Fed rate hike cycle ‘not going to have a peaceful outcome’: Interactive Brokers founder

Founder and Chairman of Interactive Brokers Group Thomas Peterffy joins Yahoo Finance Live to discuss the state of investing amid inflation and recession concerns.

Video Transcript

BRIAN SOZZI: All right. Interactive Brokers saw a 36% increase in customer accounts in its most recent quarter as folks stayed very engaged with the markets. Let's talk more about the current state of investing with Interactive Brokers founder and chairman Thomas Peterffy. Tom, it's always great to get some time with you here. Talk to us a little bit about how some of your customers on the platform are positioned. There's a lot of volatility starting to creep into the markets.

THOMAS PETERFFY: So around the end of the year, customers started to diminish their long positions. And that continued throughout the first quarter. And up towards the end of the quarter, the cash positions reached an all time high, short positions reached an all time high, and margin loans have diminished. So that is-- and that is basically the position going into today. So customers have our-- Interactive Brokers customers are-- have not been this bearish in a long time.

BRIAN SOZZI: Thomas, the last time we spoke, you were-- you sounded very concerned on what the Fed may do with respect to raising interest rates. Are you more concerned now, given what you have heard recently from Jay Powell?

THOMAS PETERFFY: I'm not more concerned, because now we know what they are going to do. Finally, they are going to raise their rates. I just think that raising the rates to 2% to 3% is not going to do the job. So I believe that they are so far behind that they will have to raise further, and that is not going to have a peaceful outcome.

JULIE HYMAN: Thomas, it's Julie here. So does that put a real chill on retail investors in particular, if rates are going to go up and not just go up, but go up more than they're expecting?

THOMAS PETERFFY: Well, I don't know about retail investors, but I don't think it's going to be very good for the economy. And so retailing-- but I don't basically speak for retail investors. Interactive Brokers customers tend to be on the more sophisticated side.

In other words, our clients tend to be in the financial services industry. And so they have-- instead of $5,000, $10,000, $20,000 in their accounts, they have-- the average account has $200,000. So they basically have-- are more sophisticated investors that Interactive Brokers caters to.

BRIAN SOZZI: And Thomas, I know recently you've expanded the platform increasingly into crypto. Where do things stand on that front?

THOMAS PETERFFY: So we had that Bitcoin and Ethereum and two more that-- now, towards the end of May, we'll have 20 different cryptos. In spite of the fact that we charge only 0 for-- only 12 to 18 basis points per trade, it-- we haven't seen as great a value as we would have expected.

BRIAN SOZZI: Why do you think that's the case? Is that just related to the selloff in various cryptos?

THOMAS PETERFFY: I don't know. So maybe it has to do-- I mean, crypto customers are just as sticky as other kind of customers. So most of them have their accounts at Coinbase. And even though Coinbase charges a commission two and and a half times as high as we do, I think that's where they are staying for the time being.

JULIE HYMAN: And so Thomas, you mentioned being concerned about the economy. I mean, what are you predicting here? There-- obviously, there's some recession calls that are out there. Do you think that happens this year, next year? And how does that play out?

THOMAS PETERFFY: So more-- I'm more concerned about the political situation, both internationally and domestically, and its impact on the economy. So internationally, we see-- I'm really worried about China potentially going into-- expanding into Taiwan and potentially other places.

And domestically, I don't recall-- I've lived here for over 50 years in America, and I don't recall a situation where people were so far apart in, basically, social political issues. And I don't recall a situation in which corporations would take such a large role in these issues. So I find it very, very sad.

JULIE HYMAN: And do you think that that poses a risk from an economic perspective as well?

THOMAS PETERFFY: Definitely, definitely. Yeah, yeah. Definitely.

JULIE HYMAN: Thomas, it's good to see you. Thomas Peterffy of Interactive Brokers, good to see you. Be well. Have a good weekend, sir.