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Well, Pakistan's defense minister said

the US and Iran are quote close to some

sort of arrangement over the straight of

Hormuz even after both sides appeared to

harden their positions in the long

deadlocked negotiations. Meanwhile, Iran

says the strait will remain shut until

Iran's conditions are met. And just

reminder, the president said yesterday

in the Oval Office that the straight is

open now. Quote, "The US is the only one

that has control of Hormuz and quote, we

control the strait 100%." Noam Ray Don

is senior fellow at the Washington

Institute for Near East Policy. She

joins us from Washington DC. Noam, I

just want I just want you to fact check

this comment from the president

yesterday. Does the US control the

straight 100%.

>> Hello there. I'm very happy to join both

of you. Um first of all, let me give you

a quick overview of what's going on in

the straight of

>> Please.

>> Throughout this war, Iran has

established a new navigational order.

What I mean by that is the following. Uh

it is unlikely that we're going to go

back to the maritime arrangement that

existed in the Strait of Hormuz before

the Iran war. Iran has gained immense

influence in the strait. It will not let

go of this leverage it has obtained

easily and my prediction is the

following. Iran wants to build a new

maritime arrangement in the straight of

Hormuz. the return to the old routes

that were being used by commercial

vessels and by that I mean the inbound

outbound lanes in the center of the

straight of Hormuz. It is unlikely that

we're going to return back to those

lanes. Iran right now wants to control

uh traffic meaning it als it wants to

control who enters the straight uh via

the Persian Gulf, excuse me, via the

straight of Hormuz and who leaves uh the

region. This is where we are. It hasn't

changed much since uh March.

>> So no, the US does not control the

straight 100%.

>> Uh what we know is that Iran uh remains

in control of traffic in the straight of

Horus and this has led to new ways of

trading in the region so that regional

uh oil and gas producers and exporters

can continue to um move their energy um

uh products out of the region.

>> Yeah. No, no, very interesting because

you know what markets are really waiting

for at the moment is a return to how it

was before the conflict started in the

US and Iran. But what you're saying is

essentially it's unlikely that we will

go back to uh the the way that shipping

routes were working in the straight of

Hormuz prior to that. So how do you

envision uh kind of the new normal for

uh shipping in that lane and you know

what should investors be looking out for

as a sign that okay we're actually

making progress here?

This is an excellent question. As I

said, we have a new uh navigational

order. What Iran has managed to achieve

is the following. They caused immense

disruption. What Iran now is trying to

do is convert this wartime disruption

into a lasting advantage. And this is

the reason why Iran is holding talks

with our men and making it so difficult

to reach a uh an arrangement for a

future government of the trade of

foremost. Why? Because Iran does not

want to be included in any discussions

where it does not play play a central

role. Meaning Iran wants to be the

dominant voice right now with respect to

how these trait of hormones will be

managed in the future. With respect to

to what I mentioned earlier, I mentioned

the uh old routes. These I'm referring

specifically to the traffic separation

scheme. This one was adopted by the

International Maritime Organization in

1968. Iran does not want to return to uh

those those routes and these uh those

routes right now are uh reportedly

um uh containing mines, excuse me, they

are reportedly containing mines. In

June, the assessment was that there were

around 80 mines and that getting rid of

those mines uh was going to take a long

time. And by the way, this is according

to an international association of

tankers owners. That was the assessment

in June. And up until now, we don't have

a clear idea about the mines in those

lanes. Again, the lanes uh we refer to

as the old inbound and outbound lanes

that are not being navigated right now

because of the uncertainty surrounding

mines. My prediction is the following.

Iran will not even make it an easy

mission to completely clear those mines

from the old uh lanes. Why? Because this

means that we're going to go back to the

old and traditional routes. Iran does

not want that to happen. Right now, Iran

wants to take advantage of this new

maritime uh arrangement or order it has

created throughout the war in order to

uh create a lasting influence in the

region. And last point is the following.

Iran has always used the maritime domain

in the region as a theater of

operations. meaning it has always went

after commercial vessels in order to

retaliate against US sanctions and even

Israel. So we've seen Iran since at

least 2019 using the maritime domain in

order to retaliate against it

adversaries during this war. It has

cemented this influence on the maritime

domain. And finally this is why I don't

expect Iran to let go of this leverage

it has built throughout conflict.

