caroline: from bloomberg's world headquarters in new york, i'm caroline hyde. we saw the s&p 500 on a tear. most industries in the green. chip stocks, the dollar on the downside. crypto getting a bounce. joe: the question is, what did you missy? caroline: it was exactly that. a bounce back. basically for everyone today.

there was concern about inflation. just a general fear. there was too much speculation in the market. for right now, those fears have been pushed to the side. bitcoin having one of its best days of the year. another elon musk week. you had tech stocks leading the rally's third -- the rallies. the question becomes, trend or -- joe: the sentiment toward so many of these risky assets, whether they be the cryptocurrencies, whether they be the qqq world, have done super negative -- have gotten super negative going into this weekend. very strong bounce back. again, the question is, is this the start of something new or a cliche? caroline: tomorrow, we stop pouring about inflation all over again. joe: just repeat the cycle.

for more, let's turn to katie. as the cross as a reporter, did ever cross your mind you would be reporting on things like the confederation of north american bitcoin miners? >> i have to admit i never did. increasingly, it feels like tech stocks, crypto, it all trades together. there are some linkages there. you did see bitcoin take a leg higher. the most since march of 2020 as we got some noons -- some news about elon musk and michael sailor. they help form this bitcoin mining council. i was on the phone with council digital. they confirmed there was a meeting this weekend and they are forming a counsel to address some of these environmental concerns bitcoin has. it is interesting to see this move by the industry to address some of the spirit caroline: -- some of the esg concerns.

caroline: i can see the institutional money managers. liking the fact they are taking the esg vibes seriously but the fact that once again a tweet by elon musk moves the market so much, it does not paint a great story in terms of where the volatility is coming from. >> the fact one man can move the market by so much does not speak to this is a stable, reliable asset you would want in your portfolio or on your balance sheet. this is a great chart from the production side of bloomberg tv that if you look at how the traditional 60/40 portfolio has performed with just 1% of bitcoin in it, it is up over 170% over the past five years. even though it is such a volatile asset class and it can move so dramatically on 128, those returns are hard to pass

up. you layer on top of that some environmental concerns. like rock, that is a sticking point for them. -- black rock, that is a sticking point for them. joe: bitcoin is very interesting. there is this other asset class. equities people are talking about paired also getting a bounce, the sentiment on that was pretty negative. maybe just for me. every day, the spacs, the tesla's going down. anything people are saying about people are buying at these levels again. >> if you look at the s&p 500, it has not done anything for a while. it has been hovering around these all-time highs. we know there is this strong dip buying impulse. what is going to be the catalyst to build on those gains remains to be seen especially as you have those inflation fears percolating. are seeing rake events drop.

-- you are seeing breakevens drop. even though you have this strong bit buying impulse, there is not much in the way of bullish catalysts to push it higher. caroline: so much for the inflation hedge. we thank you so much. all things crypto. we are going to be talking about it even more coming up. have our next guest saying we are on the cusp of the regime change. this is bloomberg. ♪

caroline: today, we are focused on the rally in the markets to start this week.

monday giving us a fresh reason to be buying. what about the inflation fears we were wearing about last friday? joe: you got to look at the big picture because we can talk tech has been weak lately or whatever. if you want to look at a chart that goes up into the right and is almost never stopped, forget about the last couple weeks. here are 10 years of the qqqs. that is a very attractive chart. caroline: who needs crypto? joe: who needs everything else -- anything else at that line continues to go up. for more insight, ariel investment's chief investment officer is here. thank you for joining us. there is always going to be a little noise, but this chart of tech going up into the right for a decade longer, can they be sustained? >> no. i think today, we have seen all the risks of the valuation risk

of the tech bubble in the late 1990's. on top of that, we are seeing the credit risk of the financial crisis. i think investors should try to manage risks and not just returns. caroline: talk to us about how you manage those risks while also still not seeing an erosion of the values through inflation. how do you make a return on this environment? >> you are exactly right. one must get a positive return on one's invested capital. the regime change you referenced in the market, i believe what worked in the last decade is not going to work and it will -- not going to work in the next decade. going forward, i think capital appreciation is going to be extremely hard to come by because jobs will be richly valued all over the world.

