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Speaker 1: Bloomberg Audio Studios, Podcasts, Radio News.

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Speaker 2: Hello and welcome to another episode of the Odd Loots podcast.

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Speaker 2: I'm Tracy Alloway and I'm Joe Whysenthal. Joe, we're still

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Speaker 2: in celebratory mode. Yes, tenure anniversary.

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Speaker 3: It's ten your anniversary month, really yeah, and even next

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Speaker 3: month kind of ten year anniversary month. So we can

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Speaker 3: just extend this for a long time.

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Speaker 2: We could just make this. Well, we should have made

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Speaker 2: twenty twenty five the Odd Lots ten year anniversary years. Yeah,

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Speaker 2: but we're almost at the end of the year, so

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Speaker 2: we failed in that respect. But obviously we're sort of

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Speaker 2: reflecting on the past decade or so at Odd Lots

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Speaker 2: and things that have or haven't changed in markets. And

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Speaker 2: one thing I've been thinking about a lot is what's

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Speaker 2: been going on in the bond market.

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Speaker 3: Yeah, you can't, well, I think, look, there is nothing

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Speaker 3: that's more different in twenty twenty five versus twenty fifteen

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Speaker 3: than what's going on in fixed in right, So you.

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Speaker 2: Say that, and it is true, Okay, you know, if

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Speaker 2: you look at if you look at the benchmark ten

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Speaker 2: year yield, Okay, sure, we're at four percent now above

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Speaker 2: four percent, and in twenty fifteen, we were at like

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Speaker 2: two percent. Right, that's changed, and we went through inflation,

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Speaker 2: which is something we hadn't experienced for a pretty long

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Speaker 2: time in you know, previous years. But I also feel

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Speaker 2: like it's changed, but a lot of it hasn't a

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Speaker 2: lot of the discussions haven't changed. If I think about

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Speaker 2: what we were discussing back in twenty fifteen, it was

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Speaker 2: stuff like who's going to buy US treasuries, who's going

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Speaker 2: to fund the US deficit? Bond vigilantes. I mean, how

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Speaker 2: many years have we been talking about bond vigilantes. Now

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Speaker 2: the credit market, it was whether or not investors are

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Speaker 2: being adequately compensated for the risk they're taking on. And

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Speaker 2: the funny thing is now, you know, if you look

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Speaker 2: at spreads on junk raated bonds, if you didn't think

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Speaker 2: they were being adequately compensated at like seven point two

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Speaker 2: percent in twenty fifteen, I wonder what you think when

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Speaker 2: you look at spreads of six point four percent in

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Speaker 2: twenty twenty five.

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Speaker 3: This is a really good point, actually, because especially lately,

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Speaker 3: obviously we've had all of these, you know, we've had

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Speaker 3: a number of credit events, these little blow ups. Jamie

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Speaker 3: Diamond used the term cockroaches, et cetera. But by and

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Speaker 3: large spreads, which were sort of infinitously narrow last decade,

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Speaker 3: remained quite narrow by historical terms.

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Speaker 2: I feel like we should just mention here we are

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Speaker 2: recording on November tenth. Oh yeah, things are changing fast

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Speaker 2: in the credit market. There's a little bit of nervousness

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Speaker 2: creeping in, but you're you're absolutely right, By and large

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Speaker 2: spreads are at you know, pretty very pretty low levels,

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Speaker 2: and people have been complaining about it for a long

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Speaker 2: time now. Well, speaking of credit, you also have the

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Speaker 2: rise of private credit, which is something we were talking

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Speaker 2: about even back in twenty fifteen. But back in the

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Speaker 2: way you were, well, no, it both were, but we

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Speaker 2: called it something different. We called it you know, shadow

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Speaker 2: banks and agencies and.

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Speaker 4: All of that.

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Speaker 3: But that is a space that's much bigger, much more interest,

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Speaker 3: much more scrutiny. I mean, just a whole you know,

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Speaker 3: orders of magnitude bigger. Since twenty fifteen, I don't think

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Speaker 3: people have any real handle on like what risk scenarios

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Speaker 3: look like, the quality of the underwriting, et cetera. So

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Speaker 3: this is definitely something and it's you know, we've been

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Speaker 3: talking about it for years but it continues to grow

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Speaker 3: in with some of these coote cockroaches, et cetera, more

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Speaker 3: interest in what's really going on.

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Speaker 2: Right, So things have changed, but things have also kind

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Speaker 2: of stayed the same in some respects. But I'm very

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Speaker 2: happy to say we do, in fact have the perfect

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Speaker 2: guest to talk about all of this, someone who has,

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Speaker 2: you know, been writing and conversing and going on TV

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Speaker 2: and talking about a lot of these themes.

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Speaker 3: For us and making a great career directly these.

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Speaker 2: Actually investing based off some of these ideas. We're going

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Speaker 2: to be speaking with. Jeff gun Lacky is of course,

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Speaker 2: the founder and CEO of Double Line Capital, someone we've

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Speaker 2: wanted to get on the show for a long time.

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Speaker 2: So Jeff, thank you so much for coming on.

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Speaker 4: All thoughts, well, thanks for having me. I'm looking forward

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Speaker 4: to our discussion today.

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Speaker 2: So let's start big picture because I actually we can

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Speaker 2: take this in you know, a bunch of different directions.

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Speaker 2: But when you look at the treasury market and when

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Speaker 2: you look at the credit market, which are you more

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Speaker 2: concerned about at the moment, because I know you've voiced

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Speaker 2: some worries about both of these things.

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Speaker 5: Yeah, I'm concerned about the financing of long term treasuries,

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Speaker 5: primarily because we're issuing a lot of them, and there's

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Speaker 5: inflationary policies that are being run and probably likely to

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Speaker 5: be further doubled down upon when Jerome Paul leaves as

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Speaker 5: Fed Sherman, I mean, we've got Scott Bessant as the

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Speaker 5: Treasury Secretary, and he's talking about well, he's basically mimicking

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Speaker 5: what the President says. He basically says rate should be

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Speaker 5: a point lower, two points lower. I've heard different numbers

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Speaker 5: out of President Trump. He wants rates at two percent

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Speaker 5: three percent, but inflation is running above three percent on

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Speaker 5: the headline CPI, and it's not likely to come down

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Speaker 5: to the Fed's two percent target. And so there's a

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Speaker 5: lot of interest in artificially lowering interest rates and perhaps

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Speaker 5: taking the maturities of treasuries ever increasingly to under one

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Speaker 5: year in maturity. A lot of investors aren't aware of

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Speaker 5: the fact that something like eighty percent of all treasuries

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Speaker 5: issued in the last twelve months, and this has been

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Speaker 5: the case for the last few years, are less than

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Speaker 5: one year.

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Speaker 4: The treasuries that are issued.

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Speaker 5: Longer than twenty years, so twenty years out to thirty

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Speaker 5: years is only one point seven percent of the treasurations

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Speaker 5: of the last twelve months. And what's interesting about that

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Speaker 5: is the Fed has been cutting interest rates over the

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Speaker 5: last thirteen months, and historically, when the Fed cuts interest rates,

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Speaker 5: of course, short term interest rates decline definitionally at the

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Speaker 5: Fed funds level, but also two year treasury rates decline,

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Speaker 5: five year treasure rates decline. In fact, long term treasure

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Speaker 5: rates have always declined subsequent to the first cut by

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Speaker 5: the Fell Reserve, particularly when you're in a sequence of

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Speaker 5: the Federal Reserve cuts, and that's certainly been the case

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Speaker 5: with now one hundred and fifty basis points. But this

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Speaker 5: time all interest rates outside of the two year are

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Speaker 5: higher than they were before the Fed's first rate cut.

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Speaker 5: That just never happens historically. Another interesting thing that has

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Speaker 5: never happened historically is earlier this year, during the tariff

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Speaker 5: tantrum of late March and early April, stock market had

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Speaker 5: a pretty significant correction, and it was going back back

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Speaker 5: to pround two thousand. It was the thirteenth correction in

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Speaker 5: the s and P five hundred defined by a drop

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Speaker 5: of ten percent at least ten percent in the twelve

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Speaker 5: corrections before the one here. In twenty twenty five, the

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Speaker 5: dollar went up when the stock market went down as

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Speaker 5: a flight to quality asset. That didn't happen this time.

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Speaker 5: When we went into that correction earlier this year, the

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Speaker 5: dollar went down. It usually goes up by around eight percent,

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Speaker 5: and in the first quarter of early second quarter of

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Speaker 5: this year it went down by around ten percent. So

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Speaker 5: what is happening here seems to be that the pattern

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Speaker 5: of interest rate movements and currency movements and what's the

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Speaker 5: flight to quality asset and what isn't seems to have

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Speaker 5: changed because interest rates have bottomed at the long end

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Speaker 5: of the yel curve. And I've been saying this for

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Speaker 5: five years now that the secular decline in interest rates

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Speaker 5: at the long term maturities is over and in fact,

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Speaker 5: in the next session long term interstrates are likely to

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Speaker 5: go higher, not lower. And what's happened since the Fed

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Speaker 5: started cutting corroborates this somewhat radical idea of mine. When

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Speaker 5: it comes to credit, spreads are tight, although you correctly

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Speaker 5: noted that they're not on the tights of the year anymore,

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Speaker 5: they're starting to widen.

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Speaker 4: I think junk.

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Speaker 5: Bond spreads are up by about thirty or forty basis points,

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Speaker 5: and yes, spreads have remained tight for a long time.

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Speaker 4: But one thing that you also.

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Speaker 5: For its a little bit is the quality of the

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Speaker 5: public corporate credit market is better than it's been historically.

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Speaker 4: It's way better than it was prior.

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Speaker 5: To the global financial crisis, where you've had all kinds

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Speaker 5: of garbage lending going on. But in recent years, the

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Speaker 5: garbage lending has not gone to the public markets. The

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Speaker 5: garbage lending has gone to these private markets, and private

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Speaker 5: credit has been very popular and is now increasingly been

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Speaker 5: over allocated to by large asset pools.

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Speaker 4: I remember Harvard University, for example.