>> Yeah. No. Yeah. All the risks that you

mentioned, of course, uh just had

tankers basically finding workarounds,

right, in terms of uh alternatives to

transferring cargo outside of the

straight of Hormuz. But how much can

these alternative routes realistically

handle? And is it going to be enough to

keep a lid on oil prices or are we about

to see another breakout above $90 and

below beyond?

>> This is another another good question.

As you mentioned, we've seen some

workarounds, right? And these have

included some pipelines in the region,

but but not all countries in the region

have pipelines. Some countries have been

doing better than others. For instance,

Saudi Arabia, United Arab Emirates. Uh

they have systems that are completely

different from the system that exists in

Iraq. For instance, Iraq is a country

that is struggling uh because it heavily

relies on the straight of hormones. Now,

back to the workarounds. We've seen

countries uh like the United Arab

Emirates shuttling oil on tankers from

within the uh Gulf region and these

cargos would be transferred to other

vessels that are waiting in the Gulf of

Aman in order to re receive those

vessels because some vessels are

unwilling to navigate the straight of

hormones because of the very high risks.

So in that case some tankers just

transfer the cargos from within the Gulf

and in the Gulf of Aman outside of the

straight of horses they transfer those

cargos to other ships. So this is one

way the United Arab Emirates uh has been

leading this uh way of trading and

according to some market reports uh

we've read and we've heard about even

the um ADNO which is the Abu Dhabi

National Oil Company uh has chartered

some VLCC's very very large crude

carriers recently in order to maintain

the flow of it energy throughout the

straight of so this is one workaround as

I mentioned also the pipelines but again

as you said does this mean that this is

uh this is sustainable Uh no. Um this is

uh this is my uh assessment of it of it

of the situation and uh we are not back

at all to the uh oil loading average

that existed before the war.

>> When do you think when do you think

we'll get there?

>> Um it won't be it it won't be an easy uh

way back at all. I I do not expect even

if the war ends uh for us to immediately

return back to normal. Iran will not

make it an easy uh mission to do to do

so. back to what I said earlier. Uh Iran

wants to ensure that the influence it

gained on the maritime uh domain helps

it extract concessions including from

the United States.

>> But no um we've talked to some people

who have said that this might be

temporary long-term but temporary in in

the sense of okay well we see what the

world sees what Iran can do in the

strait. So now it's actually building

infrastructure to to rely less on the

strait. So it you know we've heard from

some analysts say okay well this could

last 5 years but you know in in 5 years

we will have alternative methods of

transportation to the straight of Hormuz

and it won't be an issue anymore. Is

that correct?

>> Uh my own assessment and this is based

also on my own research and as a person

who's been tracking uh specifically the

maritime domain for close to 10 years

now you cannot completely get rid of

this rate of hormones. Uh back to Iraq.

I'll give you Iraq as an example. Iraq

heavily relies on the Straight of Homos.

Iraq is talking about pipelines, but

Iraq throughout the past year failed to

implement those pipelines to build them

for several reasons, security,

financial, and political. For this

reason, Iraq right now is trying to talk

with Iran in order to get permission

from Thran to let tankers carrying bus

crude oil from southern Iraq leave the

straight form. for I'm giving you Iraq

as an example because we are hearing a

lot about pipelines uh from Iraq but we

need to be realistic. Iraq's key markets

are in Asia. The best way to get crude

oil and heavy fuel oil from Iraq to Asia

is via the straight of uh straight of

foremost and not loading it in the

Mediterranean then sending it to the

Swiss canal down the Red Sea to the Gulf

of Adan and then to Asia. This is an

example. Of course, pipelines, building

more pipelines, expanding the pipeline

system in the region is very important.

You can have contingency plans. But to

say that we don't need the straight of

we don't need Babul Mandib, which is

another critical choke point for energy

markets in the Red Sea. Um I believe

this is not based on solid data.

>> Noam Raidon, you got to come back and

join us once again. This is a great

conversation. We appreciate your time

this afternoon. Noam Ronan is a senior

fellow at the Washington Institute for

Near East Policy. She joins us this

afternoon from Washington DC. Stay with

us. More from Bloomberg Business Week

Daily coming up after this.

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The investors squarely focused on the

latest out of Washington DC. They're

also focused on this idea of what's with

the circular funding and circular

financing and where do alternative

assets fit into this? We've got Aaron

Mulvahill with us, global alternative

strategist at JP Morgan Asset

Management. He joins us here in the

Bloomberg Business Week studio. Perfect

timing. You've got this new report out.

