WEBVTT - Surveillance: Buying Opportunity with Slimmon 0:00:05.120 --> 0:00:09.200 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along 0:00:09.240 --> 0:00:13.200 with Jonathan Ferrell and Lisa Brownowitz Jailely. We bring you 0:00:13.320 --> 0:00:18.600 insight from the best and economics, finance, investment, and international relations. 0:00:18.960 --> 0:00:23.840 Find Bloomberg Surveillance on Apple Podcast, Suncloud, Bloomberg dot com, 0:00:23.920 --> 0:00:29.920 and of course, on the Bloomberg Terminal. I want you 0:00:29.960 --> 0:00:33.440 to stop and pause, folks, because what is important buried 0:00:33.440 --> 0:00:36.480 in the Bloomberg terminal of great use is the track 0:00:36.600 --> 0:00:40.320 record of people. He is in the nineties seven percentile 0:00:40.440 --> 0:00:43.680 of three year performance and in the last year's tumult 0:00:44.080 --> 0:00:46.880 defeated the Standard and Poors five hundred by what's called 0:00:46.960 --> 0:00:52.720 seven thirty one basis points that seven plus out performance 0:00:52.800 --> 0:00:56.600 off sp X. He is so alone, Well, he has 0:00:56.640 --> 0:00:59.240 time to come on with us. Andrew Slimmon Joints Senior 0:00:59.280 --> 0:01:02.560 Portfolio May Morgan Stanley, let me look back, Andrew, how 0:01:02.560 --> 0:01:07.000 did you do that in two thousand twenty one? Well, 0:01:07.040 --> 0:01:10.480 I think what really worked for us was to most 0:01:10.520 --> 0:01:14.440 people owned too many gross socks and starting to increase 0:01:14.480 --> 0:01:19.640 the exposure to box and owning some energy and financials 0:01:20.200 --> 0:01:23.240 that that really distinguished. Look. I think the S and 0:01:23.319 --> 0:01:27.000 P has become a growth index. Top ten stocks are 0:01:27.120 --> 0:01:31.600 largely gross stock tech stocks, so tacking away from that 0:01:32.280 --> 0:01:35.440 UH and being overweight some of the value areas in 0:01:35.560 --> 0:01:38.119 a year where they're working, and they certainly are so 0:01:38.200 --> 0:01:42.600 far that you know that that you can drive you know, 0:01:42.800 --> 0:01:45.480 look at the end of the at the end of 0:01:45.560 --> 0:01:48.120 the seventies and top ten socks r energy socks and 0:01:48.120 --> 0:01:50.000 now the top ten of tech socks. So I think 0:01:50.000 --> 0:01:54.760 it's uh, it's a great opportunity for active management. You 0:01:54.920 --> 0:01:58.240 published this morning that what we're seeing here in our 0:01:58.280 --> 0:02:03.000 international relations, in our fractured moment to moments UH focus 0:02:03.600 --> 0:02:09.000 is a buying opportunity. Why is that, Well, look, I'm 0:02:09.160 --> 0:02:15.040 certain because if you look at ten percent corrections on average, 0:02:15.480 --> 0:02:18.720 twelve months later, you're up a lot, even if they 0:02:18.800 --> 0:02:23.120 morph into much worse worse in ten percent corrections, about 0:02:23.520 --> 0:02:28.480 half of the ten percent corrections become fiftent corrections, and 0:02:28.919 --> 0:02:33.640 a quarter of the ten percent of corrections become twent corrections. 0:02:33.639 --> 0:02:36.040 But even if you look out a year, if you 0:02:36.160 --> 0:02:39.919 bought down ten percent, it might get ugly earlier, which 0:02:39.960 --> 0:02:43.240 I think it will this time. Again, a year later, 0:02:43.480 --> 0:02:47.280 you've been well served to step up into those corrects. Andrew, 0:02:47.280 --> 0:02:49.639 you just we're talking about the importance of active management. 0:02:49.639 --> 0:02:52.240 We've been talking about the turn under the surface. Some 0:02:52.360 --> 0:02:55.600 big winners. I'm thinking of energy, some big big losers. 