you do have a handful of ideas that can do quite well. i don't think hundreds of stocks, which is of the entire market, will do well. joe: want to go back to this question of valuation in the.com era. there has been this incredible run. people look at the big companies, particularly the companies that dominate these industries. they are cash cows. they are expected to remain cash cows in the way the biggest.com companies in 1999 never were. what -- how is the comparison apt given the sheer strength of the business models and why do you see the regime changing? >> you are correct. the tech companies are for more profitable and far more bankable in terms of the business models. the kinds of tech companies you are referring to are just a handful and they account for 25%

of the market. we had 75% of the market comprised of a lot of other things. a handful of stocks that have viable business models. i think the vast majority of the tech sector in the u.s. is very overvalued including those prized stocks because they do not include employee compensation expense in the p&l and the valuations we look at tend to be -- gaba earnings. these companies are far more expensive and we look at the free cash flow conversion because a lot of the buybacks only goes to diffuse the equity options. they actually do not return as much as the headlines suggest. which is why i think it is time to be contrarian and think outside the box and not chased the crowded -- caroline: so be contrarian for us. take us outside the box that is

not crypto or tech or some of the other overcrowded trades as the bank of america or merrill lynch might say. where you getting there -- where you getting your bang for your buck? >> the half of returns tend to come from dividend yield. it is time to buy good, quality strong balance sheet high dividend stock as opposed to trying to chase companies which have a lot of risk appetite built into them and a light of covid recovery and reflation trade bill into them. the yielding stocks tend to be a good inflation hedge because the dividends can grow unlike fixed income or junk bonds, which people are chasing for years. those yields cannot grow. that is the playbook for now. i find a lot of value in high

dividend yielding stocks. the mutual fund is supporting a dividend yield close to 3.5%. 3.5% is a very compelling number compared to the negative interest rate of any low positive interest rates in europe and japan. joe: let's talk a little more about international exposure because one of the themes from the post great financial crisis -- ems largely underperforming between early 2018 and the onset of the crisis and that accelerated over the last -- at the start of the crisis. are we going to see a regime shift to something that resembles something like the pre-gse period, greater strength in e.m. on a sustained basis? >> i think internationally, both developed and emerging markets show better opportunity than

u.s. markets so that is part of the regime change i am referring to. you are correct. in particular, emerging markets have been hardest hit because of underperformance for almost a decade on the back of covid, which has been a challenge for countries like brazil and mexico and india etc. valuations have become very attractive both from underlying stock perspective but also from a currency perspective. when you go abroad, currency can be a source of risk. because currencies have been undervalued, they can be a source of opportunity. you can make money in couple of ways by going abroad. stocks are undervalued. you can get some capital depreciation. you can get dividend yield. you may even double charge your returns with some currency depreciation. that is the playbook. caroline: and you like the fact that you go the local. do you ever hedge any of that

foreign currency risk within that echo or you want that -- within that? are you want that upside? >> given some of the opportunities i would like to discuss tend to be in emerging markets like in brazil, the currency is undervalued so i would not recommend hedging it. when you take the risk of something, you should actually take it. that is what i believe is real at this stage. caroline: very nice way of putting it. if you're are paid to take the risk, just take it. coming out, -- coming up, bitcoin rebounding from its roller coaster weekend. we discussed the impact of recent volatility. that is next. stick with us.

