that traditional, you know, banking model. Like, so the traditional banking model where they are earning on your deposits, and then they take a lot of leverage and the refractual reserve banking. This is kind of disruptive if it really got big. So you can see why they're trying to, in some ways, restrain it. But any thoughts there for you guys as part of the use case, you think enabling payments off of some of the ondo related treasury and another income earn assets? Yeah, it's a great question. So far, we've gone more after the investing use case because to your point, but your point is absolutely spot on. Why wouldn't you be able to use essentially tokenized money market funds, particularly in

1:08:39a stablecoin like format, meaning that anyone can hold them. Why wouldn't you use that for payments? The friction right now that's being introduced for that typically is purely regulatory in the sense that these things are securities or not cash. You have a different tax treatment. Be quite the nightmare from an accounting perspective to do it if you start using these for payments, but it's definitely possible. And by frankly, tokenized money market funds becomes almost a better form of money. But frankly, there's no maturity transformation on it, right? And so I understand why the banks are upset by it. But they said the same thing that money market funds in the 70s. And 50 years later, banks are still around, the bigger than ever. Money market funds are very big too, right? Rightfully so. And then the moment you start thinking through, well, a tokenized money market fund that they can freely move 24-7 between any type of wallet globally, that's probably a pretty pretty good mouse trap, right? And so I think

1:09:42ultimately I would place my bets on where the consumer value prop really is. I think consumers increasingly will expect them to have the best value proposition. I think that will be on value instruments that could move around 24-7 globally at a fraction of a cost and pay you the risk-free rate that you should get on your capital. And that happens to be tokenized money market funds and some of the products that we designed. So I share some of the bearishness on banks. But ultimately, I think the consumer value prop of these tokenized products is very real. And we're very, very close, quite frankly, to some of the things that Meredith was mentioning about the wisdom tree funds, the 24-7 subscriptions and redemptions, or more or less already at a point, where a lot of these tokenized products and the infrastructure that they run on, the value prop to investors is better than what they can get in traditional finance. I think the issue right now is that now a lot of people know about this stuff. So if people figured out that, wait a minute

1:10:44on Saturday, I can just subscribe to the equivalent of a money market fund or a treasury fund. I don't have to deal with cutoffs. And I could just make the payment instantly with stablecoins and earn yields at the moment I make that payment. That's pretty good, right? But people still need to understand that this is available and figure out how to get there oftentimes it does rely on stablecoin reels because the fiat banking reels just don't cooperate that way. But more and more, last stablecoin adoption grows and this people just figure out that this stuff exists. I think more and more people are going to start using this because it's just a better mill strap. Well, I'm glad we're bringing our behind-the-market users are not going to be surprised by this trend. So that is good that we are keeping people on their toes here. What would you say is the biggest misunderstanding about tokenization as you come across people discussing it? Thank you for both you. I'm very happy to take that question first because I've got strong opinions

1:11:45on that one. When people hear tokenization, they still think of real estate, private funds, private asset classes, private equity. That's where their mind goes to immediately. They think there's this perception that has been created over 10 years or so that if you tokenize something magically on blockchain reels is going to create a semblance of liquidity. Every single company that has tried to do that, it just doesn't work, doesn't play out that way. In part because when you tokenize something, you do it for two reasons. Number one is you want to make it globally accessible and or you want to enable the asset as collateral on chain 24.7. That's why people typically use a tokenized asset. For both of those use cases, you need very good price discovery because if people don't know how to value the asset or what it's worth, they're not going to buy it. If it doesn't have good price discovery and liquidity in the first place, you're not going to get a good loan to valuation on your collateral anyway. Both of those things lead you to conclude that tokenizing

1:12:54illiquid assets does not work and that's what we've seen. Tokenizing liquid assets, assets that already have efficient markets where you have good price discovery, that's actually valuable. Because by doing that, you make these assets more globally accessible. You actually enable them in 24.7 financial services that can operate and defy with these like a ton of smart contracts. So you tokenize an asset precisely because the underlying market is already efficient. That's why you tokenize it. And a lot of people still think it's the opposite. Are you tokenized something to make it more liquid, etc? Never works. You tokenize something because the underlying market is already efficient, which is why we do treasuries stocks in ETF. Meredith for you? Yes, that's normally mine too. So I'm going to go in another direction. It's the fact that people think tokenization is this magic box that is magically going to fix all of the problems of illiquid assets and then magically going to make them more liquid.