0:02:55.600 --> 0:02:58.400 I'm thinking of certain tech stocks. What do you buy 0:02:58.520 --> 0:03:01.959 if this is a buying opportunity, Well, I think you 0:03:02.120 --> 0:03:05.120 still well, So look on the surf. I'm really changing 0:03:05.120 --> 0:03:08.120 my tune a little bit since i've been on. Last year, 0:03:08.639 --> 0:03:10.560 I was on and I kept saying, look, the uber 0:03:10.639 --> 0:03:14.359 grow the the real high flying growth tocks are too expensive, 0:03:14.400 --> 0:03:18.720 but I don't think the quality grows socks are as expensive. Well, 0:03:18.760 --> 0:03:21.720 you know what, those high flying grows socks have come 0:03:21.760 --> 0:03:25.880 down so much, and they actually the quality grows socks 0:03:26.120 --> 0:03:29.639 have held in there that now the pricing is shifted, 0:03:30.000 --> 0:03:32.880 and I think the safer gross socks, which are the 0:03:33.000 --> 0:03:38.120 mega cap tech stocks, are more vulnerable because these uh, 0:03:38.200 --> 0:03:40.520 you know, the high flying gross socks are just been 0:03:40.640 --> 0:03:43.720 so thoroughly trashed. So at the end of the day, 0:03:44.000 --> 0:03:48.800 the opportunity remains in the value stocks. Look, if the FED, 0:03:49.080 --> 0:03:52.000 this is the very important part. If the FED was 0:03:52.080 --> 0:03:57.880 going to over tighten and kill the economy, cyclical stocks 0:03:57.880 --> 0:04:03.800 wouldn't be outperforming trasier yields would be dropping, right, they're not. 0:04:04.040 --> 0:04:07.760 It tells grows there would be a growth rotation at 0:04:07.760 --> 0:04:11.680 a growth tox that's not happening. That tells me as 0:04:11.800 --> 0:04:14.920 much as the discussion about how many times the Feds 0:04:14.960 --> 0:04:17.239 going to raise rates, They're probably not going to raise 0:04:17.360 --> 0:04:20.920 rates as much as some of these predictions because the 0:04:20.960 --> 0:04:25.840 market is telling me to stick with the economically sensitive stocks, 0:04:25.880 --> 0:04:27.880 and I think that's where you want to be. Although 0:04:27.880 --> 0:04:29.880 a lot of people are looking at the yield curve 0:04:29.920 --> 0:04:32.039 which is contracting and some of the narrowest levels that 0:04:32.040 --> 0:04:36.000 we've seen since the beginning of the pandemic and saying, actually, 0:04:36.040 --> 0:04:39.440 recession risk is real, growth scares are real, and frankly, 0:04:39.640 --> 0:04:41.520 we're not saying that baked in some of these stocks, 0:04:41.520 --> 0:04:43.560 which means that perhaps they are more vulnerable. How do 0:04:43.600 --> 0:04:47.000 you push against that? Well, that's true. I mean, yeah, 0:04:47.320 --> 0:04:50.640 you're absolutely right. The yield curve yesterday came down a bit. 0:04:50.960 --> 0:04:53.080 We'll have to see, you know, it has come down 0:04:53.080 --> 0:04:56.480 and then it bounces back. Usually as it gets closer 0:04:56.520 --> 0:05:01.120 to zero, it becomes a tougher, more stubb We'll have 0:05:01.240 --> 0:05:05.320 to see high yield spreads, investment grade spreads haven't blown 0:05:05.360 --> 0:05:09.599 out that much, so I'm watching. I'm still sticking with 0:05:09.680 --> 0:05:13.919 this stick to the stick to the value trade. I 0:05:13.960 --> 0:05:17.919 still think you'd see a much bigger rally and treasury 0:05:18.120 --> 0:05:23.280 yields uh than we saw yesterday if, in fact recessions 0:05:23.279 --> 0:05:24.720 around the corner. And then the other thing that I 0:05:24.760 --> 0:05:27.440 would push back is what no one seems to be 0:05:27.520 --> 0:05:30.679 talking about is, Lisa, do you know that the estimate 0:05:30.760 --> 0:05:34.200 for the SMP is higher today than it was at 0:05:34.240 --> 0:05:36.800 the beginning of the year. Estimates keep going up. Yes, 0:05:36.880 --> 0:05:38.960 I understand they're not going up at the same rate 0:05:39.000 --> 0:05:42.200 they did before, but the fact is companies continue to 0:05:42.240 --> 0:05:44.160 do better than what was estimate at the beginning of 0:05:44.160 --> 0:05:49.159 the year. That's bullish. It's bullish, but we've got to 0:05:49.200 --> 0:05:51.760 do something here. Andrew, how much cash do you hold 0:05:51.880 --> 0:05:54.360 right now? I mean, with your track record, I think 0:05:54.360 --> 0:05:57.680 people really want to know that confidence is displayed by 0:05:57.760 --> 0:06:01.960 cash and portfolio. Yeah. Tom, I've heard you asked that 0:06:02.040 --> 0:06:05.400 question before, and I think it's a little uh. You know, 0:06:05.520 --> 0:06:07.679 if when manager said, well, I don't like the market 0:06:08.000 --> 0:06:11.080 and I've raised cash, I find that a little misleading 0:06:11.600 --> 0:06:14.080 because at the end of the day, what is it 0:06:14.240 --> 0:06:18.120 if the markets down ten and you raise five percent 0:06:18.200 --> 0:06:22.000 cash or ten percent cash, You're gonna lose money, right, 0:06:22.000 --> 0:06:25.800 You're gonna lose money. So so you know, to suggest 0:06:25.960 --> 0:06:30.120 that if I raise cash, I won't lose money as 0:06:30.160 --> 0:06:33.120 an equity long manager, I think that's very misleading because 0:06:33.120 --> 0:06:36.440 at the end of day, no one's giving me investing 0:06:36.480 --> 0:06:38.840 in my fund to go to eight percent cash. I'm 0:06:38.880 --> 0:06:40.960 a long equity manager. I hope to god I do 0:06:41.040 --> 0:06:45.000 better on the downside than the than the markets. But 0:06:45.440 --> 0:06:49.600 I'm invested. So the only question is how much will 0:06:49.800 --> 0:06:55.240 investors panic and liquidate? And we have seen redemptions the 0:06:55.360 --> 0:06:59.920 last few days that, unfortunately, tragically, that's normal market draw 0:07:00.040 --> 0:07:01.520 us in. As much as I'm saying, hey, it's a 0:07:01.520 --> 0:07:06.080 buying opportunity, people hit the panic button, and I suppose 0:07:06.320 --> 0:07:10.400 after today we'll see inflows. Andrew, just to sort of 0:07:10.400 --> 0:07:12.560 tie this all together, if someone was listening to this interview, 0:07:12.600 --> 0:07:14.440 that might come away saying, all right, go all in 0:07:14.520 --> 0:07:16.440 on pinterest and Twitter? Is that your Was that your 0:07:16.440 --> 0:07:20.640 point here? No? I don't think so. I think those stocks, 0:07:20.880 --> 0:07:23.480 uh are not not specifically those stocks, with just those 0:07:23.480 --> 0:07:26.440 stocks in general, they the carnage is so great. I'm 0:07:26.480 --> 0:07:29.600 not sure. I wouldn't recommend people to run out and 0:07:29.720 --> 0:07:33.360 sell them. I think they could bounce, but I don't 0:07:33.400 --> 0:07:37.080 think that's the big opportunity. I still think it's in 0:07:37.120 --> 0:07:39.320 the value names, but I just want to stress I'm 0:07:39.360 --> 0:07:41.680 a core manager. I'm looking for the fast pitch. I 0:07:41.760 --> 0:07:46.520 still think it's in the cyclical stocks, because we're gonna 0:07:46.560 --> 0:07:51.679 get some more ugly insulation prints. And think about this, right, Lisa, 0:07:51.840 --> 0:07:57.440 Yesterday financials out the market got crunched in financials outperformed. 0:07:57.680 --> 0:08:00.800 Think about since the Great Financial Crisis, every time the 0:08:00.880 --> 0:08:04.880 market went down, a lot financials got destroyed. And they're not. 0:08:05.160 --> 0:08:08.840 They're actually leading in the downturn. That's very unusual. So 0:08:09.000 --> 0:08:13.400 I'm pardoned to see that even in the downturn, some 0:08:13.520 --> 0:08:17.720 of the cyclical era seemingly are leading and usual one 0:08:17.760 --> 0:08:19.480 of the best. We've gotta go. It's gonna catch up 0:08:19.480 --> 0:08:21.840 by a wise interested them in that of Morgan Stanley 0:08:21.880 --> 0:08:30.320 Investment Management. It was an essay in the Financial Times 0:08:30.320 --> 0:08:33.520 a number of days ago from Jeffrey Sachs of Columbia 0:08:33.640 --> 0:08:38.040 University talking not of appeasement, but how do we, after 0:08:38.120 --> 0:08:42.080 the debris of all this move forward with Russia. The 0:08:42.160 --> 0:08:46.640 authority of Jeff Sex here is truly, truly enormous, and 0:08:46.679 --> 0:08:51.120 goes back to January with his advisement to a Yeltson 0:08:51.200 --> 0:08:55.040 regime that then changed to something different when Jeff Sex 0:08:55.120 --> 0:08:58.920 got off the airplane at JFK. That interview was shocking. 