I'm Scarlett Fu.

And I'm Katie Greifeld.

And Scarlett Fu, it's a special second ETFIQ this week.

I know.

Is it Monday?

Is it Wednesday?

No one knows.

Let's get to the biggest stories right now in the more than $14 trillion global ETF industry.

We start with fresh inflation data out this morning, showing that the Fed might be cautious with rate cuts as we head into 2025.

And in just moments, we speak to world-renowned economist Nouriel Roubini and Atlas Capital CEO Reza Bundy on their new treasury alternative ETF, given the risks they see in the upcoming Trump administration.

And as President-elect Donald Trump announces the threat of tariffs on his first day in office, we learn how Trump trades in the markets are impacting the flows.

And as always, Eric Balchunis from Bloomberg Intelligence, he's here with us now, but we're doing something different.

We're starting with the drill down.

Eric, what do we got?

We are.

I'm going to have to get used to this.

A little different today.

So Katie, Scarlett, thank you so much.

We are drilling down into USAF, which is the Atlas America Fund.

The best way to describe this would be like an asset allocation ETF.

It invests in other ETFs and other asset classes.

It's sort of like a real asset portfolio that an institution would use designed to fight inflation or hedge inflation and make you through several kind of economic cycles.

A durable portfolio, if you will.

It just came out.

It's a newborn fund, made a lot, a big splash because of Roubini being attached to it.

One of many big names that have come into the ETF industry lately.

It's 75 basis points is the fee.

And let's look at the holdings here.

So if you look, you're going to see a bunch of ETFs.

And I got to give credit.

Whoever picked these ETFs is a good ETF shopper because IUAM is better than IAU because it's a cheaper gold.

And some of these Treasury ETFs, again, very specific.

This is a single Treasury ETF in U2, SHI, PDBA is a commodity ETF that has no K1, which is annoying tax form.

So somebody really kind of sifted through the ETFs and I think picked probably the best ones for this portfolio.

But then for the REITs, which is a income real estate, they pick individual stocks, which we'll go over in a minute.

So let's look at the actual portfolio of the portfolio breakdown of the ETF.

Just to give you an idea of what you're buying when you if you get this ETF, 50 percent of it is Treasuries.

OK, then you're going to get gold here, 17 percent REITs, tips, agricultural commodities and alternative strategies.

So again, a lot like an institutional portfolio, Katie and Scarlett.

And with Roubini's name attached, I'm sure this thing will get some looks.

All right, Eric.

Thank you.

Let's keep the conversation going now with Nouriel Roubini.

He is the CEO of Roubini Macro Associates, and we're also joined by Atlas Capital Team CEO Reza Bundy, who, of course, just launched this fund that we're talking about.

Atlas, of course, is a fintech company that Roubini co-founded.

It's great to have the both of you with us.

And Nouriel, I want to start with you since you are a first time ETF issuer and something we like to ask the debuts in the ETF industry is why now?

What brought you to this rapport now when it comes to why implement your strategy here?

Well, why now is because we live in a world where after COVID, the risk of stagflationary shocks that lead to higher inflation and lower economic growth are becoming more severe.

And these types of stagflationary problems are going to be more serious during a Trump administration.

If you think about the impact of tariff protectionism and trade wars, the impact of restriction to migration and the supply of labor, deficits and tax cuts that are unfunded, attempt to weaken the dollar, attempt to interfere with the Fed, getting out of the Paris Accord and worsening global climate change, all these factors economic theory would suggest that would lead to higher inflation, lower economic growth.

And therefore, traditional safe asset that hedge against those risks like long duration fixed income don't do well in that type of environment.

So you need a different type of asset allocation to hedge yourself against the idea of economic risk, inflation, the basement of the fiat currency, the dollarization, geopolitical environmental risks.

Thank you for answering that.

Clearly, it's tied to your economic outlook.

And we can dig into that a little bit later on.

But Reza, I want to bring you into the conversation as well.

What is why the ETF wrapper?

Why is that the best format for really articulating this view?

Well, the origin of the Atlas program was out of the national security landscape back in 2017, when we were evaluating some of the risks that were kind of upcoming, in our view, geopolitical risks, climate risks, asymmetric risks, sociopolitical risks.