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Speaker 5: They've got like a fifty odd billion dollar endowment, and

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Speaker 5: their donors pulled back when they had uprisings on campus,

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Speaker 5: and the donors didn't like what was going on, so

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Speaker 5: they stopped donating for a while. And Harvard had no

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Speaker 5: money a fifty odd billion dollar endowment, and they couldn't

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Speaker 5: pay salaries, they couldn't pay the light bills, they couldn't

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Speaker 5: pay basic maintenance. They had to go to the bond

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Speaker 5: market to borrow. They tried to borrow about fourth a

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Speaker 5: billion dollars. I think I think they got away with

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Speaker 5: about two and a half billion dollars. But it's fascinating

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Speaker 5: that you have a huge asset pool that doesn't have

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Speaker 5: liquidity to pay the bills. And I've also heard that

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Speaker 5: another large endowment. I think it's Yale University. I might

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Speaker 5: be wrong there, but I think it's Yale. They're talking

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Speaker 5: about selling some of their private equity stakes because they

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Speaker 5: don't have any liquidity either. And this is bled over

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Speaker 5: into the private credit market. And I was at a

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Speaker 5: Bloomberg broadcasted event in Hollywood at Paramount Studios I think

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Speaker 5: it was, and I got there early and there was

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Speaker 5: a panel before my fireside chat where the members of

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Speaker 5: the panel were all significant executives at some of the

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Speaker 5: largest private credit firms. And it was really interesting to

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Speaker 5: hear them talk because the tone of the message they

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Speaker 5: were giving was far from bullish.

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Speaker 4: You know.

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Speaker 5: It's kind of like when you talk to a jump

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Speaker 5: bond manager, say what's the outlook for twenty twenty six,

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Speaker 5: and the most bearish thing they're going to say is,

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Speaker 5: we don't think spreads can get it a tighter. We

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Speaker 5: think that's the most sparrashing we're going to say, you're

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Speaker 5: going to earn the coupon. Well, these private credit people

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Speaker 5: were using words like tension and a lack of runway.

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Speaker 5: These are all euphemisms for bad things happening.

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Speaker 4: And I think that, you know, we've started to see defaults.

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Speaker 5: And there's something on the Bloomberg news wire today, it's

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Speaker 5: on top Go that speaks of a home renovation business

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Speaker 5: that was private credit, like one hundred and fifty million

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Speaker 5: dollar issuemance of private credit and it went to zero.

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Speaker 4: There's called rent.

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Speaker 5: Apparently there are firms that had it at one hundred

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Speaker 5: a few weeks ago and it went to zero and

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Speaker 5: a month ago. But anyway, it's called Renovo or something

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Speaker 5: like this. And the funny thing is the argument for

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Speaker 5: private credit has always been a sharp ratio argument. At

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Speaker 5: the center of it is that you know, you get

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Speaker 5: the same return or maybe a little better return than

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Speaker 5: the public markets, but you.

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Speaker 4: Have much lower volatility.

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Speaker 5: Well that's like saying that you have no risk in

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Speaker 5: a CD. You don't have any interest rate risk in

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Speaker 5: a CD. If you buy a five year CD, the

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Speaker 5: price never changes. Well, that's just because you don't market

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Speaker 5: to market. You know, of course, a CD that you

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Speaker 5: bought five years ago at one and a half percent

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Speaker 5: is not worth you couldn't sell it at.

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Speaker 4: A power value.

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Speaker 5: You're going to have to take a discount on it.

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Speaker 5: But that's the private credit argument. What really happens, and

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Speaker 5: this was really borrowed from private equity, which they use

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Speaker 5: the sharp ratio argument there too. They say, well, you'll

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Speaker 5: get the same return, or maybe a little better return

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Speaker 5: out of private equity than you will out of the

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Speaker 5: S and P five hundred, but.

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Speaker 4: It's much lower volatility.

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Speaker 5: So what happens is when the S and P five

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Speaker 5: hundred goes from one hundred to fifty, the private equity

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Speaker 5: firms mark their positions down from one hundred to eighty.

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Speaker 5: Now they're not worth eighty, you couldn't sell at eighty,

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Speaker 5: but that's.

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Speaker 4: Where they get marked.

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Speaker 5: And when the market recovers back to one hundred on

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Speaker 5: the S and P five hundred, they mark their private

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Speaker 5: equity up to one hundred.

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Speaker 4: So lo and behold. Both the S and P five

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Speaker 4: hundred and the private equity have.

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Speaker 5: A return of zero, but the volatility of the S

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Speaker 5: and P five hundred it's more than double the private equity.

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Speaker 5: So it's basically a sharper issue argument based upon the

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Speaker 5: volatility being under reported, and that's that goes on in

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Speaker 5: all of these these so called private markets. And now

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Speaker 5: it's very fascinating that this Rinovo in the article today,

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Speaker 5: it basically said that they had a Chapter seven filing

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Speaker 5: and bankruptcy filing and their assets, their liabilities were shown

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Speaker 5: listed as being between one hundred and five hundred million dollars.

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Speaker 4: You check a box, you can give a specific.

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Speaker 5: Number, so there's ranges, and there were range that their

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Speaker 5: aliabilities were in between one hundred and five hundred million dollars.

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Speaker 5: Their assets were listed as less than fifty thousand dollars,

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Speaker 5: just thousand dollars. Are you trying to tell me that

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Speaker 5: these big private equity firms and private credit firms with

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Speaker 5: all of their resources aren't aware of that type of

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Speaker 5: debt to equity ratio that's obviously far into a bankrupt situation.

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Speaker 4: So what's going on here?

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Speaker 5: That private equity firms had this marked a few weeks

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Speaker 5: ago at one hundred, when it was obvious that their

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Speaker 5: liabilities were vastly, vastly higher than their equity that should

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Speaker 5: have been marked down to I don't know, fifty twenty

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Speaker 5: five one, but at one hundred. What's going on it's

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Speaker 5: like there's only one price for private there's only two

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Speaker 5: prices for private credits.

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Speaker 4: Aperis yeah, one hundred, that's it.

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Speaker 5: And I heard an announcement made from these private equity

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Speaker 5: people at that Bloomberger event, but they're sort of like,

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Speaker 5: as long as we believe that we're going to get

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Speaker 5: paid back, we leave it at one hundred.

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Speaker 4: Well, okay, but.

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Speaker 5: Once once you have one hundred fift million plus dollars

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Speaker 5: of liabilities and less than fifty thousand dollars of assets,

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Speaker 5: it's pretty unlikely you're going to get paid back. The

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Speaker 5: price should not be at one hundred. But that's what's

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Speaker 5: going on, And so you have that sharp ratio argument.

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Speaker 5: Then you have another argument for private credit, which had

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Speaker 5: been somewhat valid was just recent history, I mean performance.

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Speaker 5: The five year performance of private credit a couple of

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Speaker 5: years ago was definitely better than the five year performance

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Speaker 5: at least reported performance of public credit.

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Speaker 4: Private credit did better than public credits.

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Speaker 5: We had a trailing performance argument, which, of course trailing

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Speaker 5: performance is no guarantee of future results, which has stated

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Speaker 5: on every single perspectus. But recently private credit is not outperforming. Obviously,

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Speaker 5: with bonds going from one hundred to zero in a

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Speaker 5: matter of weeks. The public market has been performing better

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Speaker 5: than the private market. And then the most ridiculous argument

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Speaker 5: of all for private credit has been private credit belongs

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Speaker 5: in every portfolio because it lets you sleep at night,

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Speaker 5: because it helps you ride out the volatility of your

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Speaker 5: public credit. Again, that's just a repackaging of the volatility.

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Speaker 5: If you don't market to market, there's no volatility. But

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Speaker 5: if the price goes from one hundred to zero in

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Speaker 5: a matter of a few weeks, there's something untoward is

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Speaker 5: going on. And so I'm very, very negative on those

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Speaker 5: types of non transparent markets. It reminds me I've been

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Speaker 5: saying this for probably two years now that the next

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Speaker 5: big crisis in the financial markets is going to be

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Speaker 5: private credit. It has the same trappings as subprime mortgage

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Speaker 5: package repackaging had back in twenty twenty oh six. Now

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Speaker 5: it took a couple of years for its to totally unravel.

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Speaker 5: So this stuff doesn't happen in a week or a

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Speaker 5: year even, But I'm very negative on that. And so

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Speaker 5: where we stand on fixed income is we don't like

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Speaker 5: long term treasury bonds at all because we don't think

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Speaker 5: people are.

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Speaker 4: Going to want them. During the next recession, the deficit

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Speaker 4: is going to.

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Speaker 5: Go up, because it always goes up during a recession.

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Speaker 5: The deficit, the official deficit is about six percent of GDP.

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Speaker 5: That's a level that was associated historically with the depths

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Speaker 5: of recessions, because of course it goes up during recessions. Well,

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Speaker 5: when you go to recession, the deficit goes up on

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Speaker 5: average by well it depends long how long a time

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Speaker 5: series you use, but if you go back for about

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Speaker 5: fifty years, it goes up by about four or five

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Speaker 5: percent of GDP. And more recent recessions it's been a

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Speaker 5: lot worse than that. We could argue, you could make

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Speaker 5: the case somewhat plausibly that the goal of financial crisis

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Speaker 5: it was kind of weird, and that the COVID lockdown

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Speaker 5: recession was kind of weird. But during those the deficit

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Speaker 5: went up by about eight percent of GDP on average.

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Speaker 5: So what happens if the deficit goes from six percent

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Speaker 5: of GDP to ten percent of GDP or twelve percent

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Speaker 5: of GDP or fourteen percent of GDP, all of those

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Speaker 5: are possible. What happens is that you have to blow

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Speaker 5: up the entire system because all the tax.

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Speaker 4: Receipts would go to interest expence.

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Speaker 5: We're already at a large percentage, about one point four

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Speaker 5: to one point five trillion dollars of the seven trillion

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Speaker 5: dollar budget is now interest expense.

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Speaker 4: Of course, we have a two trillion.