Uh but it comes the day that we're

learning more about this $500 billion

commitment uh that Nvidia is getting

from some of the largest alternative

asset managers. It fits kind of squarely

into what you have in this guide to

alternatives. How does it fit in there?

>> It does, Tim. One of the biggest themes

we have right now with clients that's

coming up in every discussion is the

amount of AI and technology exposure

that's in every asset class, right? Not

just the public markets. We're well

aware the S&P 500. you've got, you know,

40 plus percent in in the MAG 7. You add

up all the the utility companies,

everything else, you're getting to 60%

of the S&P moving on this AI theme. But

now also private markets, we're seeing

that ramp up in private credit and

private equity with a lot of data center

investment as well as other parts of the

AI uh cycle.

>> Yeah. Well, you know, Erin, seems like

everything's going well and dandy,

right? Everyone's making money off of

this based on the latest uh financing

deal that we're seeing. Um but you know

the fear over circular funding was a big

theme over the last couple of week or

months or so. Um that seems to have

petered off now that uh tech stocks are

back. But when does that risk come back

to for again especially in the private

markets where it's a little bit more

esoteric in terms of the valuations of

assets in that sector?

>> I think the broader risk Christine is is

this concentration in a singular theme.

So everything is AI wherever you look

whether it's the the public markets the

stock markets increasingly the bond

markets uh report from JP Morgan's

investment bank uh is expecting $2.1

trillion of issuance in investment grade

bonds to fund the AI buildout over the

next couple of years. And so it's it's

increasingly important for investors to

be active uh to to work with with active

investment managers and asset managers

who can diligence these increasingly

complex bond issuances, stock issuances

as well as choose how much they want to

be allocated to this particular theme

across public or private markets.

>> Are there alternatives that are not

exposed to AI right now?

>> You know, nobody wants

>> few and far between. like you don't want

to be you don't want to be in the

private credits that that's exposed to

you know software. It seems like

>> software has definitely had a pullback

in the last couple of quarters. I I

would say in software even in private

credit we're not really seeing a

deterioration in performance.

>> It's more concerns about what the future

might hold for software as AI starts to

maybe eat into the ability to to create

code competitors to software companies.

But we're not really actually seeing

this in performance today. uh when we

think about alternatives, people don't

want that sort of broccoli

diversification of you know low returns.

So where do we look for higher returns?

We like the real estate market right

now, commercial real estate. I I would

say it's important to be mindful of an

increasing amount of digital

infrastructure in the real estate space,

the data centers. So that's a question

you can ask. Uh but I think what what's

important to keep in mind when you're

investing in private markets, private

funds, is portfolio managers have an

incredible amount of discretion into how

they build those funds up. They don't

need to follow a benchmark. They're not

following the S&P 500. So they can

deviate and they can choose how much

data center exposure they want to have

if they want to completely avoid data

centers in a real estate fund. And

there's plenty parts of the real estate

market that we see as being very

attractive without having to add to

exposure in digital.

>> Yeah. Well, speaking of kind of

preferences between uh this theme, I

know that uh your group in particular

actually prefers the electricity layer

over the data center story at the

moment. What is kind of the appealing

aspect of that narrative that is perhaps

underpriced by investors at the moment?

>> There's a strong case to be made for the

electricity layer of data center

investing. And I think it it it comes

back to that theme of investors wanting

some exposure but not necessarily the

volatility that comes with direct

investment in the AI theme. And so when

you look at the power layer, uh we

expect that electricity prices are going

to continue to increase. Uh we expect

more consumption of power by the data

centers. They're going to be 12 to 13%

of the total US power supply within 3

years. Uh so a lot more power, a lot

more consumption, but it's not the only

thing driving the performance of

infrastructure funds or private

infrastructure funds because you've also

got electric vehicles, you've got the

electrification of the economy, you've

got moving towards renewable energy, the

need to replace the grid. All of these

things can benefit the the funds and

their performance without having to be

completely reliant just on the AI theme.

