Radio Show with Corey Hoffstein: Roaring Kitty, Bitcoin ETF & T-Bill and Chill | #506

Episode Summary

Executive Summary: Meb Faber and Corey Hofstein riff on whether popular investing themes are overhyped or underhyped, covering Bitcoin ETFs, target-date ETFs, direct indexing, 60/40 portfolios, T-bill-and-chill, the Magnificent 7, dividend investing, passive investing, and whether investing is already “solved.” The conversation repeatedly emphasizes low-cost core beta, the importance of behavior and planning over product novelty, and new packaging ideas like return stacking and tactical cash-based deployment.

Main Topics: Overhyped vs. underhyped investing themes (Priority: 5/5): The hosts use a PTI-style format to judge major current topics, including Bitcoin ETFs, target-date ETFs, direct indexing, the Magnificent 7, dividend investing, and passive investing. They consistently argue that many innovations are more about packaging or advisor fit than genuine investor benefit. Bitcoin ETF and crypto market hype (Priority: 4/5): Meb calls the long-awaited Bitcoin spot ETF overhyped due to the decade-long delay, massive legal costs, and media attention. He notes that ETF news has even moved crypto prices, but remains skeptical on timing and pricing. 60/40, T-bill and Chill, and bond return expectations (Priority: 5/5): The discussion revisits the death of the 60/40 portfolio, the appeal of T-bill yields near 5%, and a proposed tactical strategy of staying in T-bills until spreads are attractive. Corey adds that bond yields can be strong predictors of long-term returns. Managed futures, return stacking, and diversification (Priority: 5/5): Corey explains why managed futures can be a useful third leg alongside stocks and bonds, but notes investors struggle to fund diversifiers by selling core exposures. Return stacking aims to solve this by layering diversifiers on top of core holdings rather than replacing them. Passive investing and product-market fit (Priority: 4/5): They argue that many so-called active products are closet indexers and that the broad market exposure can be bought nearly for free. The real challenge is not access to market beta but financial planning, tax management, and keeping investors from making behavioral mistakes. Product ideas, CalPERS, and office culture (Priority: 3/5): The conversation turns playful and practical: Meb jokes about reapplying for the CalPERS CIO role, proposes simplifying large public plans, and concludes that in-person office interaction is still valuable despite remote work.

Key Arguments: Bitcoin ETF demand is real, but the saga is overhyped because the launch has taken far longer and cost far more than justified. Target-date ETFs are underhyped because they can improve behavior and tax efficiency, but there is still no obvious buyer outside a narrow set of users. Direct indexing is mostly overhyped; it is often better for advisors’ business models than for end investors, except in special cases like ESG customization. The death of the 60/40 portfolio is overhyped; the portfolio has repeatedly gone through cycles of outperformance and underperformance, and its real value is often in stable income and simplicity. T-bill-and-chill is underhyped in a world where cash yields are near 5%, and a tactical version that buys risk assets only when spreads are attractive could be compelling. Bond yields are highly predictive of long-term bond returns, especially for intermediate-duration, high-quality fixed income. Managed futures can be a strong diversifier, but investors dislike funding it by selling stocks and bonds at the wrong time; stacking it on top of core exposure reduces that timing pain. The Magnificent 7 concentration risk is still real, but less extreme than during the 2021 valuation peak. Dividend investing is widely misunderstood: dividends are not magic passive income and may be tax-inefficient, especially for taxable investors. Most of investing is already solved through cheap, accessible beta; the unsolved part is financial planning, advice, behavior, taxes, and implementation. Passive investing concerns are partly muddled because many “active” funds are effectively passive or closet indexers. Large institutions like CalPERS could potentially be run more efficiently with a rules-based public portfolio and less reliance on high-fee private allocations.

Data Points: Bitcoin ETF timing: Meb expects a spot Bitcoin ETF in Q1 next year, not 2023 - Prediction about SEC approval timing during discussion of Bitcoin ETF hype Target-date ETF structure: ETF wrapper - BlackRock’s relaunch of target-date ETFs was framed as tax- and implementation-friendly Taxable vs. tax-advantaged accounts: Taxable assets are a minority - Meb notes more assets sit in tax-advantaged accounts than he previously appreciated Bonds: 5% nominal yield - Used to explain the appeal of T-bill and chill and cash-like returns Bond market drawdown: 10- to 30-year bonds down massively; some down 20% to 50% - Illustrates why investors are paying attention to cash and T-bills Bond return rule: twice-duration minus one - Corey’s rule of thumb for forecasting bond fund returns over a period of about 2x duration minus 1 years Example bond yield: AGG yielding about 5.5% with duration around 6 - Used to illustrate expected long-term bond returns Two times duration minus one: 11 years - If duration is 6, then 2*6-1 equals 11 years for expected return convergence Bitcoin ETF pricing idea: 10 basis points - Meb jokingly suggests a low-cost crypto ETF would be a way to undercut higher-fee offerings BlackRock ETF fee comparison: 80 bps vs. 10 bps - Meb argues crypto ETFs should be cheaper than incumbent offerings JEPY/JEPI yield: 11% yield; 20%-50% yields mentioned for similar products - Discussion of covered-call/income ETF popularity and misunderstanding CalPERS CIO compensation: about half a million dollars - Meb jokes about reapplying for the CIO role Managed futures peak interest: 2022 inflationary selloff - Investors became more interested in managed futures when stocks and bonds fell together Historical market cap weighting issue: 10-year and 20-year periods of no returns or underperformance - Meb argues market-cap weighting becomes problematic when a few names become extremely overvalued Public-private asset allocation: 20-year drawdown of private holdings - Meb suggests slowly winding down private assets at large pensions and moving to public ETFs Passive investing cost: 0 bps or expense-ratio negative - Broad market cap-weighted exposure is effectively free due to short-lending economics

Pivotal Quotes: "The amount of money and lawyer bills... I don't want to spend millions of dollars on legal bills because there's no way this is coming out anytime soon." — Meb Faber: On why the Bitcoin spot ETF saga is overhyped and overdrawn "If you want to add a diversifier to your portfolio, you need to subtract exposure to stocks and bonds." — Corey Hofstein: Explaining why investors resist managed futures and other diversifiers "I think a huge part of the investment puzzle with access, easy, low-cost, cheap access to the core betas, I think it is solved." — Meb Faber: On why investing itself is largely solved while planning remains hard

Implications: For listeners and the industry, the message is to prioritize cheap core beta, resist product hype, and focus on behavior, tax efficiency, and planning. New structures like return stacking and tactical cash deployment may improve implementation, but most “innovation” is packaging, not alpha.