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Speaker 5: Dollar budget deficit, so there's only five trillion dollars of taxes,

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Speaker 5: and you know, thirty percent of that is going to

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Speaker 5: interest expense, and that is going to go higher. And

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Speaker 5: as interest rates are still elevated from levels of six

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Speaker 5: or five to seven to twelve years ago, the bonds

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Speaker 5: that are rolling off have an average coupon for the

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Speaker 5: next few years of a little bit below three percent,

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Speaker 5: let's just call it three percent. That means that with

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Speaker 5: FED funds at three and seven eighths and treasuries at

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Speaker 5: four up to four and a half, that means that

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Speaker 5: on average, you're going to have higher interest expense on

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Speaker 5: just rolling over the existing debt. And of course you're

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Speaker 5: labeling on a couple trillion dollars in non recessionary period.

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Speaker 5: And so I did a thing at Grants conference. Jim

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Speaker 5: Grant had his fortieth anniversary conference and a couple of

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Speaker 5: years ago, and I did the simplest, most discinct presentation

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Speaker 5: I've ever given in my career.

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Speaker 4: I just went through the interesting.

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Speaker 5: Fence problem using plausible assumptions on where the deficit's going.

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Speaker 5: But the conclusion is, and this is an art and

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Speaker 5: not a science, so there's a lot of assumptions that

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Speaker 5: can be challenged, but putting it in a rather pessimistic light.

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Speaker 5: So I don't say this is the base case, but

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Speaker 5: by the year twenty thirty, so five years from now,

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Speaker 5: it's quite plausible that under the current tax system and

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Speaker 5: the current borrowing regime, that we have sixty percent of

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Speaker 5: all tax receipts going to interest expense. You can make

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Speaker 5: it really, really draconian and say, what if interest rates

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Speaker 5: go up to nine percent on treasuries, and what if

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Speaker 5: the budget deficit goes to twelve percent of GDP and

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Speaker 5: you make these kinds of pessimistic assumptions, well, by around

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Speaker 5: twenty thirty, you would have one one hundred and twenty

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Speaker 5: percent of tax receipts going to interest expense, which of

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Speaker 5: course is impossible. So that means that something has to happen,

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Speaker 5: and we're not talking about you know, early in my

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Speaker 5: career people were saying, we can't keep borrowing this money

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Speaker 5: that was under Reaganomics, which people thought was a bad

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Speaker 5: idea because it was deficit spending, and they said.

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Speaker 4: You know where we're going. We're going to be broken.

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Speaker 5: We'll be out of money in Social Security and other

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Speaker 5: entitlement programs by twenty fifty. And then ten years later,

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Speaker 5: you know, they moved it forward to twenty forty. So

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Speaker 5: it was initially supposed to be like a sixty year problem,

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Speaker 5: and then ten years later it was a forty year problem,

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Speaker 5: and then it was a twenty year problem, and now

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Speaker 5: it's like a five year problem, which means it's a

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Speaker 5: problem in real time and something has to be done

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Speaker 5: about this. So long term treasuries look vulnerable to me.

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Speaker 5: I still like short term treasuries because I think the

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Speaker 5: Fed is likely to cut interest rates, and that definitionally

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Speaker 5: leads to lower interest rates on say five years and immaturities.

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Speaker 2: First of all, I hesitate to ask a question here

383
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Speaker 2: because you know, we could just let you go on

384
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Speaker 2: and hear you tear particularly private credit to shreds. That

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Speaker 2: was great, and thank you also for the plug for

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Speaker 2: both Bloomberg journalism and the Bloomberg Hollywood event that's called

387
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Speaker 2: screen Time. That's our conference there. And then secondly, Joe

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Speaker 2: I was going to make a drake joke about private credit.

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Speaker 2: I was going to say, going from one hundred to

390
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Speaker 2: zero real quick in private credit could be a really

391
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Speaker 2: terrible Drake song, like most of them are. But that

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Speaker 2: was five minutes ago, so I don't think my joke

393
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Speaker 2: is relevant anymore.

394
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Speaker 3: You know, in the twenty tens, when we started this

395
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Speaker 3: podcast ten years ago, an investor could have a really

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Speaker 3: nice you know, sixty forty ish, and there are all

397
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Speaker 3: sorts of beautiful things with that, particularly that sort of

398
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Speaker 3: inverse correlation that that exhibited between treasuries and stocks, so that,

399
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Speaker 3: as you mentioned, typically in a downturn, you get a

400
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Speaker 3: stock market swoon. Well at least the slug of fixed

401
00:21:14,920 --> 00:21:17,320
Speaker 3: income that you owned. Maybe it outperforms, then gets a

402
00:21:17,359 --> 00:21:19,960
Speaker 3: little smoothing, but maybe you get some positive real rates.

403
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Speaker 3: It all works out really well. I understand. Okay, maybe

404
00:21:22,760 --> 00:21:26,080
Speaker 3: there's still some opportunities in the short end because rates

405
00:21:26,119 --> 00:21:28,359
Speaker 3: are going to go lower, et cetera. Maybe private maybe

406
00:21:28,400 --> 00:21:31,400
Speaker 3: public credit has better standards than private credit. Will get

407
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Speaker 3: into that, but like, do we have to go back

408
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Speaker 3: and revisit just the case or the for even having

409
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Speaker 3: fixed income in a diversified portfolio.

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Speaker 1: And I know that.

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Speaker 3: Look, you had your fixed income portfolio manager, So I

412
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Speaker 3: understand this is an existential question for you. So I

413
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Speaker 3: know there's but you know, like you know, how should

414
00:21:50,359 --> 00:21:52,440
Speaker 3: how would you sell the case for even having it?

415
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Speaker 5: It would be an existential question for somebody that's spent

416
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Speaker 5: five to eight years in the business and it's just

417
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Speaker 5: getting going. Yeah, because you know, I've been I've been

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Speaker 5: at this for well over forty years, and I really

419
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Speaker 5: don't need to make money by managing other people's money

420
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Speaker 5: at all.

421
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Speaker 4: So I'm very honest.

422
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Speaker 5: What people like about me is they say I get

423
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Speaker 5: I get stopped on the street, and people say, I see.

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Speaker 4: You on TV.

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Speaker 5: I really love I'm really a fan of yours because

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Speaker 5: you're a straight shooter, you know, don't.

427
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Speaker 4: I don't talk any kind of book whatsoever.

428
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Speaker 5: But I think that right now, I think financial assets

429
00:22:28,280 --> 00:22:31,919
Speaker 5: broadly should be lower allocated, have a lower allocation than typical.

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Speaker 5: You talk about sixty forty, that means you have one

431
00:22:34,119 --> 00:22:39,840
Speaker 5: hundred perption financial assets. I think inequities today investors should

432
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Speaker 5: have maximum forty percent, and most of that in non

433
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Speaker 5: US equities, particularly if you're a dollar based investor, like

434
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Speaker 5: any American who would normally typically be I think you

435
00:22:53,160 --> 00:22:55,760
Speaker 5: want the dollar is going to fall, and so you're

436
00:22:55,800 --> 00:22:58,440
Speaker 5: not going to be making money on the currency. Translation,

437
00:22:58,480 --> 00:23:00,800
Speaker 5: you're to be losing money. And that's been the case

438
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Speaker 5: so far this year. Again, things are acting differently now

439
00:23:04,440 --> 00:23:06,280
Speaker 5: that we're in a rising rate regime and not a

440
00:23:06,600 --> 00:23:09,760
Speaker 5: falling rate regime. You're doing much better as a dollar

441
00:23:09,800 --> 00:23:13,600
Speaker 5: based investor in local currency emerging market stocks. I mean,

442
00:23:13,600 --> 00:23:16,160
Speaker 5: they're up something like twenty five percent y're to date

443
00:23:16,200 --> 00:23:18,439
Speaker 5: for a dollar based investor. You're even better off in

444
00:23:18,440 --> 00:23:22,120
Speaker 5: European stocks because the dollars down versus versus the Euro.

445
00:23:22,640 --> 00:23:25,399
Speaker 5: So I think the amount of people should haven't fixed

446
00:23:25,440 --> 00:23:29,520
Speaker 5: income should probably be about twenty five percent, not forty percent,

447
00:23:29,880 --> 00:23:32,800
Speaker 5: maybe twenty five percent, and I think that it should

448
00:23:32,840 --> 00:23:36,120
Speaker 5: be some of it in non dollar fixed income again,

449
00:23:36,240 --> 00:23:39,080
Speaker 5: emerging market fixed income, which is by far the highest

450
00:23:39,119 --> 00:23:42,119
Speaker 5: performing sector for dollar based investors in the fixed income

451
00:23:42,160 --> 00:23:45,480
Speaker 5: market this year. And so that leads to forty percent

452
00:23:46,000 --> 00:23:48,479
Speaker 5: that you're not. If you're at forty percent in stocks

453
00:23:48,800 --> 00:23:51,360
Speaker 5: and twenty percent or twenty five percent in bonds, you've

454
00:23:51,359 --> 00:23:54,280
Speaker 5: got another you know, thirty five forty percent to allocate,

455
00:23:54,880 --> 00:23:58,399
Speaker 5: and I've been very, very bullish on gold. We do

456
00:23:58,720 --> 00:24:03,119
Speaker 5: a podcast that gets up on our website. It's in

457
00:24:03,200 --> 00:24:07,399
Speaker 5: early January every year. It's called Roundtable Prime, Double ne

458
00:24:07,480 --> 00:24:11,439
Speaker 5: Roundtable Prime, and we have a bunch of thought leaders there.

459
00:24:11,640 --> 00:24:13,920
Speaker 5: It's the same group every year, and we go through.

460
00:24:13,960 --> 00:24:16,200
Speaker 5: One of the segments is you know, what are your

461
00:24:16,200 --> 00:24:19,199
Speaker 5: best ideas? And my number one best idea for this

462
00:24:19,320 --> 00:24:23,439
Speaker 5: year was gold because I think gold is now a

463
00:24:23,640 --> 00:24:26,520
Speaker 5: real asset class. I think people are allocating to gold,

464
00:24:26,680 --> 00:24:30,400
Speaker 5: not just the survivalists, you know, and the crazy speculators,

465
00:24:30,680 --> 00:24:34,879
Speaker 5: people who are allocating real money, because it's real value.

466
00:24:34,920 --> 00:24:38,439
Speaker 5: And of course gold's been the top performing asset for

467
00:24:38,560 --> 00:24:41,040
Speaker 5: the year and certainly for the last twelve months, and

468
00:24:41,119 --> 00:24:44,679
Speaker 5: so I think investors I was at one point advocating

469
00:24:44,720 --> 00:24:48,679
Speaker 5: twenty five percent of a portfolio in gold like things

470
00:24:48,800 --> 00:24:53,640
Speaker 5: real assets, high quality land, gold, you know, high value assets.