0:08:59.000 --> 0:09:03.520 Professor sexing US of Course of Columbia University this morning, 0:09:03.600 --> 0:09:06.760 Jeff Sex, we all got Boris Yeltson wrong? Do we 0:09:06.840 --> 0:09:11.480 get Mr Putin wrong? Well, I think we've got our 0:09:11.520 --> 0:09:15.880 own policies not right. And we have been on a 0:09:16.000 --> 0:09:22.120 very provocative course of really NATO enlargement seen by the 0:09:22.200 --> 0:09:27.840 Russian side as encircling Russia, a point that has been 0:09:27.880 --> 0:09:31.440 made actually for more than thirty years, first by the 0:09:31.480 --> 0:09:36.720 Soviet Union, by Mr Gorbachev, then by President Yeltson, now 0:09:36.800 --> 0:09:40.120 by Putin. We don't want to think about that in 0:09:40.160 --> 0:09:44.640 the US. We don't want to discuss it. We're dishonest 0:09:45.080 --> 0:09:52.319 because the West, the leaders said clearly to Mr Gorbachev 0:09:52.880 --> 0:09:56.520 and to Putin and I'm sorry and to Yeltson, no 0:09:56.920 --> 0:10:03.600 enlargement to the East. Then Clinton decided, because of the 0:10:03.640 --> 0:10:10.880 pressures domestically and from Central European countries, that NATO would enlarge. 0:10:11.400 --> 0:10:15.559 It was predicted by many at the time, including Clinton's 0:10:16.120 --> 0:10:20.400 own Defense secretary William Perry, that this was a very 0:10:20.520 --> 0:10:26.120 dangerous and provocative move. And now we're here, we need 0:10:26.440 --> 0:10:30.600 diplomacy on our side. All we're doing right now is 0:10:30.800 --> 0:10:35.240 sacrificing Ukraine in the name of a theory, because if 0:10:35.240 --> 0:10:38.640 you talk to senior officials, they say, oh, there's no 0:10:38.840 --> 0:10:42.840 way Ukraine's actually going to join NATO, but then they 0:10:42.880 --> 0:10:46.920 say publicly, of course, Ukraine has every right to join NATO. 0:10:47.160 --> 0:10:50.760 If you put the two together, it's the worst combination 0:10:51.160 --> 0:10:54.319 for Ukraine's security. Jeff, what's so important here is I've 0:10:54.320 --> 0:10:56.920 got Jeff Sex, the liberal from Colombia. On the same 0:10:56.960 --> 0:11:01.920 page is Mersheimer Chicago, the arch servative real politic. I mean, 0:11:01.960 --> 0:11:05.240 that is truly extraordinary to steal a phrase from a 0:11:05.280 --> 0:11:10.439 younger Jeff Sex. What is the diplomatic shock therapy to 0:11:10.720 --> 0:11:15.080 jump start a legitimate dialogue to come to a good 0:11:15.120 --> 0:11:23.199 resolution here we need basic points agreed, Russia out of Ukraine, 0:11:23.640 --> 0:11:30.600 Ukraine's sovereignty assured, NATO not enlarging into Ukraine, the mints 0:11:30.800 --> 0:11:36.880 to agreement being implemented for basic points, they're not so 0:11:37.000 --> 0:11:40.520 hard to come to the table, except actually the difficulty 0:11:40.640 --> 0:11:43.960 is on the NATO side. NATO says, oh, everyone has 0:11:44.000 --> 0:11:47.560 the right to join, as if it's some great, somehow 0:11:47.640 --> 0:11:53.040 moral right to have a military alliance that increasingly runs 0:11:53.120 --> 0:11:56.680 up against the border of an antagonist. That's not a right. 0:11:56.760 --> 0:11:59.719 That's just imprudent, is what it is. But Jeffrey, you're 0:11:59.720 --> 0:12:03.840 talking about diplomacy. Can we have diplomacy? If people question 0:12:03.880 --> 0:12:08.880 whether Vladimir Putin is a rational actor, it's it's a 0:12:08.880 --> 0:12:12.640 great question. You cannot test that theory if you don't 0:12:12.679 --> 0:12:16.319 have diplomacy. What Putent said in his speech a couple 0:12:16.320 --> 0:12:20.640 of days ago is we called for new security arrangements, 0:12:20.679 --> 0:12:24.120 the United States would not even discuss them. That is 0:12:24.160 --> 0:12:28.600 the truth. The US said first moment NATO is open 0:12:28.679 --> 0:12:32.320 for enlargement. It is the right of Ukraine. Well, I 0:12:32.360 --> 0:12:37.120 don't call that smart diplomacy. Uh. And then when uh, 0:12:37.160 --> 0:12:41.720 the response is a failure, which was predictable, we say, well, 0:12:42.120 --> 0:12:46.079 nothing could have worked. My view is we should try 0:12:46.400 --> 0:12:50.480 real diplomacy. It might not work. It might not work, 0:12:50.720 --> 0:12:53.640 but if you don't try it, you can't tell. And 0:12:53.880 --> 0:12:58.200 what's always true in negotiations throughout history is if you 0:12:58.360 --> 0:13:02.520 start with the premise that the counterpart is just a madman. 