>> Can you talk a little bit about shipping

because this is a really interesting

theme that comes up in your report. It

is and and it kind of you know we're

talking a lot today of course about

about Iran and the straight of and

shipping is an interesting one to me

it's a little bit like surge pricing if

you're trying to get come from downtown

to here the FDR is blocked off then

you've got to take a long way around

that's what we see in shipping and so

transportation companies are actually

benefiting from these geopolitical

issues from what we're seeing

>> and you think that's sustainable

>> in the sense of like this is going to be

ongoing for a significant period of

one, it comes down to how long the war

is going to going to continue. But we've

had an increased incidence of

geopolitical issues over the last

several years. You know, if we we close

this war, there's going to be another

issue before long. That's just sort of

the nature of the world we live in. But

another factor that's beneficial to the

shipping industry if we put that aside,

is the fact that there's not a lot of

idle capacity out there. There's less

than 2% of the global shipping fleet

today is idle. And so kind of to back to

the taxi analogies, not enough taxis to

go around and again we have this issue

of surge pricing, higher transportation

costs and that's benefiting the

transportation operators.

>> We even spent some time yesterday

talking about the Jones Act given the

news from the the White House there. Uh

Aaron, it's always good to see you. Uh

thanks so much for joining us on

Bloomberg Business Week Daily. Aaron

Mulvahill is global alternative

strategist at JP Morgan Asset

Management.

>> You're listening [music] to the

Bloomberg Business Week Daily podcast.

Catch us live weekday afternoons from

2:00 to 5 Eastern.

>> Listen on Apple CarPlay and Android Auto

with the Bloomberg Business [music] App

or watch us live on YouTube.

>> Big news. It announced to buy Trade Zero

based in Brooklyn for up to $231

million. We've got with us Yoni Assia,

the CEO of E Toro. He's back with us

here in the Bloomberg Business Week

studio. So, the numbers you were saying

you had a good quarter and this is an

acquisition that that you think is is a

right the right move obviously at the

time. What's the market getting wrong

about this?

>> Well, uh, you know, I can't control the

markets. I can control the business. Uh,

Q2 was another beat quarter. Uh, great

9% uh, growth year-over-year of both,

uh, topline and bottom line. 18% uh,

exceeding actually market expectations

of funded accounts. Huge roadmap coming

in uh, across AI in the company. We

actually released uh a new app which is

taking the old app and rewritten 100%

with AI with AI focus and center around

torier AI agent which is the gro

frontier model and uh we were talking

now about Denip Patone from trade zero

and the team a great team joining us

here in the US to lead it to Toro uh in

the US with a trade zero acquisition.

>> Yeah, let's talk about the trade zero

acquisition. Dan's been on our program.

I used to speak to him all the time just

a few years ago. Uh so certainly a

familiar name to our audience. Why buy

Trade Zero rather than build something

internally? Like what does bringing on

Trade Zero do for E Toro that you

couldn't offer US customers before?

>> So when you look at our business, the

vast majority of our business is outside

the US. We have a huge franchise.

Europe, UK, uh Australia, Singapore, Abu

Dhabi, uh and the US a bit got left

behind sort of the rest of the world for

us where the big part of the business

is. Uh what this brings is one a great

team based here in Brooklyn uh uh in the

US with a significant also franchise $80

million revenues uh and a lot of

knowledge and experience in US capital

markets infrastructure. So a lot of the

great products that we actually have

outside the US which include leverage

stock trading uh long short uh on top of

long short trading we actually created

quantitative smart portfolios which

create hedge fund like strategies uh

market neutral strategies outside the

US. So all of these products operate and

work for it outside the US. Uh and we

believe that together with trade zero we

can actually bring all of these products

including futures trading which is a lot

of our customers were trading oil, gold,

silver during Q1 Q uh during Q4 Q1. Uh

so all of these products will now be

enabled to our customers through the

integration with Trade Zero.

>> Yeah. How are you planning to kind of

differ your approach when it comes to

dealing with your international clients?