471
00:24:54,040 --> 00:24:56,400
Speaker 5: I think that's too high right now because I think

472
00:24:56,800 --> 00:24:59,200
Speaker 5: that trade has played out so very well, and gold

473
00:24:59,520 --> 00:25:02,000
Speaker 5: seems to stalled out in the last month or so

474
00:25:02,240 --> 00:25:04,960
Speaker 5: at a very high level, so it's consolidating scains. I

475
00:25:05,000 --> 00:25:07,120
Speaker 5: think it goes higher, but for the time being I'd

476
00:25:07,160 --> 00:25:10,760
Speaker 5: probably be more like at fifteen percent or something like that.

477
00:25:10,800 --> 00:25:13,120
Speaker 5: And the rest I think I would be in cash

478
00:25:13,400 --> 00:25:17,240
Speaker 5: because I think valuations are just incredibly high, and the

479
00:25:17,960 --> 00:25:22,200
Speaker 5: health of the equity market in the United States is

480
00:25:22,560 --> 00:25:26,040
Speaker 5: it's among the least healthy in my entire career in

481
00:25:26,160 --> 00:25:29,280
Speaker 5: terms of the PDE ratio, the cape ratio, all the

482
00:25:29,280 --> 00:25:32,439
Speaker 5: classic valuation metrics are off the charts. And of course

483
00:25:32,560 --> 00:25:37,959
Speaker 5: the market is incredibly speculative, and speculative markets always go

484
00:25:38,080 --> 00:25:41,439
Speaker 5: to insanely high levels. It happens every time. This is

485
00:25:41,480 --> 00:25:43,639
Speaker 5: not you know, obviously, it happened in the dot COM's,

486
00:25:43,640 --> 00:25:46,280
Speaker 5: it happened in the financials part of the GFC, it's

487
00:25:46,320 --> 00:25:49,199
Speaker 5: happening now in the AI and the data centers and

488
00:25:49,200 --> 00:25:52,119
Speaker 5: all that stuff, And you know, it's interesting. Probably the

489
00:25:52,400 --> 00:25:56,760
Speaker 5: biggest thing that changed the economy and the world in

490
00:25:56,800 --> 00:25:59,320
Speaker 5: the last I don't know, one hundred and fifty years

491
00:25:59,560 --> 00:26:04,720
Speaker 5: was electricity. Electricity being put into people's homes was probably

492
00:26:04,720 --> 00:26:08,240
Speaker 5: one of the biggest changes of all time. And of course,

493
00:26:08,280 --> 00:26:12,600
Speaker 5: around nineteen hundred people realized that electricity to homes was coming,

494
00:26:13,000 --> 00:26:16,239
Speaker 5: and so electricity stocks were in a huge manium and

495
00:26:16,280 --> 00:26:20,359
Speaker 5: they did it incredibly well, but the relative performance of

496
00:26:20,400 --> 00:26:24,399
Speaker 5: electricity relative to the entire stock market in the US

497
00:26:24,880 --> 00:26:29,400
Speaker 5: excluding electricity, so everything else but electricity. The electricity outperformance

498
00:26:29,480 --> 00:26:35,800
Speaker 5: peaked in nineteen eleven. Houses weren't even broadly electrified by

499
00:26:35,920 --> 00:26:37,720
Speaker 5: You had to be a very rich person to have

500
00:26:37,800 --> 00:26:43,960
Speaker 5: electricity in nineteen eleven, but yet that was the outperformance.

501
00:26:44,480 --> 00:26:47,840
Speaker 5: And so it all gets priced in very quickly and

502
00:26:48,359 --> 00:26:52,600
Speaker 5: excessively because people love to look at the benefits of

503
00:26:52,680 --> 00:26:56,320
Speaker 5: these transformative technologies, and they are transformative. I mean, look

504
00:26:56,359 --> 00:26:58,240
Speaker 5: at what happened to some of the internet stocks. They

505
00:26:58,359 --> 00:27:02,240
Speaker 5: dropped eighty ninety percent in the early os but there

506
00:27:02,240 --> 00:27:05,280
Speaker 5: are many, many multiples of what their peak was at

507
00:27:05,280 --> 00:27:05,840
Speaker 5: that time.

508
00:27:06,240 --> 00:27:09,679
Speaker 4: But it gets priced in very, very early.

509
00:27:10,160 --> 00:27:13,160
Speaker 5: So I think that one has to be very careful

510
00:27:13,280 --> 00:27:15,120
Speaker 5: about momentum investing during.

511
00:27:16,480 --> 00:27:17,360
Speaker 4: Mania periods.

512
00:27:17,359 --> 00:27:19,120
Speaker 5: And I feel like that's where we are right now.

513
00:27:19,720 --> 00:27:22,440
Speaker 5: I just don't think there's any arguments against the fact

514
00:27:22,440 --> 00:27:22,840
Speaker 5: that we're.

515
00:27:22,680 --> 00:27:23,240
Speaker 4: In a menium.

516
00:27:23,800 --> 00:27:25,679
Speaker 2: I want to go back to something you said just

517
00:27:25,720 --> 00:27:29,240
Speaker 2: then about how investors should be reducing their dollar exposure.

518
00:27:29,359 --> 00:27:32,160
Speaker 2: So this is, you know, the sell America thesis that

519
00:27:32,760 --> 00:27:35,119
Speaker 2: was very popular at the beginning of the year, and

520
00:27:35,359 --> 00:27:38,119
Speaker 2: per year comments is still very popular with some people.

521
00:27:38,160 --> 00:27:40,840
Speaker 2: But we have seen in general, you know, a little

522
00:27:40,880 --> 00:27:43,760
Speaker 2: bit of a strengthening in the dollar. Ten year treasury

523
00:27:43,840 --> 00:27:47,640
Speaker 2: yields have been going down compared to where they were earlier.

524
00:27:48,160 --> 00:27:52,080
Speaker 2: What accounts for, I guess the stickiness of US assets

525
00:27:52,440 --> 00:27:56,920
Speaker 2: in the global financial system and in investors' portfolios. Even

526
00:27:56,960 --> 00:27:59,040
Speaker 2: when I think we can all agree that there are

527
00:27:59,200 --> 00:28:02,679
Speaker 2: challenges head for US government debt and assets in the

528
00:28:02,720 --> 00:28:07,160
Speaker 2: form of high deficits and spending, and maybe political stasis

529
00:28:07,200 --> 00:28:07,879
Speaker 2: and things.

530
00:28:07,640 --> 00:28:14,720
Speaker 5: Like that, have it, people are reluctant to make changes

531
00:28:15,160 --> 00:28:19,280
Speaker 5: to longstanding paradigms. One of the hardest things to do

532
00:28:19,320 --> 00:28:23,240
Speaker 5: in the investment business is to significantly change your allocations

533
00:28:23,560 --> 00:28:28,520
Speaker 5: after you've been right. That's counterintuitive to a lot of people,

534
00:28:28,560 --> 00:28:30,640
Speaker 5: but trust me, someone that's done this for a very

535
00:28:30,640 --> 00:28:34,120
Speaker 5: long time. That's the hardest thing to do. Because when

536
00:28:34,119 --> 00:28:37,520
Speaker 5: you do something and it works really well, it makes you.

537
00:28:38,280 --> 00:28:41,080
Speaker 5: It gives you satisfaction on every level, an economic level,

538
00:28:41,120 --> 00:28:45,840
Speaker 5: an emotional level, psychological level. It helps you to have

539
00:28:46,000 --> 00:28:48,640
Speaker 5: happy meetings with your clients. Just imagine if you bought

540
00:28:48,680 --> 00:28:52,320
Speaker 5: Apple at I don't know, five dollars a year and

541
00:28:52,360 --> 00:28:54,880
Speaker 5: it went up to I don't know, seven hundred, and

542
00:28:54,960 --> 00:28:57,160
Speaker 5: so you get to go to your review with your

543
00:28:57,160 --> 00:29:00,000
Speaker 5: client and you say, let's take a look at your portfolio.

544
00:29:00,000 --> 00:29:05,520
Speaker 5: Oh yeah, this cost five last price seven hundred. I

545
00:29:05,560 --> 00:29:08,360
Speaker 5: am working for you. You know I've done a good

546
00:29:08,440 --> 00:29:11,920
Speaker 5: job for you. Well, when you sell Apple at seven hundred,

547
00:29:12,240 --> 00:29:14,840
Speaker 5: you no longer have that line item, and so you

548
00:29:14,880 --> 00:29:16,920
Speaker 5: can't point to this great thing that you did for

549
00:29:17,000 --> 00:29:20,840
Speaker 5: that client. And so people like to project the past.

550
00:29:21,400 --> 00:29:23,880
Speaker 5: Successes of the past, they like to hang on to

551
00:29:24,000 --> 00:29:27,080
Speaker 5: them or even project them into the future. And that's

552
00:29:27,120 --> 00:29:29,520
Speaker 5: a dangerous thing to do. But when you chack, I was,

553
00:29:29,680 --> 00:29:34,160
Speaker 5: I was one hundred dollar. I owned no foreign currencies

554
00:29:34,480 --> 00:29:39,840
Speaker 5: for decades, and then starting about eighteen months ago, I

555
00:29:39,880 --> 00:29:41,720
Speaker 5: had to pull the trigger. I had to say, you

556
00:29:41,760 --> 00:29:45,960
Speaker 5: know what, I I don't think this paradigm is intact

557
00:29:46,000 --> 00:29:48,800
Speaker 5: any longer. And I think you're going to lose money

558
00:29:49,320 --> 00:29:53,240
Speaker 5: by betting on the dollar as a dominant asset. And

559
00:29:53,320 --> 00:29:56,640
Speaker 5: it's a scary thing to do because you're you. You

560
00:29:56,800 --> 00:29:58,400
Speaker 5: wake up in the morning and you look in the

561
00:29:58,400 --> 00:30:00,120
Speaker 5: mirror and say, I'm looking at a at a a

562
00:30:00,160 --> 00:30:02,440
Speaker 5: strong dollar guy, and then all of a sudden the

563
00:30:02,480 --> 00:30:04,680
Speaker 5: next day, you're saying, I'm looking at a guy that's

564
00:30:04,920 --> 00:30:08,280
Speaker 5: no longer confident in a strong dollar mirror.