0:13:03.080 --> 0:13:06.880 If you start with that premise, you will absolutely end 0:13:06.960 --> 0:13:10.360 up in conflict. There's no way to reach an agreement 0:13:10.480 --> 0:13:13.600 on that starting point. It may be true that the 0:13:13.640 --> 0:13:17.440 counterpart isn't interested in negotiation, but you can't find that 0:13:17.480 --> 0:13:20.160 out by talking to yourself, So you have to talk 0:13:20.200 --> 0:13:23.280 to the other side. Jeffrey, we're talking tactics right now 0:13:23.320 --> 0:13:26.160 and how to avoid some sort of altercation. But longer 0:13:26.240 --> 0:13:30.880 term strategy. You specialize in sustainability, and I do wonder 0:13:30.960 --> 0:13:34.200 what type of investment would be necessary now in order 0:13:34.240 --> 0:13:37.160 to immunize both the US and frankly, even more so 0:13:37.240 --> 0:13:41.880 the European economies from the vulnerability of dependency on Russia 0:13:42.080 --> 0:13:45.920 for oil and gas. The truth is we ought to 0:13:46.160 --> 0:13:50.160 be dependent overwhelmingly on our sunshine. That's the whole idea 0:13:50.200 --> 0:13:55.360 of the decarbonization agenda, which is a massive increase of 0:13:55.800 --> 0:14:00.800 solar and wind power to replace fossil few wolves. Why 0:14:00.840 --> 0:14:04.320 are we in yet another fossil fuel crisis. By the way, 0:14:04.360 --> 0:14:07.000 this is where I entered the economics. I won't tell 0:14:07.040 --> 0:14:10.040 you how many decades ago, writing about the oil shocks 0:14:10.080 --> 0:14:13.959 of the nineteen seventies. We can get away from that, 0:14:14.760 --> 0:14:18.320 because if we're relying on our own sunshine with solar 0:14:18.360 --> 0:14:21.880 fields are on our offshore wind or on our wind 0:14:22.000 --> 0:14:25.080 in the US Midwest, we are not going to be 0:14:25.160 --> 0:14:27.600 suffering what we're going to be suffering right now. So 0:14:27.680 --> 0:14:31.920 that's actually a pretty straightforward approach and the one we 0:14:31.920 --> 0:14:34.240 ought to be taking anyway, Jeff, and the time we've 0:14:34.280 --> 0:14:37.680 got left, And very importantly, you make the the assumption 0:14:37.840 --> 0:14:40.400 here that the West is talking to itself instead of 0:14:40.440 --> 0:14:43.840 talking in a more formal diplomacy to the oddities of 0:14:43.880 --> 0:14:48.120 the Kremlin. The Democratic Party and the liberals of the 0:14:48.160 --> 0:14:51.640 Democratic Party and progresses all agree are going down in 0:14:51.720 --> 0:14:54.440 flames at the next election. Whether that's true or not, 0:14:54.520 --> 0:14:58.400 we'll find out in November. Are the progressives in this 0:14:58.560 --> 0:15:02.760 nation guilty of talking to themselves and not reaching out 0:15:02.800 --> 0:15:07.960 for compromise with the Biden moderates or indeed the GOP moderates. 0:15:10.200 --> 0:15:13.440 I just think there's a lot of bad strategy going on. 0:15:13.720 --> 0:15:18.200 I am unimpressed with the diplomacy of this administration. I 0:15:20.120 --> 0:15:23.720 kind of well, let's just say I'm unimpressed, and I'm 0:15:23.800 --> 0:15:29.120 unimpressed with the strategy on the domestic policy. Senator Joe Manchin, 0:15:29.240 --> 0:15:33.000 with whom I often do not agree, put forward a 0:15:33.160 --> 0:15:37.440 very reasonable proposition. Raise taxes, use some of it to 0:15:37.520 --> 0:15:40.680 reduce the debt, use some of it for the social programs. 0:15:40.720 --> 0:15:45.720 That's a point of the left. Meet the gentleman from 0:15:45.760 --> 0:15:50.360 West Virginia. It clearly it broke for the left. How 0:15:50.400 --> 0:15:55.080 did it break for the left? Well, it has to 0:15:55.160 --> 0:15:58.760 start with the White House, Frankly. That's the job of 0:15:58.800 --> 0:16:02.360 the President and the White House to coordinate. How you 0:16:02.360 --> 0:16:06.760 could have this situation and not reach an agreement. Is 0:16:06.760 --> 0:16:10.600 is really disappointing, frankly, because there is an agreement to 0:16:10.640 --> 0:16:14.200 be had. Even a Senator Mansion sketched it out in 0:16:14.240 --> 0:16:18.560 the last couple of weeks. I said, Okay, here we go. 0:16:19.280 --> 0:16:24.320 But they don't move. And it's really not so understandable. Tom. 0:16:24.360 --> 0:16:26.640 It's a good question. I don't have a good answer 0:16:26.680 --> 0:16:29.400 