Because you know I lived in London for

almost 10 years and the average retail

investor there tends to be more

conservative. they tend to prefer

physical assets whereas US investors are

really just very much into this and so

yeah how would you kind of differ the

approach uh now that we're looking at a

broader base of international clients

>> so I I think this actually shows the

huge opportunity that we have right so

it has been hugely successful outside

the US and places like Germany Spanish

France Italy the UK uh across multiple

by the way both geographies and products

24/7 trading of both stocks from 26

different capital markets of

commodities, indexes, currencies as well

as investing, copying the top trades all

around the world. We actually feel our

products have a huge untapped market

here in the US. uh but until 2025 until

the IPO basically we just took a step

back waited actually for also the crypto

environment to be the right environment

here in the US and together with a trade

zero acquisition we were going to double

down on the US market introducing our US

customers and US customers to basically

the global community and the collective

intelligence uh in it Toro

>> you mentioned AI and one thing that

we're increasingly hearing more about is

agentic trading uh there was a great

piece in Bloomberg just last week. Uh, a

big take. Everybody should check it out

if they haven't already about the way

that some retail traders are are

harnessing this technology. E Toro is

allowing customers to use AI agents to

trade autonomously, but that's within

certain defined parameters. Give us an

update on adoption and activity that

you're seeing thus far. So, uh, first of

all, just yesterday, uh, we launched uh,

an official connector to Grock. So, we

have a great partnership with SpaceX.

You can actually go now to Grock and

click uh search for it Toro, connect

your E Toro account, click uh it opens

basically an E Toro single signon and

then Gro suddenly has visibility into

your entire portfolio into the portfolio

of all of the rest of the traders in it

Toro and into the X feed. So you can ask

something like uh uh look at my port

look at my portfolio, look at my expost,

tell me what I'm missing uh in my

portfolio. Now we've launched Tori our

own AI agent uh a while back which is

also based on grock. We launched also

now clawed MCPS and we are seeing more

and more users are actually connecting

AI. There was one missing piece which we

launched about 2 months ago which is sub

accounts or we called it agent

portfolios. A lot of people including

myself were afraid to connect their

entire account into AI. Uh now you can

actually connect it just to a sub

account or an agent portfolio and say

let's say I have $100,000 in my

portfolio. I want $5,000 invested and I

want this now AI agent to manage my

portfolio autonomously. Now the

beautiful thing about AI agent is they

never sleep. Uh you can train them

basically on everything. My, by the way,

AI agent uh goes every day to

universities across the globe, downloads

research papers on behavioral economics,

connects the data in it Toro and runs

back tests uh uh on on on actual

proprietary data of it Toro. So we're

seeing things that up until 2 years ago

only people in places like you know

Renaissance and Millennium could do.

Suddenly we're doing it with our own

quants and we're building those tools

for our customers to run basically

quantitative trading and agentic trading

as well. I I believe this is just the

beginning of that and that is going to

actually surpass the amount of trading

activity of people on it Toro by the end

of next year.

>> Wow. Okay.

>> Yeah. All right. Well, let's talk about

prediction markets as well because

that's another growth area for a lot of

companies like E Toro uh is surging in

popularity. what sort of opportunity

does that present for your company

moving forward?

>> So, uh we announced another acquisition

uh in Q2 which is Zeno. It's a

non-custodial wallet uh outside in the

US. It's a it's a great opportunity.

It's a regulated market uh outside the

US. A lot of the prediction markets

actually operate in the DeFi world uh in

non-custodial wallets. Uh Zeno uh is a

firm actually run by a great founder

that uh was actually a VC that I pitched

the Toro to 20 years ago. Um and and now

sort of uh working together, we've

launched prediction markets in a DeFi

model uh in a non-custodial wallet. It

took us, by the way, two weeks from uh

closing the acquisition to actually

launch the SSO connector uh uh to

basically the non-custodial wallet. So

you can transfer money seamlessly from

basically your Toro account into a

non-custodial wallet and then actually

trade tens of thousands of crypto assets

through DeFi swaps versus only 200 on

Toro. But 200 is actually a lot. Uh uh

and of course uh new markets such as

prediction markets say and coming soon

perpetuals as well.

>> Uh how does it diff how do you

distinguish at least in the US between

what maybe ki and poly market are doing

with prediction markets and I mean this

is a really crowded space.

>> Um first of all nothing is really

crowded when you think of the entire TAM

right. of the entire TM were still very

early stages of the largest

transformation of wealth in history. You

think we're talking about a hundred

trillion dollars moving from older

generations to younger generations.

>> Yeah, that's outside of not just

prediction mark. I mean that's

[laughter] that's the whole great wealth

transfer.

>> I I think it's appetite. It's risk

appetite and type of new products. And

one of the reasons we did Zeno is we

noticed we have gen zitters who are

actually very interested in living on

chain and doing transaction on chain. I

think that's where a lot of the

ecosystem is. And when you look at the

different products that we've been

launching in it Toro, it's about making

sure that customers on it Toro can stay

on it Toro, whether they want to trade

stocks uh or commodities or whether they

want to actually trade crypto or

actually copy somebody else or invest in

um Alpha Portfolios on Toro or spend

their money with a Visa that's connected

to the account. So, what we're building

is a financial super app that provides

you access to any type of financial

product that you want within the Toro

ecosystem.