565
00:30:08,840 --> 00:30:10,560
Speaker 2: Who am I know?

566
00:30:10,680 --> 00:30:12,920
Speaker 4: Like you know, I wonder why I have to have

567
00:30:12,960 --> 00:30:13,640
Speaker 4: to pay taxes.

568
00:30:13,680 --> 00:30:15,600
Speaker 5: Quite frankly, when I look in the mirror, I don't

569
00:30:15,640 --> 00:30:19,320
Speaker 5: identify as a billionaire. I identify as a homeless, eighty

570
00:30:19,360 --> 00:30:20,000
Speaker 5: year old guy.

571
00:30:21,040 --> 00:30:21,800
Speaker 4: Why should I have to.

572
00:30:21,800 --> 00:30:25,440
Speaker 5: Pay taxes what I identify as a as a destitute

573
00:30:25,680 --> 00:30:28,160
Speaker 5: elderly man, I don't understand.

574
00:30:29,120 --> 00:30:32,480
Speaker 3: So yeah, I think other people. Other people might identify

575
00:30:32,520 --> 00:30:35,400
Speaker 3: you differently. I want to go back to the rates

576
00:30:35,920 --> 00:30:41,080
Speaker 3: question as self identification. As you mentioned, it's sort of

577
00:30:41,120 --> 00:30:45,760
Speaker 3: an historically unusual that we've seen this period of the

578
00:30:45,800 --> 00:30:48,400
Speaker 3: FED cutting rates for the last thirteen months and very

579
00:30:48,480 --> 00:30:51,840
Speaker 3: little downward action. And the long end of the curve,

580
00:30:52,440 --> 00:30:55,040
Speaker 3: we know everyone could sort of look at the same

581
00:30:55,320 --> 00:30:58,360
Speaker 3: math that you look at in terms of interest expends.

582
00:30:58,480 --> 00:31:00,520
Speaker 3: We know that the long end of curve is very

583
00:31:00,560 --> 00:31:03,280
Speaker 3: sensitive for housing, and that's something that's very important to

584
00:31:03,280 --> 00:31:05,400
Speaker 3: these economy. We know that President Trump would like to

585
00:31:05,400 --> 00:31:08,080
Speaker 3: see the long end of the curve go down, perhaps

586
00:31:08,160 --> 00:31:11,040
Speaker 3: because he has deep familiarity with it from his real

587
00:31:11,160 --> 00:31:13,600
Speaker 3: estate days. Do you think at some point in the

588
00:31:13,640 --> 00:31:17,160
Speaker 3: sort of medium term future we're going to see the

589
00:31:17,240 --> 00:31:19,920
Speaker 3: return of proper yield curve control, that we're going to

590
00:31:19,920 --> 00:31:23,480
Speaker 3: see the Fed cut rates and not get the response

591
00:31:23,600 --> 00:31:26,240
Speaker 3: desired at the long end, and then more drastic action

592
00:31:26,400 --> 00:31:29,280
Speaker 3: is going to come such that actual steps are taken

593
00:31:29,360 --> 00:31:30,520
Speaker 3: to suppress that long end.

594
00:31:32,520 --> 00:31:36,040
Speaker 4: That's my base case, and I've been talking about this.

595
00:31:35,960 --> 00:31:41,120
Speaker 5: Now for nearly two years, that we cannot afford the

596
00:31:41,160 --> 00:31:45,480
Speaker 5: market to set interest rates if the deficit spending continues,

597
00:31:46,720 --> 00:31:50,040
Speaker 5: it won't be tenable. So what has to happen is

598
00:31:50,120 --> 00:31:54,640
Speaker 5: going to be some sort of drastic measures. And I'm

599
00:31:54,680 --> 00:31:57,040
Speaker 5: not exactly sure what those drastic measures are going to be.

600
00:31:57,040 --> 00:31:59,360
Speaker 5: There's a number of candidates for them. We could do

601
00:31:59,440 --> 00:32:02,000
Speaker 5: what we did from after World War Two until the

602
00:32:02,000 --> 00:32:06,120
Speaker 5: mid fifties when inflation was rising and we had significantly

603
00:32:06,160 --> 00:32:09,400
Speaker 5: negative real yields and we had inflation go up to

604
00:32:09,440 --> 00:32:12,920
Speaker 5: around eight percent, and the yell curve was kept at

605
00:32:12,960 --> 00:32:15,360
Speaker 5: the long lines were kept at two and a half percent.

606
00:32:16,280 --> 00:32:17,800
Speaker 4: So you can.

607
00:32:17,720 --> 00:32:21,920
Speaker 5: Absolutely manipulate the ill curve. Japan has did that for decades.

608
00:32:22,120 --> 00:32:25,680
Speaker 5: For decades, they kept rates at zero even though there

609
00:32:25,680 --> 00:32:28,560
Speaker 5: was no demand I actually had a meeting with the

610
00:32:28,560 --> 00:32:30,480
Speaker 5: guy that ran the biggest pension plan in the world.

611
00:32:30,520 --> 00:32:33,080
Speaker 5: It was one of the Japanese public pension plans, and

612
00:32:33,120 --> 00:32:35,320
Speaker 5: I was really anxious to sit down with him, and

613
00:32:35,360 --> 00:32:37,680
Speaker 5: I said, I really want to ask you this question.

614
00:32:37,920 --> 00:32:41,880
Speaker 5: Do you actually own these negative yielding jgb's And he

615
00:32:42,240 --> 00:32:44,680
Speaker 5: actually laughed out loud when I asked him that question.

616
00:32:45,080 --> 00:32:48,480
Speaker 4: He said, of course not nobody owns them except the.

617
00:32:48,440 --> 00:32:51,440
Speaker 5: Bank of Japan and the institutions that are forced to

618
00:32:51,440 --> 00:32:52,680
Speaker 5: buy them by the back of Japan.

619
00:32:53,400 --> 00:32:54,840
Speaker 4: So it's a real thing.

620
00:32:54,880 --> 00:32:56,880
Speaker 5: We did the United States for a decade, they did

621
00:32:56,880 --> 00:33:01,240
Speaker 5: in Japan for decades, and Secretary Vestan has alluded to

622
00:33:01,280 --> 00:33:04,080
Speaker 5: the fact that maybe that's on the table, some sort

623
00:33:04,160 --> 00:33:07,480
Speaker 5: of interest rate manipulation. So what this leads to is

624
00:33:07,480 --> 00:33:10,920
Speaker 5: a really interesting dilemma because what I think is my

625
00:33:12,800 --> 00:33:16,000
Speaker 5: roadmap for the future. And of course there's many variations

626
00:33:16,000 --> 00:33:18,760
Speaker 5: that one could use, but the starting point for me

627
00:33:19,320 --> 00:33:22,000
Speaker 5: is that interest rates will rise until such time as

628
00:33:22,000 --> 00:33:26,120
Speaker 5: they're uncomfortably high. For the Treasury Department, what is that?

629
00:33:26,200 --> 00:33:27,520
Speaker 5: Where is that five percent?

630
00:33:27,720 --> 00:33:28,400
Speaker 4: Six percent?

631
00:33:28,600 --> 00:33:33,000
Speaker 5: My guess is six is the highest that it would

632
00:33:33,040 --> 00:33:37,880
Speaker 5: be full on uncomfortable full on at six percent on

633
00:33:37,920 --> 00:33:40,360
Speaker 5: the long end. So what happens is you'd want to

634
00:33:40,400 --> 00:33:45,040
Speaker 5: avoid long bonds while the market forces are in play.

635
00:33:45,600 --> 00:33:50,080
Speaker 5: And Julie, you said that long rates aren't down very

636
00:33:50,120 --> 00:33:52,240
Speaker 5: much since the Fed started cutting. No, no, they're up

637
00:33:52,320 --> 00:33:54,880
Speaker 5: a lot. Long rates are a lot since the Fed

638
00:33:54,960 --> 00:33:57,720
Speaker 5: start cutting. This is the first time it's ever happened.

639
00:33:57,760 --> 00:34:00,480
Speaker 5: They're up by almost one hundred basis points with the

640
00:34:00,480 --> 00:34:04,840
Speaker 5: Fed cutting, It's never happened before. But with interest rates

641
00:34:04,960 --> 00:34:07,920
Speaker 5: rising as the Fed is cutting at the long end,

642
00:34:07,920 --> 00:34:09,760
Speaker 5: what's going to happen is they'll get to a point

643
00:34:09,920 --> 00:34:12,799
Speaker 5: where all of a sudden it's too uncomfortable and then

644
00:34:12,960 --> 00:34:14,440
Speaker 5: something dramatic will happen.

645
00:34:15,200 --> 00:34:17,760
Speaker 4: Something dramatic. Could that simply be the government.

646
00:34:17,760 --> 00:34:20,600
Speaker 5: The Treasury Department buys the treasuries, and if they announce

647
00:34:20,640 --> 00:34:23,239
Speaker 5: that they're going to buy treasuries and to control long

648
00:34:23,320 --> 00:34:26,520
Speaker 5: term interest rates, you would have a thirty point rally

649
00:34:26,560 --> 00:34:29,520
Speaker 5: in the long bond in a week. So there's a

650
00:34:29,680 --> 00:34:34,000
Speaker 5: very very sensitive strategy here where you have to be

651
00:34:34,640 --> 00:34:39,040
Speaker 5: very negative over the normal course of things, and then

652
00:34:39,080 --> 00:34:41,759
Speaker 5: once the intervention comes in, there's going to be a

653
00:34:41,800 --> 00:34:45,319
Speaker 5: step funk, a significant step function lower in yields, and

654
00:34:45,400 --> 00:34:47,480
Speaker 5: so you have to try to figure out how you're

655
00:34:47,480 --> 00:34:50,399
Speaker 5: going to do that pivot. That's what I spend most

656
00:34:50,400 --> 00:34:52,160
Speaker 5: of my time thinking about when it comes to the

657
00:34:52,160 --> 00:34:56,200
Speaker 5: treasury market these days. Although for now it's way too

658
00:34:56,280 --> 00:34:59,040
Speaker 5: earlier for them to panic and start manipulating the race.