1:13:58I completely agree. I think that's such a misnomer. I think I still get, and this is even many years from very sophisticated people that tokenization equals crypto. And then even when we're talking about tokenized ETFs, tokenized equities, tokenized bonds, they're like, well, it's not actually US large cap 500. That's part of this. It's like, yes, we're talking about actually US large cap 500. So I think that that is one that from an education perspective that it is different and that it is not Bitcoin does not equal tokenization. And I think the other one is that it's there's a hurdle right here of it's difficult to get involved. It's difficult to access these assets. It must be really, I must be a tech genius to figure this out because I've heard about keys and past phrases and people losing millions of Bitcoin or what have you. And actually over the last I'd say 18 months, it has become significantly easier to the point of you can literally use your

1:14:58phone just as you would sign up for any sort of website that has a username and a password. And you can get access very, very simply to this ecosystem and to everything that we've talked about today. So I think that's really a critical point too. And I think that's when we talk about adoption is where that's going to be driven is that you're not even going to know that you're using blockchain. You are just going to because it is a better value prop than what you get through your bank or your brokerage today. And you get actual savings or more yield than what you do on your current platform. And it is a competitive point. So your point Jeremy about the banks and what that's a little bit. I mean, it seems like a low bar for some of these. If they're paying you zero interest on your deposits, it seems like a pretty low bar to do better and just keep the and, you know, to bring the technology front and center to the modern times. So and then that margin rate example, this is like the largest brokerage platforms in the US 10% kind of crazy. And as you think about

1:16:00sort of the future, like what does success look like for you and Ando and then for the industry at large, like how are you thinking about the sort of next five years? Oh, wow, five years. That feels like forever in crypto terms. Five years. That's a really long time. Yeah, so much has happened three months. I feel like five years. But I mean, it's a good forcing point to think ahead five years. Or maybe I'll like two to three, right? When I joined Ando, as soon as about two years ago, Ando had about 200 million in total value under management and the tokenized treasury category was $1 billion. Now we have a total of 2.7 billion and tokenized treasury is at $10 billion as a category tokenized stocks actually last week just crossed $1 billion as a category. So in, if you're over the next two years, the tokenized treasury category grows to call it anywhere between 30 to 50 billion. And tokenized

1:17:04stocks hits 10 billion. And we keep our market share. I will be a very happy man. It's a nice goal. And to get down that roadmap, is it bringing new people into the ecosystem? Like what is there on ramp into the ecosystem? Is it people? Like how do you think of that client base growing? Yeah, I think it's really just signing up more of the existing clients that already have access to these, you know, crypto rails, right? If you look at how many users the coin bases, OKX's, finances of the world have, I think you're at like 400 or 500 million users. I think that's that's larger than, you know, the number of brokerage accounts in the US, right? It's significantly larger. So if you get all these people access seamlessly, 24, 7, 2 stocks in ETF, US capital market products, I think that is a very, very meaningful shift

1:18:07globally for how these people think about investing. I think that kind of further solidifies also the dominance of US capital markets perfectly. There's this narrative around stablecoins solidifying in the position of the US dollar globally. And in the, you know, the new digital age, I would argue the same thing holds for tokenized stocks in ETFs for the dominance of US capital markets globally too, by exactly tokenizing these assets and placing them on these offshore exchanges with four to 500 million users and investors already. So I think our main goal over the next two to three years is signing up those platforms, making it as easy as possible to have access to these assets and also building out a more fully fledged brokerage experience that will include stuff like complete portfolio margin, the ability to have leverage on your assets and creating these portfolios that can cut across different asset classes, meaning commodities, stocks, crypto, everything in one place and really thinking through how do we construct these things