for it, Professor. Thanks for bam with us today. Jeffrey 0:16:29.400 --> 0:16:37.760 snacks that Columbia University right now one bonds and when 0:16:37.760 --> 0:16:41.560 an incredibly smart note he credit sizes Winning Caesar, global 0:16:41.640 --> 0:16:44.160 head of Strategy and Winning I love what you say 0:16:44.440 --> 0:16:48.120 about capturing little bits of movement here where it's not 0:16:48.240 --> 0:16:52.000 about yield change, but it's trying to find in fixed 0:16:52.000 --> 0:16:56.120 income where price will go up. Where is that? What 0:16:56.320 --> 0:16:59.720 part of fixed income do I find little bits of 0:17:00.040 --> 0:17:04.520 ice moving up? Good morning everyone, thanks for having me. 0:17:04.840 --> 0:17:08.600 That's a great point. And what we've noticed is the 0:17:08.600 --> 0:17:11.640 belly of the curve and investment grade you're actually now 0:17:11.680 --> 0:17:15.480 trading at a discount to par, which very rarely happens, right, 0:17:15.520 --> 0:17:18.360 I mean, usually in the investment grade market, investors are 0:17:18.400 --> 0:17:21.240 going to expect to be made whole at par, and 0:17:21.240 --> 0:17:24.760 you don't see these discounts outside of very stressed period 0:17:24.800 --> 0:17:28.760 of times all that often. And so we are recommending 0:17:28.760 --> 0:17:30.879 that investors take a look at the belly of the curve. 0:17:31.200 --> 0:17:33.480 And then also in high yield, we've now started to 0:17:33.480 --> 0:17:36.399 see bond prices trade at a discount to part and 0:17:36.440 --> 0:17:38.840 that market is a much different market than it was 0:17:38.960 --> 0:17:41.679 in the mid two thousand's, and really the leverage to 0:17:41.760 --> 0:17:45.080 energy in that market is a fairly positive thing. Um 0:17:45.119 --> 0:17:47.840 with all of the geopolitical risks and and kind of 0:17:47.920 --> 0:17:51.359 Russia Ukraine headlines, we got some major jargon going on here, folks. 0:17:51.400 --> 0:17:54.280 See if I level one, the belly of the curve 0:17:54.440 --> 0:17:58.199 is identifiable. But when do you seriously here, how do 0:17:58.240 --> 0:18:04.600 you define the belly the curve? Yes, I did have 0:18:04.680 --> 0:18:07.960 the jargon speak, so we like the five to ten 0:18:08.040 --> 0:18:11.639 year segment of the curve, so not really long duration, 0:18:11.760 --> 0:18:14.960 you know that thirty year segment of the curve, but 0:18:15.240 --> 0:18:17.560 just extending a little bit so you don't have a 0:18:17.640 --> 0:18:21.359 really kind of inflated front end portfolio into the point 0:18:21.359 --> 0:18:24.280 of curve curveew where you actually see a lot of 0:18:24.400 --> 0:18:27.720 new issue, which also helps when you're looking for liquidity 0:18:27.760 --> 0:18:31.440 and adding to portfolios and sizes. When taking a look 0:18:31.520 --> 0:18:33.880 at the broader credit complex, a lot of people say, 0:18:33.920 --> 0:18:36.879 we are not heading towards another credit crisis by any means, 0:18:36.880 --> 0:18:39.119 because companies have done such a good job of kicking 0:18:39.119 --> 0:18:41.760 the can down the road of extending out the maturities, 0:18:41.800 --> 0:18:44.239 of getting their financing as cheap as possible. But are 0:18:44.240 --> 0:18:47.359 you starting to see that window for cheap financing really 0:18:47.400 --> 0:18:52.640 close up? What we're beginning to see is the opportunistic 0:18:52.760 --> 0:18:57.280 window shutting. So for those issuers who are really trying 0:18:57.280 --> 0:19:01.960 to aggressively address capital structure and refinance, I think that 0:19:01.960 --> 0:19:05.120 that window has closed. We've already hit the all time 0:19:05.200 --> 0:19:08.159 low point and yields in both investment grade and high yield, 0:19:08.600 --> 0:19:11.680 and now it's about kind of picking your spots where 0:19:12.040 --> 0:19:15.760 those types of opportunities still makes sense. The energy sector 0:19:15.880 --> 0:19:18.440 is one such spector where we think that refinancing is 0:19:18.480 --> 0:19:21.040 probably going to continue because you've had a bit of 0:19:21.080 --> 0:19:24.399 a later recovery in that sector for issuers, and