659
00:34:59,080 --> 00:35:03,040
Speaker 5: What they might manipulate our mortgage rates. They could absolutely

660
00:35:03,239 --> 00:35:07,720
Speaker 5: buy Jimmy May's, Fanny Mays, Freddie Max the government guaranteed

661
00:35:07,760 --> 00:35:11,480
Speaker 5: mortgages and drive those yields down much closer to where

662
00:35:11,520 --> 00:35:14,360
Speaker 5: treasury yields are. And there's no rule that says they

663
00:35:14,440 --> 00:35:18,239
Speaker 5: can't go through treasury yields. I mean, there are instances

664
00:35:18,440 --> 00:35:21,480
Speaker 5: where non treasury yields are lower than treasure yields of

665
00:35:21,520 --> 00:35:24,520
Speaker 5: the same maturity. Just earlier this year, there was a

666
00:35:24,560 --> 00:35:27,400
Speaker 5: corporate bond that was lower yielding than the same maturity

667
00:35:27,400 --> 00:35:31,120
Speaker 5: treasury bond. That also happened in the early eighties when

668
00:35:31,160 --> 00:35:33,920
Speaker 5: IBM bonds traded a lower yield than treasury bonds of

669
00:35:34,000 --> 00:35:38,160
Speaker 5: the same maturity because investors had greater confidence in the

670
00:35:38,160 --> 00:35:41,280
Speaker 5: payback of IBM than they did in what they thought

671
00:35:41,440 --> 00:35:44,800
Speaker 5: was a bad strategy under Reaganomics. And that has begun

672
00:35:44,840 --> 00:35:47,560
Speaker 5: to enter the picture here in twenty twenty five with

673
00:35:47,640 --> 00:35:51,160
Speaker 5: corporate bonds periodically, not only the very best ones, of course,

674
00:35:51,760 --> 00:35:54,800
Speaker 5: but like Microsoft or something like that, trading through treasures,

675
00:35:55,200 --> 00:35:57,640
Speaker 5: and so that's a tell that something is up here.

676
00:35:57,680 --> 00:35:59,400
Speaker 5: The other thing that they might do, and there was

677
00:35:59,440 --> 00:36:02,239
Speaker 5: a white paper written about this just about a year

678
00:36:02,239 --> 00:36:07,080
Speaker 5: ago now that said maybe we should restructure the treasuries

679
00:36:07,400 --> 00:36:11,479
Speaker 5: held by foreigners, which is a very strange thing to say.

680
00:36:11,600 --> 00:36:16,120
Speaker 2: This is accord, right, Yeah, yes it is.

681
00:36:16,280 --> 00:36:18,880
Speaker 5: I don't know how you define what a foreigners. Foreigners

682
00:36:19,120 --> 00:36:22,319
Speaker 5: can hide behind entities and so it looks like they're

683
00:36:22,360 --> 00:36:23,240
Speaker 5: not owned by foreigners.

684
00:36:23,280 --> 00:36:25,760
Speaker 4: So I'm not excitedly sure what foreigners mean. But why

685
00:36:26,120 --> 00:36:27,600
Speaker 4: put the word foreigners in there?

686
00:36:27,640 --> 00:36:30,320
Speaker 5: Why not just say we're going to restructure the treasury

687
00:36:30,400 --> 00:36:31,600
Speaker 5: debt full stop.

688
00:36:32,400 --> 00:36:33,120
Speaker 4: What does that mean?

689
00:36:33,480 --> 00:36:36,640
Speaker 5: Well, one way to save on interest expense, to get

690
00:36:36,640 --> 00:36:39,040
Speaker 5: it back down from one point five trillion to the

691
00:36:39,040 --> 00:36:40,160
Speaker 5: three hundred billion it.

692
00:36:40,280 --> 00:36:41,759
Speaker 4: Was a couple of years ago.

693
00:36:42,000 --> 00:36:44,960
Speaker 5: Why don't you just say, all the treasuries that exist today,

694
00:36:45,560 --> 00:36:48,400
Speaker 5: we're changing their coupons. The ones that have a coupon

695
00:36:48,560 --> 00:36:51,880
Speaker 5: above one, the coupon is now one. The ones that

696
00:36:51,920 --> 00:36:54,479
Speaker 5: have a coupon less than one the coupon stays the same.

697
00:36:55,040 --> 00:36:57,880
Speaker 5: That would save a tremendous amount of interest expense. Of course,

698
00:36:57,920 --> 00:37:03,160
Speaker 5: it would cause a disastrous, tumultuous time in the government

699
00:37:03,160 --> 00:37:06,120
Speaker 5: bomb market. But people say to me, you're always talking

700
00:37:06,160 --> 00:37:09,400
Speaker 5: about this debt problem. What's the solution. The solution is

701
00:37:09,440 --> 00:37:12,280
Speaker 5: get to a point where people won't lend the government

702
00:37:12,360 --> 00:37:16,479
Speaker 5: money anymore, that the government can't borrow any money, so

703
00:37:16,600 --> 00:37:19,440
Speaker 5: that if you structure treasures that way, there'll be a

704
00:37:19,440 --> 00:37:21,680
Speaker 5: couple of generations the government won't be able to borrow

705
00:37:21,719 --> 00:37:24,120
Speaker 5: any money anymore, and that would actually put us in

706
00:37:24,160 --> 00:37:39,600
Speaker 5: a better place than where we are today.

707
00:37:41,520 --> 00:37:43,680
Speaker 2: I want to ask another question about private credit, but

708
00:37:43,719 --> 00:37:45,640
Speaker 2: just before I do, I'm curious, do you ever talk

709
00:37:45,680 --> 00:37:49,360
Speaker 2: to Besant about your ideas for how to fix the

710
00:37:49,440 --> 00:37:52,040
Speaker 2: US treasury market basically, or voice your concerns?

711
00:37:53,920 --> 00:37:56,600
Speaker 4: I think he watches my CMBC.

712
00:37:58,320 --> 00:38:02,000
Speaker 2: All right, all right, let's go back to private credit

713
00:38:02,040 --> 00:38:04,640
Speaker 2: for a second, because that's obviously the topic DuJour, and

714
00:38:04,719 --> 00:38:06,799
Speaker 2: as Joe pointed out, one of the things that has

715
00:38:06,880 --> 00:38:10,880
Speaker 2: really grown exponentially over the past ten years. You've said,

716
00:38:11,000 --> 00:38:12,879
Speaker 2: you said on the podcast just now, and you've said

717
00:38:12,880 --> 00:38:15,719
Speaker 2: it before that you think private credit is the candidate

718
00:38:15,920 --> 00:38:21,520
Speaker 2: for another financial crisis. And I understand the marking issue,

719
00:38:22,120 --> 00:38:25,319
Speaker 2: I understand the liquidity mismatch. But when I look at

720
00:38:25,320 --> 00:38:29,279
Speaker 2: private credit, maybe what's missing in terms of some of

721
00:38:29,320 --> 00:38:32,960
Speaker 2: our more recent financial crises is that leverage built on

722
00:38:33,040 --> 00:38:35,000
Speaker 2: top of leverage aspect.

723
00:38:35,640 --> 00:38:37,360
Speaker 5: Can you give it credit?

724
00:38:37,680 --> 00:38:41,120
Speaker 4: Well, that is credit, This is leverage leverage.

725
00:38:41,160 --> 00:38:43,759
Speaker 2: Yeah, okay, explain that. Explain that because as far as

726
00:38:43,840 --> 00:38:46,880
Speaker 2: I know, we're not seeing the scale of stuff getting

727
00:38:46,880 --> 00:38:50,560
Speaker 2: rebundled as we saw, for instance, in the financial crisis.

728
00:38:51,120 --> 00:38:54,080
Speaker 5: Well, that's true, you're not getting to rebundling, but you

729
00:38:54,200 --> 00:38:56,560
Speaker 5: are having there's a lot of leverage.

730
00:38:56,600 --> 00:39:01,520
Speaker 4: And the firms that they leverage, they're they're they're.

731
00:39:01,440 --> 00:39:04,120
Speaker 5: Raising money and then they're borrowing money to buy more

732
00:39:04,160 --> 00:39:04,760
Speaker 5: private credit.

733
00:39:05,040 --> 00:39:06,600
Speaker 4: It's absolutely leverage upon.

734
00:39:06,560 --> 00:39:11,440
Speaker 5: Leverage and the other thing while they're not bundling, like putting.

735
00:39:11,840 --> 00:39:13,239
Speaker 4: You know, the thing.

736
00:39:13,200 --> 00:39:15,960
Speaker 5: About the goal of financial crisis is you took triple

737
00:39:16,000 --> 00:39:19,440
Speaker 5: B rated and it's questionable what they even deserved a

738
00:39:19,480 --> 00:39:22,680
Speaker 5: triple B rated thing, and creating triple A rated securities

739
00:39:22,680 --> 00:39:23,200
Speaker 5: out of them.

740
00:39:23,440 --> 00:39:25,239
Speaker 4: I mean, just just that.

741
00:39:24,920 --> 00:39:28,759
Speaker 5: That alone should make you just just you know, just

742
00:39:29,000 --> 00:39:33,040
Speaker 5: stop even thinking about investing in its. Suddenly a triple

743
00:39:33,080 --> 00:39:35,399
Speaker 5: A is turned into a triple triple B is turned

744
00:39:35,440 --> 00:39:36,080
Speaker 5: into triple A.

745
00:39:36,320 --> 00:39:37,480
Speaker 4: But one thing they are.