1:19:11in a better, more programmatic, more cost efficient way so that the total value under management can grow. Like one of my, there's a lot of ETFs. ETFs essentially would just the one-click button to enable passive investing, right? And now you have some active ETFs in the line between the two is starting to blur, but it's really just easy investing into a broad diversification of assets but really just easy investing, right? And I think, but you're still limited to whatever an asset manager has created as an ETF. One of my favorite examples is there's this MAX7 ETF out there. Just seven assets equal weights. Guess how much they can charge on that thing. 29 bips per year. No one should be paying 29 bips per year on seven stocks in an equal weight, but people are lazy and so they just buy the ETF, right? Those types of products can be unbundled. Once you these assets are on crypto rails and they becomes trivially easy to just spin

1:20:15up a smart contract that does exactly what the ETF does, instead of paying 29 bips, you're going to be paying two to three bips, right? If that. And so all of these innovations and how people think about passive investing and how you get exposure to multiple asset classes into one vehicle, I think we're going to start to see that over the next two to three years fully programmatically. And that's what I'm very excited about. Very interesting for this new rap rest. I think, you know, aligns with our view of why we also started doing working in tokenization a number of years ago as they're the newest rapper and so look some of the biggest potential to disrupt the traditional asset management markets. So I think we're aligned in thinking of, you know, what could do to ETFs? What ETFs did to mutual funds? And we thought tokenization was that type of technology. So we're with you. Why we started building out that team years ago. Meredith, on your side, what do you think the future success world looks like? So I completely agree on the asset management front. And that's a lot of time where we really

1:21:19focus is improving the investment experience for our investors. I'll take it an even step further than two that we've started to think about what does the future financial services look like? And specifically, where can you insert or have available investment products that maybe cash is today, maybe other instruments are today? And a great example of this and we'll announce this later this year is how can you get paid in money market funds? How can you think about payroll solutions? How do you think about we talked a little bit about payments, but even paying different vendors cross border, paying different vendors or different partners? So how can something that's yield bearing actually start to really translate into your daily life that you can send it once and then it's just going to consistently arrive in your wallet in a way that you don't have to then list trade. So we're thinking about the usability and the utility of these assets in really new and creative in different ways, but it goes to a lot of the questions that we've posed here

1:22:21around why not? Why can't you? What's really holding us back from it? It might be regulatory, but a lot of changes have been made there. It might just be that you need to downward both counter parties and have an agreement and then it can be done in process and it's not through some sort of wire banking system. So that art of what's possible is I think what we're really going to explore over the next few years and I think in terms of success, I'm just looking now there's 300 billion dollars in stablecoin value. There's over 230 million stablecoin holders. These are numbers that are still just scratching the surface of what mainstream is going to look like and I think more and more as ecosystems, but also even non-financial players start to enter this market. Whether it's Sony or Amazon or Walmart have all announced that they are doing stablecoin initiatives or blockchain projects. All of those I think are also going to drive adoption, but also you're probably going to be using you know insert Walmart cash in some way shape or form

1:23:22and it's actually a stablecoin, but now you can buy something faster than maybe what it's before. So I think it's going to be those types of advancements where again you don't even know that it's actually this technology on the back end and we haven't even talked about AI, but AI agents also starting to use stablecoins that can access your brokerage or your bank account, but they can access stablecoins. So how do you think about the process of what that means as that becomes a bigger part of all of our lives, but also even processes within different firms? You go back to like sort of status quote bias and like the 3% transaction fees that you see on sort of the credit cards, which is why Amazon all of them are saying, Hey, if I could just get some of that value chain back and if they could do it and something that earns interest by the way, all the better. All very interesting scenarios in the world. I mean, the speed that the number you threw out there made a 300 billion, it gives me a reminder, this is like our 20 year anniversary at Whismetree. So we've launched