borrowing 0:19:24.440 --> 0:19:28.760 costs are still pretty attractive all things considered. Now, overall, 0:19:28.800 --> 0:19:31.439 we don't think that the moving yields has become a 0:19:31.560 --> 0:19:34.680 threat to either investment grade or high yields quite yet. 0:19:35.600 --> 0:19:38.880 Companies can still borrow at very low levels all overall, 0:19:39.040 --> 0:19:41.240 and this kind of flow down a new issue supply 0:19:41.440 --> 0:19:44.639 that's just a natural effect of volatility in the market 0:19:45.080 --> 0:19:49.000 is actually very constructive technically for the market when there 0:19:49.040 --> 0:19:50.679 are two issues here, and this is something a lot 0:19:50.680 --> 0:19:53.120 of people have been trying to wrap their heads around. 0:19:53.480 --> 0:19:56.000 On one hand, you could potentially get a rates driven 0:19:56.040 --> 0:19:59.520 sell off in the credit market, at what point does 0:19:59.560 --> 0:20:02.840 that lead to some sort of corporate credit response? In 0:20:02.840 --> 0:20:05.600 other words, it's not going to affect these corporations because 0:20:05.600 --> 0:20:07.800 their financing is so cheap and they don't need more money. 0:20:08.000 --> 0:20:10.120 So at what point are we kind of immunized because 0:20:10.160 --> 0:20:13.280 you see a pretty big sell off in evaluations of 0:20:13.320 --> 0:20:16.840 some of these credits, but even see companies with very 0:20:16.880 --> 0:20:21.240 solid balance sheets. So what you ultimately need to have 0:20:21.520 --> 0:20:26.920 is this kind of spiral of rates volatility driving spread volatility, 0:20:27.000 --> 0:20:31.159 which drives really negative total return losses and portfolios. And 0:20:31.200 --> 0:20:33.639 then when investors go and look at their you know, 0:20:33.800 --> 0:20:36.680 Q one two statements and say, oh, my gosh, why 0:20:36.720 --> 0:20:39.840 are my investment grade bonds down seven percent this quarter? 0:20:40.240 --> 0:20:42.520 And then they start selling into that down market, and 0:20:42.560 --> 0:20:44.880 you get this kind of spiral of spread widening more 0:20:44.960 --> 0:20:48.120 and liquidity really gets cut off from the market. Now, 0:20:48.160 --> 0:20:51.000 given the amount of cash still on the sidelines, we 0:20:51.040 --> 0:20:53.480 feel fairly confident that there will be a clearing level 0:20:53.480 --> 0:20:57.159 where institutions step back in and say, oh, actually, you know, 0:20:57.240 --> 0:21:00.119 ten year credit looks pretty attractive at three and a 0:21:00.119 --> 0:21:03.360 half percent. But we haven't quite reached that point yet. 0:21:03.359 --> 0:21:05.240 We were thinking three to three and a half percent 0:21:05.280 --> 0:21:08.760 in investment grade as the level where institutional investors would 0:21:08.840 --> 0:21:10.840 kind of step back in, But given the rush of 0:21:10.920 --> 0:21:13.800 Ukraine headlines, I think that that's keeping people kind of 0:21:13.840 --> 0:21:15.920 sitting on their cash a little bit longer than we 0:21:15.960 --> 0:21:18.600 would have expected when he thank you as always going 0:21:18.640 --> 0:21:20.840 ahead from you when he sees that of credit size. 0:21:27.160 --> 0:21:29.560 I've got unity at Knight's Hotel, and we've got unity 0:21:29.600 --> 0:21:31.919 with Alice. That's the good news. The bad news for 0:21:31.960 --> 0:21:33.960 some people. And where the criticism has come from that 0:21:34.000 --> 0:21:37.560 those sanctions that they delivered Tom aren't strong enough, that lightweight, 0:21:37.840 --> 0:21:39.879 Well they're lightweight. And again the key thing here is 0:21:39.920 --> 0:21:42.840 now the response from Mr Putin. She gave us a 0:21:42.880 --> 0:21:45.720 wonderful brief a number of days ago. We're thrilled to 0:21:45.800 --> 0:21:48.600 bring back Tina Fordum I had a global political strategy, 0:21:49.040 --> 0:21:51.400 and Evan Hurst just thrilled she could be with us. 0:21:51.760 --> 0:21:54.639 And this morning, Tina, I read the Putin speech you 0:21:54.800 --> 0:21:58.399 did with all your professional ability, and I mentioned I 0:21:58.400 --> 0:22:02.520 believe it was yesterday a Lenin and the Bolsheviks. You 0:22:02.600 --> 0:22:06.280 go even further back to the eighteenth century and Catherine 0:22:06.280 --> 0:22:10.240 the Great, piecing together what Peter the Great uh rought. 