746
00:39:37,280 --> 00:39:44,160
Speaker 5: Doing is issuing public traded vehicles daily NAV vehicles to

747
00:39:44,200 --> 00:39:49,880
Speaker 5: allow main street America mom and pop investors to avail

748
00:39:49,920 --> 00:39:54,600
Speaker 5: themselves of this wonderful, fantastic opportunity of private credit, which

749
00:39:54,640 --> 00:39:58,520
Speaker 5: is totally a liquidit and mismatch. You've got daily nav

750
00:39:58,680 --> 00:40:02,239
Speaker 5: funds investing in things that don't trade at all. And

751
00:40:02,320 --> 00:40:05,800
Speaker 5: so once there's a run on those on those vehicles,

752
00:40:05,840 --> 00:40:08,160
Speaker 5: and I don't know how popular they've been, but there's

753
00:40:08,160 --> 00:40:12,200
Speaker 5: certainly been touted. But if they become it popular in

754
00:40:12,239 --> 00:40:15,440
Speaker 5: any way, you're going to have the catalyst for a

755
00:40:15,480 --> 00:40:22,520
Speaker 5: tremendous selling deluge because there is no people want to redeem,

756
00:40:22,880 --> 00:40:24,920
Speaker 5: and they won't be able to get their money out.

757
00:40:25,200 --> 00:40:29,440
Speaker 5: And once you get that, once people Where the trouble

758
00:40:29,520 --> 00:40:32,480
Speaker 5: always comes in financial markets is when people buy something

759
00:40:32,600 --> 00:40:36,480
Speaker 5: they think is safe. It's sold to them as safe,

760
00:40:36,880 --> 00:40:39,760
Speaker 5: but it's not safe. You buy a triple A rated

761
00:40:39,760 --> 00:40:42,880
Speaker 5: subprime mortgage pool. You think it's safe because it's triple

762
00:40:42,880 --> 00:40:46,200
Speaker 5: A rated, but it's not safe. It's extremely dangerous. You

763
00:40:46,239 --> 00:40:50,160
Speaker 5: buy CDO equity, you buy CDO squared equity back before

764
00:40:50,200 --> 00:40:53,200
Speaker 5: the goal of financial crisis, and there isn't any real equity.

765
00:40:53,239 --> 00:40:56,120
Speaker 5: It's I buy your equity, you buy my equity.

766
00:40:56,560 --> 00:40:56,880
Speaker 4: We're all.

767
00:40:57,440 --> 00:40:59,600
Speaker 5: It's just a game that's being played to make an

768
00:40:59,640 --> 00:41:03,080
Speaker 5: illusi of liquidity. That's where private credit is right now.

769
00:41:03,080 --> 00:41:06,080
Speaker 5: It's an illusion. They don't even claim it's liquidity. But

770
00:41:06,120 --> 00:41:09,520
Speaker 5: if you package it into a publicly traded vehicle that

771
00:41:09,719 --> 00:41:13,440
Speaker 5: trades on a daily basis, you have the perfect mismatch

772
00:41:13,760 --> 00:41:18,120
Speaker 5: of no liquidity with a vehicle that promises liquidity. It

773
00:41:18,320 --> 00:41:20,839
Speaker 5: looks like it's safe because you could sell it any day,

774
00:41:21,040 --> 00:41:23,480
Speaker 5: but it's not safe because the price at which you

775
00:41:23,560 --> 00:41:28,160
Speaker 5: sell it will be gapping lower, gapping lower, island gapping lower,

776
00:41:28,320 --> 00:41:30,920
Speaker 5: day after day after day, and so that's where the

777
00:41:31,040 --> 00:41:32,840
Speaker 5: risk rides. But these things go on forever. One of

778
00:41:32,880 --> 00:41:36,279
Speaker 5: the things about the investment business is it's hard. It's

779
00:41:36,640 --> 00:41:39,760
Speaker 5: difficult enough to be so called right about the direction

780
00:41:39,840 --> 00:41:42,640
Speaker 5: of things we're going, but it's impossible to be both

781
00:41:42,840 --> 00:41:47,120
Speaker 5: right on the direction and correct on the timing things.

782
00:41:47,920 --> 00:41:50,200
Speaker 5: Even if you're right on the direction, it's going to

783
00:41:50,239 --> 00:41:53,760
Speaker 5: take a lot longer than you think. I turn negative

784
00:41:54,080 --> 00:41:57,640
Speaker 5: on the package mortgage non guaranteed mortgage market in two

785
00:41:57,760 --> 00:42:01,640
Speaker 5: thousand and four. It took three years or to even

786
00:42:01,760 --> 00:42:05,440
Speaker 5: start to decay. So these things take forever, and it

787
00:42:05,440 --> 00:42:07,200
Speaker 5: goes on much longer than you think.

788
00:42:07,640 --> 00:42:07,879
Speaker 4: You know.

789
00:42:08,160 --> 00:42:12,400
Speaker 5: Remember I turned negative on the Nasdaq maximum negative September

790
00:42:12,440 --> 00:42:16,240
Speaker 5: thirtieth of nineteen ninety nine. I looked like a moron

791
00:42:16,520 --> 00:42:20,440
Speaker 5: three months later, because the Nasdaq went up eighty percent

792
00:42:20,800 --> 00:42:22,040
Speaker 5: in the fourth quarter of.

793
00:42:22,080 --> 00:42:23,000
Speaker 4: Nineteen ninety nine.

794
00:42:23,200 --> 00:42:26,200
Speaker 5: But if you had gone short the Nasdaq September thirtieth

795
00:42:26,239 --> 00:42:29,719
Speaker 5: of nineteen ninety nine, eighteen months later, you had a

796
00:42:29,760 --> 00:42:33,160
Speaker 5: profit of sixty four percent. Even though it went up

797
00:42:33,200 --> 00:42:36,040
Speaker 5: eighty percent in the first three months, it dropped so

798
00:42:36,239 --> 00:42:40,000
Speaker 5: much in the ensuing of fifteen months that the short

799
00:42:40,040 --> 00:42:43,400
Speaker 5: would have made you a profit, of a very handsome

800
00:42:43,440 --> 00:42:45,040
Speaker 5: profit in a very difficult market.

801
00:42:45,239 --> 00:42:47,759
Speaker 4: Of course, we've been out of business. Sorry, I'm out

802
00:42:47,760 --> 00:42:49,680
Speaker 4: of business. You were mentioning people's money.

803
00:42:51,000 --> 00:42:53,719
Speaker 2: Yes, slight problem there, But just very quickly, are you

804
00:42:53,719 --> 00:42:54,920
Speaker 2: betting against private credit?

805
00:42:55,000 --> 00:43:00,719
Speaker 4: Now? I have no way to do that. Yeah, I don't.

806
00:43:00,760 --> 00:43:05,239
Speaker 5: I don't really short bonds, shorting high yielding bonds is

807
00:43:05,280 --> 00:43:07,799
Speaker 5: a really difficult thing because the cost.

808
00:43:07,560 --> 00:43:09,360
Speaker 4: Of carry is just brutal.

809
00:43:10,360 --> 00:43:13,840
Speaker 5: Every day that it doesn't it doesn't decline, you're paying

810
00:43:13,880 --> 00:43:17,520
Speaker 5: out a very high uh, you know rate, and so

811
00:43:17,640 --> 00:43:18,440
Speaker 5: you're losing.

812
00:43:18,200 --> 00:43:20,160
Speaker 4: Money all the time. So I don't really do that.

813
00:43:20,200 --> 00:43:22,520
Speaker 5: What I do is I just don't allocate to it.

814
00:43:22,760 --> 00:43:25,960
Speaker 5: I allocate to things that will do better, you know,

815
00:43:26,040 --> 00:43:30,040
Speaker 5: that will be immune, relatively immune or fully immune from

816
00:43:30,160 --> 00:43:34,759
Speaker 5: the knock on effects of deterioration in private credit. So

817
00:43:35,040 --> 00:43:37,960
Speaker 5: that would that would mean higher you know, higher credit

818
00:43:38,040 --> 00:43:42,360
Speaker 5: things you know, using foreign currencies more than more than typically.

819
00:43:42,920 --> 00:43:45,880
Speaker 4: But no, I don't think you can really short private credit.

820
00:43:46,600 --> 00:43:51,480
Speaker 3: What have you learned in your career about longevity and

821
00:43:51,760 --> 00:43:55,239
Speaker 3: drawdowns or underperformance, Because as you mentioned, you can be

822
00:43:55,400 --> 00:43:58,040
Speaker 3: right or you could be You can correctly identify a

823
00:43:58,120 --> 00:44:00,440
Speaker 3: medium or long term trend, but it's some times takes

824
00:44:00,440 --> 00:44:02,680
Speaker 3: a while to play out, whether it's the case from

825
00:44:02,719 --> 00:44:05,799
Speaker 3: September ninety nine to the peak that's not actually that long,

826
00:44:05,880 --> 00:44:09,040
Speaker 3: that was closer to six months, or being bearish on

827
00:44:09,160 --> 00:44:11,560
Speaker 3: some of the housing assets starting in two thousand and

828
00:44:11,560 --> 00:44:15,120
Speaker 3: five that took a little bit longer. How do you

829
00:44:15,200 --> 00:44:19,879
Speaker 3: survive as a portfolio manager and be willing to take

830
00:44:19,920 --> 00:44:21,600
Speaker 3: time where you're just in accept that you're going to

831
00:44:21,680 --> 00:44:22,600
Speaker 3: underperform for a while.

832
00:44:25,239 --> 00:44:26,400
Speaker 4: Well, you have to have.

833
00:44:27,960 --> 00:44:31,720
Speaker 5: Think very carefully about your time horizon. When I started

834
00:44:31,840 --> 00:44:33,840
Speaker 5: in this industry, one of the first things I was

835
00:44:33,880 --> 00:44:37,480
Speaker 5: tasked to do was to do a study on what

836
00:44:37,520 --> 00:44:42,720
Speaker 5: would happen if you had perfect foresight in financial markets?

837
00:44:42,760 --> 00:44:43,520
Speaker 4: Perfect foresight.

838
00:44:43,560 --> 00:44:45,759
Speaker 5: And of course you can do a study like that

839
00:44:45,800 --> 00:44:50,160
Speaker 5: by using historical data. So you take stocks, bonds, real estate, commodities,

840
00:44:50,280 --> 00:44:53,760
Speaker 5: every asset class and you just look at the historical

841
00:44:53,840 --> 00:44:57,320
Speaker 5: returns and you can say, let's say at the beginning

842
00:44:57,320 --> 00:45:00,440
Speaker 5: of every year, I invest with a five year horizon,

843
00:45:00,880 --> 00:45:03,680
Speaker 5: and I pick the asset class that I know with

844
00:45:03,840 --> 00:45:06,880
Speaker 5: metaphysical certitude is going to have the highest return for

845
00:45:06,920 --> 00:45:07,600
Speaker 5: those five years.