And we felt that it was necessary to build a more resilient U.S.

Treasury alternative.

And the Trump administration actually came up with an idea of a gold-backed Treasury instrument, which we took upon ourselves to commercialize, because the Treasury Department couldn't do so themselves.

It would cannibalize their existing market, and they didn't have enough gold to really create much of an issuance.

So the origin of this story came about by trying to create that Treasury alternative that could withstand the risks that we were forecasting.

And so therefore, we thought the ETF wrapper would be the best solution, especially because we dynamically allocate these assets as we see market signals coming in, whether growth or inflation risks.

So the ETF was just an ideal, liquid, and very well-regulated and well-structured instrument.

All right, Nouriel, this is a question for you.

We talk about inflation, right?

In 2022, inflation went up, Fed raised rates, and that caused Treasuries to go down, right?

A lot of bonds went down with stocks that year.

The 60 and the 40 both fell.

You have 50% Treasuries in here, and I did notice a triple-leveraged bear ETF in there.

Can you talk about managing that kind of a situation, where inflation causes rates to go up, bonds to go down?

How do you protect this Treasury exposure?

The point is that we are going away in our portfolio from long-duration fixed income and Treasuries, because as you pointed out, when there are economic shocks that are inflationary, long bond yields go higher, the price falls, but also equity prices like 2022 go down.

So the traditional safe asset is long-duration Treasuries doesn't work in a situation which inflation is rising.

That's why in our portfolio of Treasury, we stay completely away from long-term Treasuries, and all our allocation of Treasury is short-term Treasuries and tips that actually do well in times where inflation is higher, and you have those types of economic shocks.

So the point is the traditional safe asset that is negatively correlated with equities in a 60-40 allocation doesn't do well in a world of high inflation.

Like we saw in 2022-23, even this year.

Therefore, you need an alternative.

An alternative combines things that do well when inflation is higher, short-term Treasury tips, commodities, and environmentally sustainable rates.

Nouriel, that's really interesting, and just to draw a bow on that point, it sounds like your position basically for a curve steepener, that you have all this exposure to the short end of the Treasury curve, but position for the long-end yields to go higher.

Yeah, in our view of the world, over time, all the inflationary shock that I described before implied that long bond yields are going to be higher, both in nominal terms and in real terms, as we're going to have tariff, migration restriction, independence of the Fed challenge, and budget deficits are runaway.

Therefore, the traditional safe asset doesn't do well.

In 2022, bond yields went from 1% to 3.5%, and 10-year Treasury lost more than S&P.

S&P fell 15%, while 10-year Treasury lost price by 20%.

In a world in which average inflation might be 5% rather than 2%, bond yields may be closer to 7%, 8% rather than the current 4+.

And therefore, for $20 trillion of Treasuries, that the traditional safe asset, we subject a massive price risk, 30%, 40% losses.

That's the kind of world we're thinking.

Not high inflation, not hyperinflation, but even a rise in inflation from 2% to 5%, 6% has a massive damaging effect for the traditional long-duration fixed income asset.

So this will be an actively managed fund, Nouriel.

How often do you anticipate making changes to their portfolio?

This is a question for Reza.

When you think about the stock market, it seems like Trump wants stocks up.

He brags about the stock market a lot, and if they go down, you think he would just bend over backwards to make stocks go back up.

In your opinion, do you see that not happening this second term, or do you think that this ETF is needed just in case the stock market, you know, kind of goes its own direction?

Well, there's a tremendous amount of risks offshore that we need to look at.

This Lebanon-Israeli, for example, truce agreement may just create more risk against a war against the Iranians and the Israelis, which obviously has effects on the oil supply that comes out of the Persian Gulf.

These kind of risks do significantly impact the stock market, especially as that oil goes to China, and there's obviously some other risks associated with the South China Sea.

And so we don't see these events being positive for the stock market.

And we see this instrument, and this instrument is designed to do so, doing well at times such as this.

So that's why we launched it at this time frame.

And Reza, I have another question for you.

I thought an interesting detail was that this ETF was launched through Goldman Sachs ETF Accelerator program.