0:22:10.320 --> 0:22:15.040 How does Putin go back to Catherine the Great? I 0:22:15.080 --> 0:22:19.280 think we should interpret those remarks as his aspirations. But 0:22:19.400 --> 0:22:22.120 you know, without giving away my trade secrets, if I've 0:22:22.160 --> 0:22:27.280 been any good at anticipating developments with respect to Russia, 0:22:27.320 --> 0:22:30.399 it's because I'm taking put In at face value. He 0:22:30.560 --> 0:22:33.280 is telling us what he wants. I think he's also 0:22:33.400 --> 0:22:36.200 moved the from I mean, I never thought he was 0:22:36.240 --> 0:22:39.520 a chess grand master, but from somebody tactical to somebody's 0:22:39.600 --> 0:22:43.920 concerned about legacy. So that's what this is about. What 0:22:44.000 --> 0:22:47.080 does the Soviet people want? Would you suggest the Soviet 0:22:47.160 --> 0:22:51.200 people excuse me, the Russian people I misspeak there. Seriously, folks, 0:22:51.400 --> 0:22:54.840 do you believe that the Russian people parts between Lenin 0:22:54.880 --> 0:22:57.320 and Stalin as he did in the speech, or that 0:22:57.359 --> 0:23:03.000 the Russian people care about empire? So, first of all, 0:23:03.040 --> 0:23:05.680 we don't really have very good sources of public opinion 0:23:05.760 --> 0:23:11.480 data about what Russian people think. They are concerned about 0:23:11.560 --> 0:23:14.640 what they hear on you know, Russia, Russia Today and 0:23:14.640 --> 0:23:20.040 and other domestic channels, which is that Russian speakers in 0:23:20.160 --> 0:23:25.560 those so called breakaway republics are being abused. UM. And 0:23:25.720 --> 0:23:30.120 that's where the risk of a false flag incident comes in. UM. 0:23:30.160 --> 0:23:33.840 This notion that Putin is trying to project saying that 0:23:34.040 --> 0:23:37.280 Ukraine is not a real country because of the borders 0:23:37.320 --> 0:23:41.680 drawn by Lettin, etcetera, has been masterfully deconstructed. By the way, 0:23:41.720 --> 0:23:44.280 if you haven't seen this speech yesterday at the United 0:23:44.359 --> 0:23:48.360 Nations from the Kenyan Ambassador to the U n UM. 0:23:48.400 --> 0:23:51.800 He talks about how if we're going to revise the 0:23:51.920 --> 0:23:55.800 borders and reconsider the sovereignty of every country that came 0:23:55.800 --> 0:23:59.199 out of empire, um, where do we start? And that 0:23:59.440 --> 0:24:01.879 that the ken yeah and other African nations, which of 0:24:01.880 --> 0:24:05.960 course came out of colonial borders also largely arbitrarily drawn, 0:24:06.400 --> 0:24:09.199 don't want to go there. That's the risk of what 0:24:09.280 --> 0:24:12.480 Putin is talking about by denying the sovereignty, the right 0:24:12.520 --> 0:24:16.560 to exist of Ukraine. And that's why this isn't about 0:24:16.640 --> 0:24:20.440 just these breakaway republic don edskar luhansk Oh. If the 0:24:20.480 --> 0:24:24.000 global order doesn't respect except sovereignty and borders, then we 0:24:24.040 --> 0:24:26.040 have no water tin that. I think most people would 0:24:26.040 --> 0:24:28.280 agree on that. What's interesting for me right now is 0:24:28.320 --> 0:24:30.679 just how effective these sanctions might be. Team that they 0:24:30.720 --> 0:24:33.919 seem to be sanctioning again the high net worth individuals, 0:24:33.960 --> 0:24:37.480 the Oligar incident around President Putin. I wonder how effective 0:24:37.520 --> 0:24:39.920 that's going to be. I watched that National Security Council 0:24:40.000 --> 0:24:43.639 meeting that was broadcast on Russian TV. They didn't seem 0:24:43.640 --> 0:24:45.520 like the kind of individuals that were about to turn around. 0:24:45.520 --> 0:24:49.000 It's how President Putin he should change course. Do you 0:24:49.040 --> 0:24:51.080 think that this will be effective to go after the 0:24:51.119 --> 0:24:55.600 people with money, the people close to President Putin? Of 0:24:55.640 --> 0:24:59.840 course it's not enough. But let's also remember, in fairness 0:24:59.840 --> 0:25:02.760