>> All right. Well, speaking of crypto,

Yon, we got to talk about that uh since

that seems to be a little bit of a weak

spot uh for your most recent earnings,

but I mean, what's what's the outlook uh

in terms of the revenue from that market

and really just outlook for the market

directionally moving forward? I

>> I think uh we're seeing uh you know,

crypto yet in another super cycle.

Everybody's talking about the four-ear

cycles of crypto. We launched it in

2013. Boom. Crashed 85% in 14 that we

had huge amount of revenues in 2017

coming from crypto. A huge crypto rally,

boom, a crash in 218, 2021, 2022, now

2025 and 2026. So, it does seem it works

on a clock of a cycle. Maybe a

self-fulfilling prophecy. Um, and I have

no doubt I'm a very big believer in

Bitcoin as digital gold that we are

going to see Bitcoin uh going way beyond

the all-time highs that we've seen in

October, but it might take time and

people to adopt to these technologies.

>> Real time, what are you seeing as a

result of the cold card wallet hack made

by Canada based Coin Kite, the crypto

that was stolen?

>> It doesn't have any impact on it Toro.

Are you seeing more people invest in

>> we have Bitcoin ETFs?

>> Uh we we no we're seeing actually more

people moving to non-custodial. Uh so we

actually have seen people coming into it

Toro depositing crypto in it Toro uh

into Zeno and then from Zeno into it

Toro. We actually are one of the unique

firms that uh are now introducing a

crypto buying power as well. So you can

actually come to it or bring in your

crypto from basically you know either

non-custody or custodial wallet and then

get from us a margin buying power to buy

stocks as well.

>> Are there a lot of people doing that?

It's kind of could be risky.

>> Um you know risk return. Uh we believe

in educating people about the markets.

>> Yonyi always good to see you. Appreciate

the update on what the retail investor

is doing. and Yonyi Assia, co-founder

and global CEO of it Toro, joining us

here in the Bloomberg Business Week

studio.

>> Stay with us. More from Bloomberg

[music] Business Week Daily coming up

after this.

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>> It is today's big take. It's one of the

most read stories on the Bloomberg

terminal. It's about the AI dominated

leverage ETFs that are rattling markets.

A growing share of equity leverages

riding on the same AI names, many of

which have seen historic swings. Denita

Seikova is one of the names on that by

line. She's cross assasset reporter for

Bloomberg News. She joins us here in the

Bloomberg Interactive Brokers studio.

What's the problem with a little bit of

leverage?

>> We've been talking about them a long

time. So we looked at the data AOM 250

billion.

>> Okay. Seems kind of small.

>> Yeah, it seems kind of small. Actually

1% of the M of the ETF universe. But

when it comes to trading is actually 16%

of ETF trading. So much bigger trading

vehicle than the actual amount um it

calls for. Uh also these are bullish

leverage ETFs. The majority of them

their actual exposure when you add all

those amped up deliver uh derivatives

it's 500 billion. So the exposure is

getting bigger and bigger when you

account for uh derivatives and leverage

and it's very concentrated. In 2022

about a quarter was AI names. Now about

60% is AI names. So it's very few names.

And then we go into markets like Korea

and we saw what happens in stocks that

are more volatile and less liquid than

the Nvidia's you know we're talking

about SK Hundex and uh Samsung we saw

massive volatility and we saw those

leverage ETFs indeed add additional

volatility to the underlying holding. So

we're asking the question where does

that stop and what's next?

>> Yeah. Well, I was curious about the

Korea example that you cited in the

story actually because you know tiny mic

market as you say really there's only

two major stocks uh that are levered to

the AI semiconductor trade but what

about that market in particular was

right for something like this it was

really fascinating those products have

existed for about a year it started with

a few Hong Kong products that were based

uh betting on the two companies single

leverage names that exploded in

popularity at just crazy pace they

became one of them became 17 billion

products in just a couple of months. Uh

then all of those were Hong Kong based.

Similar products were launched in South

South Korea. So it became a craze. At

the same time, these are two very

volatile companies. They have been at

the center of the semiconductor trade.