It's not quite a white label, but for those listening who maybe aren't familiar with the concept, basically Goldman Sachs helped you do the back office stuff, as I believe it, or understand it, to get this ETF to the masses.

Can you talk us through why you went with that setup, for example, rather than hiring out an ETF team?

Yeah.

So in 2018, when we came off the back end of working through the alternative Treasury instrument idea through the Trump administration and the national security think tank we were working through, the Goldman Sachs team took it upon themselves to help us devise this program as a more resilient U.S.

Treasury instrument.

They built an index initially, we built an annuity with them, and we just felt their team was really strong.

They're really focused on national security, they're focused on resiliency, they've got a very strong relationship with Washington, and they've got a fantastic team at the ETF Accelerator.

Lisa Mantle, Steve Sachs, these are really, really strong teams that we rely on to execute these trades.

And we think that there's more work to be done underneath the illiquid portion of this ETF at a time and a place when the scale allows it.

So the platform is very strong, but also the connectivity to the other parts of Goldman and their natural inclination to be more focused on national security and resiliency and economic security matters made them a natural choice.

We're very proud to be working with them.

And Nouriel, when you think about this ETF, the big market for ETFs is advisors.

Financial advisors are like 70 percent of ETF users.

What does this replace for a typical 60-40 advisor?

Is this going into the bond portion or the equity or maybe some other alternative portion they might have?

No, it's a substitute for the bond portion, because as I pointed out, the traditional defensive asset is long-term treasury, doesn't work in a world in which inflation is going to be gradually higher, bond is going to be higher, prices are going to be lower for those bonds at a time where there could be correction in equity markets.

The whole point of 60-40 is based on a negative correlation between bond prices and equity bond growth, equity dwell, bond prices fall, risk of recession, bond prices go higher, the yield goes down, equities do worse.

But that works only if inflation is low and stable.

Instead, in a world in which gradual inflation goes higher, you lose on the equity portion of your portfolio and you lose also on the bond portion of your portfolio.

So when you lose on the bond portion of your portfolio, you want to have an asset that is actually truly defensive when interest rates are higher, because either there is higher inflation or bigger deficit than that.

So it's an alternative to the bond part of your portfolio, the defensive part of your All right.

Great conversation, you guys.

Atlas CEO Reza Bundy, really appreciate you taking the time.

Noriel, don't go anywhere.

You're sticking with us.

This is ETFIQ on Bloomberg.

Welcome back to Bloomberg ETFIQ, I'm Scarlet Fu.

We're back with Noriel Roubini.

He is chairman and CEO of Roubini Macro Associates.

And Noriel, we're talking about this ETF that you have launched, which is a way to kind of guard against some of the economic outlook problems that you foresee, given the new government that we're going to have starting next year.

You mentioned stagflation earlier and how you are worried about that scenario.

Based on what you've heard from the president-elect so far, when it comes to cabinet picks, initial tariff threats, can you quantify the risk of stagflation over the next four years?

Are we talking about 20% odds?

Are we talking about 70% odds?

Some of the economic policies of Trump may lead to higher economic growth, being pro-business, keeping tax rates low, deregulating the economy.

But unfortunately, many of the other policies are going to have an implication of higher inflation and lower economic growth.

The first thing he has already announced is going to be tariff against Mexico, Canada, and China.

And that's only the beginning.

He has said we might have up to 20% tariff on all our trade partners, up to 60% against China.

He wants to have massive deportation of people.

In the last few years, the increase in migration has kept the lead on wage growth, has increased the labor supply, has increased economic growth.

So definitely, mass deportation is stagflationary.

He wants not only to make all those tax cuts permanent, but he made other promises, no taxes on tips, on overtime, on social security, on income earned abroad, and so on and so on.

It's estimated these things may have a deficit by $8 trillion, too much demand, inflationary.

He might want to weaken the dollar.

That's going to be inflationary.

He may interfere with the independence of the Fed.

Getting out of the Paris Accords is going to make climate change much worse, increase food prices and things of that sort.

So if you look at this list of policies and others, all of them have the impact that over time inflation will be higher, growth is going to be lower.

That's a standard analysis of what's going to be the implication of this policy.

So we have to worry about the world in which overall over the next few years, inflation is going to be gradually higher, economic growth could be lower.