1:24:23our first funds in June of 06. The 300 billion number was the size of the ETF market when we started. So there's a nice little parallel. So it was 300 billion, 20 years later, we're talking 14 trillion. So now the speed in the AI world is moving faster, right? You see the disruption risk, AI is just making everything go faster. So I think the pace of change is happening. So maybe 300 billion to 14 trillion will come sooner than that 20 years. Let's say I think so. And how long do we think is really going to take for us to put some money into the hands of an AI and then instead of buying these ETFs with, you know, some ETFs, the SAP 500 and the like, okay, they've gotten very efficient. But a bunch of others, when you look at the fees, an AI probably can do all the things they do in terms of actual composition, track these things, yet execute on the individual stocks, do that fully on chain 24, 7 and pretty easily, right? So how I fully agree with Meredith's points

1:25:25on the AI's, the impact on the ETF wrapper, the structure, the cost structure that you see in a lot of these funds, and how that's going to evolve. I'm personally very curious to see how all of that shakes out for the next two to three years. Would you say you have a big surprise since building on chain, maybe your biggest surprise of what you've been working on? The biggest surprise. It all happened faster than I thought it would. Quite frankly, if we went live with our tokenized stocks on Binance two weeks ago, if you would have told me that when I joined London two years ago, I was like, hey, in two years, Binance is going to start listing tokenized stocks in the like, I would have said you're absolutely out of your mind. So things are happening way faster than I thought they would. We're more or less maybe now entering a crypto bear market, but it doesn't feel like that at all. I mean, the prices are depressed, but the institutional adoption

1:26:27is only accelerating. The regulatory interest is still there. Everything is happening much faster than I thought it would. And the non-US versus US innovation side is the US started. We gave the example of the recent more pro crypto stance for this digital innovation that's happening is I think I was surprised that Europe beat us to some of it in certain places. But as you see that now changing. I hope so. I'm quite hopeful. You see it in the stablecoin space already. I think on the broader market structure debate and then particularly for tokenized stocks, ETFs, tokenization of securities more broadly. I do think there's still some wood to chop, but all the right people are looking at it. Right now, interestingly enough, though, you're in a situation where the growth particularly in tokenized stocks in ETFs is all happening offshore.

1:27:28Outside the US. And we are bringing the predominant source of that growth, of course, frankly, like since September, we added $600 million to the category, but it's all offshore. Our assets are tokenized stocks in ETFs. As a proof perspective in the European Union, under MIFIT, our assets are just classified as transferable securities. So these things are fully compliant legal. They can be offered to EU retail. Last week, we got an approval from the Abu Dhabi regulatory authority or they at least approved them for trading in the secondary market. So more and more, you're starting to get regulatory regimes to look at these permissionless wrappers around stocks, right? So we have a stablecoin-like format tokenized stocks in ETFs that can be held in non-KYC wallets, be used in D5, 24, 7, and the leg. That is all happening offshore. And even currently in the US, with older debates in the conversations, et cetera, that model of a permissionless stock in ETFs, not 100% sure

1:28:33that it is actually already going to happen just yet. But if it doesn't, I think the risk still becomes even under this admin alike that a lot of the growth we're going to see in the tokenized stocks in ETFs category in particular is going to happen offshore. And I think that would be a shame. So I'm hopeful, but we'll see. Well, David Sacks says he's working on brain stuff. You know, they've been working hard. I get it things back in the US. We shall see what they do. But this has been fun. Ian Meredith, thank you for joining us here. The special behind the markets, I think, there's a lot of talk on AI disruption. I think this was a great talk on tokenization, digitization, disruption happening in the financial world. We've talked a lot of big topics here today. So thank you so much, Ian and Meredith for joining us on this conversation. Thanks so much for having me. It's been a pleasure. Thank you so much. Thanks for listening. Please subscribe and leave us a rating to help others find the show. You can follow and get to us on Twitter. I am at Jeremy D Schwartz. Sam is at Samuel Rines

1:29:40and Jeff is at Jeff Linger. Jeff, Chris and I are registered representatives of four side fund services. Our discussion today was not tied to offer sale of any investment products. Have a great week.