There was a lot of underlying volatility

add leverage within ETFs and leverage we

don't see leverage from hedge funds,

leverage from everyone else. It became a

crazy crazy time. 70% of the trading at

some point of COP was becau driven by

those leverage ETFs and those two names

just driving the whole market for a

couple of days

>> is the but there's not really that risk

of happening here in the US

>> it's very different in the US so it's

concentrated in the US in many of the

big names which we're talking the

Nvidias the AMD the TSMC uh of course

those companies are trillion at least

invidia trillion dollar massive company

it wouldn't necessarily affect that but

the as leverage ETFs have grown

There have been a lot of single products

betting on the most volatile name like

the micro strategies and all that. So on

those volatile name that they're not

like four trillion dollar company they

can have a lot of impact for sure.

>> This this obviously could be an issue

for individual investors. We saw what

happened with situational awareness as

well. Um but for the broader market does

it become something that can become a a

big risk? I mean we're reminded that all

big crises in financial markets are the

result of leverage.

>> Yeah. I mean there was a really good

quote. Someone said it's better to have

leverage in a transparent vehicle like

the ETF than a you know in a hedge fund

or somewhere we have no idea what the

actual exposure is. Uh so some people

are saying the cover like all the

attention leverage ETFs are getting is

maybe too much. There are so many things

there are option expiry. There's so many

things happening around the course that

affect market trading and leverage ETFs

are mentioned all too often. That's it.

They have grown a lot. They are traded a

lot. We've seen all the big bands

constantly publish their leverage ETFs.

Everyone is looking at them and more

people are worried because a lot of the

rebalancing trades happen in the last 30

minutes of trading. So, we're talking

billions and billions and the amount of

money they move in the last uh in those

last 30 minutes has expanded a lot. So,

we can really see it in days that are

super volatile. Yeah. Well, walk us

through kind of that uh late in the day

shock, right? It seems like this is a

very mechanical bug that is unique to

this group of of asset classes and

that's why uh there is the potential

risk here. But how does that work

exactly? Why would you know this amount

of rebalancing at the end of the day?

How does that amplify volatility?

>> Yeah, it's really fascinating because a

lot of those products are two times or

three times leveraged index or product.

So if you imagine if there has been a

massive move in the underlying stock

which for Samsung and SK signings

happened so many times they were down

10% a day. So adjusting this two times

leverage three time leverage depending

on the move you either have to buy a lot

or you have to sell a lot. And the way

it works you have to do it close to the

end of the day. So you have pretty much

everyone coming for the same assets to

buy them in the last 30 minutes which is

a lot. Uh at the same time this is

mechanical flow. We all know it's coming

to the point where people are saying

maybe it's not that risky because we all

know it's going to come. We've actually

seen a lot of people doing strategies

around it. So sometimes the flow has to

go one way. So many people are front

running it that it goes the entire the

the entire way. But for sure in a big

day we can really see that impact and

you can imagine that on a small name it

could definitely um have underlying

impact.

>> Situational awareness notwithstanding

and that was a different situ completely

different situation. Um just in the last

30 seconds that we we have with you

Denita who who are who's buying these

products like who are they for?

>> They're mainly retail products. We've

seen more institutions definitely enter

them but we see the holding periods the

holding period should be one day. It's

not one day it's like 5 10 depending on

those.

>> So does that mean they misunderstand

what it's for?

>> Maybe they're happy to take more risk

hold it for longer. You know if the

NASDAQ is up a lot you want to hold it

for a little bit longer. [clears throat]

But long but holding it for a while

makes it prone to volatility decade

which in the end we may end up losing

more money especially in the down

market. So it could be painful. It could

be painful.

>> Yeah. I don't have a stomach for

>> No, neither do I.

>> That's why I'm doing this and I

[laughter] you know we have the rules

where we're only buy index fun.

>> You can do perpetual features. They have

100 leverage.

>> Uh

>> think about it. [laughter]

>> I'm thinking about it.

>> Consider it.

>> Okay. Thank you so much Jenisa Seikova.

She's Bloomberg News cross asset

reporter. story. It's among the most

read on the Bloomberg terminal. It's

today's big take. It's how AI dominated

leverage ETFs are rattling markets.

These growing share of equity leverage

riding on the same AI names, many of

which have seen historic swings.

>> This is the Bloomberg Business Week

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