this is bloomberg. joe: -- this is bloomberg. ♪

caroline: today, we focused on the ebbing of fears. one day at least. bitcoin has been on a ride. today, we split the swing. volatility the name of the game in crypto overall. if you thought you were in for a pleasant hill trajectory, you have to get with the program. joe: absolutely. the line can go up a lot but the line can go down a lot. we saw that over the weekend with crypto overall. bouncing back today. 30 days, bloomberg galaxy bitcoin down 34%. what is going on? let's bring in jonathan. he is the head of institutional

sales at the cryptocurrency exchange. thank you so much. who is selling over the weekend? let's start with that question. >> i would say over the weekend, late on friday night, you had a fairly vague headline from china there would be policies enacted on bitcoin mining and trading within china. china was such a huge part of the cryptocurrency market. this hit late on friday night where liquidity was already starting to wane. since the coinbase listing, momentum has been poor. bad news into the weekend. it just hit a cascading set of stock losses. the interesting selling that happened was earlier in the week tuesday and wednesday when there was a huge amount of involuntary liquidations that were triggered. those were much more -- that was

the case of the market moving too quickly. participants being overleveraged and the collateral in the accounts not being enough to trigger them. there were about a million accounts fully liquidated and about $20 billion. in the last week, there have been funny billion dollars of liquidation. always recommend people dial down the leverage and be careful. caroline: has it been dialed down? when we see these headlines, anyone who was online crypto because they thought chinese regulators were going to welcome it with open arms were in crypto for the wrong reasons. has anything changed from a fundamental perspective, from a long-term perspective other than the price of between right now? >> no, i would say -- there is a great out this weekend about how crypto does not have any friends

with regulators. i think crypto is an existential threat to a lot of these central bankers. seeing at spiral out of control to the upside and seeing a chance for weakness, a number of people including the pope added some negative momentum. when it comes to china, it is difficult to know what is happening there. i would say the news is not necessarily inconsistent with what happened in the past. we have gone through a quiet period. people think well, is there a loosening? is there more dovish -- the person who delivered the message although it is not entirely clear he did deliver it, the vice premier, it is coming from a very senior person. i think in asia, people are

nervous about what is to come. i really think there is a lot of uncertainty around either the highest levels of exchanges -- joe: people have all kinds of reasons for being anti-crypto, technology, inflation, geopolitical things. people like lines they go up and chances to make money fast. at what point does either the selling or the volatility in the space overwhelm the upward price movement we have seen over the last year and create a risk that new money stops entering the space? >> i think certainly not yet. bitcoin is up 10, 15% on the year. a theory him is -- ethereum is over double. provided you are somewhat ahead of the curve and not leverage,

there is profitability on the table. if the later to the party and those who have a slight gambling tendency on the leverage side, that creates this outsized volatility. the long-term trend and even the -- with the incredible fall, this sharp ratio for bitcoin is still pretty favorable over the last year. i think one thing -- most people that are real bitcoin or's, they don't see this as a trade. they see this as freedom from a financial system that is rigged or designed with the holders of traditional assets acting purely in their interest and not for everyone. the bank of america had that survey where they said bitcoin is the most popular trade out there. the semantics show the lack of

understanding that people do not see this as a trade. it is a permanent allocation. caroline: a crowded trade. when you are a long list market, you are not going to be shaken out of volatility. i'm sure many of the true believers will say volatility is the cause in general. there is not going to be the overall support to iron out the volatility. when it comes to the institutional buyer, are they put off by the fact that elon musk can pop it higher with a tweet? >> i think they will be thinking about it in two ways this week. this is an opportunity to get into a trade i to a large extent have missed? second, they will be concerned about the volatility. there will be concerned about influencers being able to move it quickly.

the esg angle is a big priority for institutional money as well. all these things are going to make it onto to. at the same time, -- make it tentative. at the same time, sam drucker miller put it crypto used to be a solution looking for a problem. central banks have created that problem. there is no existential threat for bitcoin. if you are an alligator, you have to figure out how it works in your portfolio. -- if you are an allocator, you have to figure out how it works out in your portfolio. more established options market for hedging would make them happier. these things are coming. i would be very surprised if there one thing to get involved in a small size. the endorsement you see today,

ray dalio, goldman published a supported this weekend about the new asset class. caroline: jonathan cheesman. joe: have a great evening. ♪ [ sigh ] not gonna happen.

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