846
00:45:07,680 --> 00:45:08,759
Speaker 4: Because I'm looking.

847
00:45:08,480 --> 00:45:12,239
Speaker 5: At historical data, I came to the conclusion that if

848
00:45:12,239 --> 00:45:14,399
Speaker 5: you had a five year horizon, you would go out

849
00:45:14,440 --> 00:45:18,640
Speaker 5: of business, even if though with physical certitude would have

850
00:45:18,680 --> 00:45:22,680
Speaker 5: the highest performing asset class. And that's because so often

851
00:45:23,120 --> 00:45:26,640
Speaker 5: the first two years of the five years, that best

852
00:45:26,640 --> 00:45:29,600
Speaker 5: performing asset class was not a good performer at all.

853
00:45:29,920 --> 00:45:33,000
Speaker 5: It was very frequently back end loaded. So I said,

854
00:45:33,160 --> 00:45:36,240
Speaker 5: we cannot invest other people's money with a five year horizon.

855
00:45:37,320 --> 00:45:40,160
Speaker 5: I think that most people that invest other people's money

856
00:45:40,480 --> 00:45:44,200
Speaker 5: use too short of a horizon. However, a lot of

857
00:45:44,239 --> 00:45:48,359
Speaker 5: investment managers talk about they have they're constantly reallocating, they're

858
00:45:48,360 --> 00:45:51,520
Speaker 5: constantly read. You know, they have one week horizon at

859
00:45:51,560 --> 00:45:53,799
Speaker 5: a weekly meeting, and the change of that's not going

860
00:45:53,880 --> 00:45:56,680
Speaker 5: to work. It's not going to work because the chance

861
00:45:56,719 --> 00:45:59,719
Speaker 5: of you being right in a week is very low.

862
00:46:00,840 --> 00:46:03,000
Speaker 5: Even if you're going to be right for over a

863
00:46:03,000 --> 00:46:04,880
Speaker 5: two year period, your chance of being right in a

864
00:46:04,880 --> 00:46:08,280
Speaker 5: week is very low. So I kept modulating time horizon,

865
00:46:08,360 --> 00:46:11,480
Speaker 5: and I came to conclusion that the sweet spot was

866
00:46:11,600 --> 00:46:13,120
Speaker 5: between eighteen months and two.

867
00:46:13,120 --> 00:46:17,120
Speaker 4: Years for a time horizon. And what I've learned is.

868
00:46:17,000 --> 00:46:20,640
Speaker 5: That having done that, I've have a seventy percent hit rate.

869
00:46:21,040 --> 00:46:24,480
Speaker 5: I've had a long enough career in enough strategies where

870
00:46:24,480 --> 00:46:27,799
Speaker 5: it's statistically significant, and i have a seventy percent hit rate,

871
00:46:27,840 --> 00:46:30,080
Speaker 5: which means I'm right seventy percent of the time, which

872
00:46:30,120 --> 00:46:33,120
Speaker 5: means I'm wrong thirty percent of the time. So I've

873
00:46:33,120 --> 00:46:35,000
Speaker 5: been at this for over forty years. So I've been

874
00:46:35,040 --> 00:46:39,200
Speaker 5: wrong for more than twelve years right, But thank god

875
00:46:39,239 --> 00:46:42,040
Speaker 5: they haven't been in a row. Because what you can't

876
00:46:42,080 --> 00:46:46,200
Speaker 5: do is really three years is wheneverone pulls the plug

877
00:46:46,600 --> 00:46:49,919
Speaker 5: if you're wrong, if you are to perform year one,

878
00:46:50,080 --> 00:46:53,320
Speaker 5: year two, and year three, you're gone. You know, if

879
00:46:53,360 --> 00:46:55,719
Speaker 5: you're wrong five years in a row, they shut your

880
00:46:55,800 --> 00:46:59,880
Speaker 5: janus on constrained bond fund because you can't have sequentially

881
00:47:00,080 --> 00:47:01,800
Speaker 5: years about performance.

882
00:47:01,400 --> 00:47:04,080
Speaker 2: Like a very specific example, Jeff, I wonder where that

883
00:47:04,120 --> 00:47:04,560
Speaker 2: came from.

884
00:47:04,719 --> 00:47:09,640
Speaker 5: Well, yeah, so, but the the so really it comes

885
00:47:09,680 --> 00:47:12,600
Speaker 5: down to about having.

886
00:47:13,960 --> 00:47:14,720
Speaker 4: The sweet spot.

887
00:47:14,920 --> 00:47:20,440
Speaker 5: I'm not being overly overly active and not being overly

888
00:47:20,719 --> 00:47:24,480
Speaker 5: you know, fixated on your long term idea. And I've

889
00:47:24,520 --> 00:47:26,560
Speaker 5: managed I've managed to do that. I've never I've never

890
00:47:26,600 --> 00:47:29,839
Speaker 5: really had three years in a row of under performance. So, uh,

891
00:47:29,960 --> 00:47:32,160
Speaker 5: that's that's been a good thing. And that's probably I

892
00:47:32,680 --> 00:47:35,640
Speaker 5: call myself. Is it uncas or Chinnich Cook who is

893
00:47:35,640 --> 00:47:38,120
Speaker 5: the last of the Mohicans? And John Van Moore Cooper.

894
00:47:38,280 --> 00:47:41,000
Speaker 5: I'm the last one. I'm the last man standing when

895
00:47:41,040 --> 00:47:44,200
Speaker 5: I started in this every single person of significance that's

896
00:47:44,200 --> 00:47:46,160
Speaker 5: been in the business since I started my career, they're

897
00:47:46,200 --> 00:47:47,680
Speaker 5: all retired or gone.

898
00:47:48,280 --> 00:47:49,360
Speaker 4: I'm the last one standing.

899
00:47:49,600 --> 00:47:51,920
Speaker 5: Dana Emery was the only one left and she was

900
00:47:51,920 --> 00:47:55,680
Speaker 5: at Dodging Cox, but she retired at the end of June.

901
00:47:55,880 --> 00:47:58,880
Speaker 4: So I'm I'm uncas last of the Mohicans.

902
00:47:59,320 --> 00:48:05,960
Speaker 2: Jeff, does that work? Jeff gun Kiss kind of very quickly.

903
00:48:06,440 --> 00:48:08,960
Speaker 2: You know, again, we're sort of we're very we're being

904
00:48:09,040 --> 00:48:11,880
Speaker 2: very introspective and retrospective on the show. But over the

905
00:48:11,920 --> 00:48:15,840
Speaker 2: past ten years, what's been the thing that surprised you most,

906
00:48:16,040 --> 00:48:20,160
Speaker 2: either in terms of the markets or the financial industry itself.

907
00:48:24,200 --> 00:48:24,960
Speaker 4: I think the.

908
00:48:26,320 --> 00:48:32,400
Speaker 5: Thing that's surprising, and as he believed, distressing is surprising

909
00:48:33,160 --> 00:48:38,479
Speaker 5: is the magnitude of money printing that occurred in twenty

910
00:48:38,560 --> 00:48:44,800
Speaker 5: twenty two. I just the fact that the Federal Reserve

911
00:48:45,640 --> 00:48:50,040
Speaker 5: broke the law and bought corporate bonds surprised me. It

912
00:48:50,040 --> 00:48:52,560
Speaker 5: probably shouldn't have surprised me because they broke They broke

913
00:48:52,600 --> 00:48:58,400
Speaker 5: the law when they modified mortgages during the global financial crisis.

914
00:48:58,640 --> 00:49:02,920
Speaker 5: Was that was not allowed for the perspectuses of trillions

915
00:49:02,960 --> 00:49:05,719
Speaker 5: of dollars of securities, but they did it anyway. And

916
00:49:05,760 --> 00:49:09,680
Speaker 5: so what I've learned is that the rules can be

917
00:49:09,840 --> 00:49:13,040
Speaker 5: changed in spite of the fact that they seem to

918
00:49:13,080 --> 00:49:15,879
Speaker 5: be set in Stone. And that's why I say and

919
00:49:15,920 --> 00:49:21,200
Speaker 5: when I say this, people really act very in a

920
00:49:21,280 --> 00:49:24,080
Speaker 5: shocked type of reaction. They don't believe that they can

921
00:49:24,120 --> 00:49:27,439
Speaker 5: restructure the treasury debt. But yes they can. They can

922
00:49:27,520 --> 00:49:32,320
Speaker 5: restructure the treasury debt. And I think that that sort

923
00:49:32,320 --> 00:49:35,279
Speaker 5: of has to happen in some fashion, whether it's the

924
00:49:35,360 --> 00:49:38,160
Speaker 5: coupon adjustment that I talked about, whether it's whether it's

925
00:49:38,320 --> 00:49:41,440
Speaker 5: doing the ueal care of control that Joel brought up earlier.

926
00:49:41,920 --> 00:49:44,640
Speaker 5: I think something like that has got to happen. Because

927
00:49:45,000 --> 00:49:49,759
Speaker 5: when something is impossible and paying our interest back in

928
00:49:49,800 --> 00:49:54,080
Speaker 5: today's buying power dollar is impossible, to pay off our debt,

929
00:49:54,120 --> 00:49:57,560
Speaker 5: it's impossible, then you have to open up your mind

930
00:49:57,840 --> 00:50:01,160
Speaker 5: to a radical change in the rules system. And of

931
00:50:01,160 --> 00:50:04,160
Speaker 5: course that is happening on every level. I mean, you

932
00:50:04,200 --> 00:50:06,200
Speaker 5: talk to you look at surveys of people that are

933
00:50:06,280 --> 00:50:09,799
Speaker 5: say thirty five and younger. They don't believe in the

934
00:50:09,800 --> 00:50:12,640
Speaker 5: institutions of this country at all. They don't believe in

935
00:50:12,680 --> 00:50:16,839
Speaker 5: the constitution, they don't believe in religion, they don't believe they.

936
00:50:16,719 --> 00:50:17,720
Speaker 4: Don't believe in anything.

937
00:50:18,360 --> 00:50:20,600
Speaker 5: And if they need, people need something to believe in,

938
00:50:20,920 --> 00:50:23,360
Speaker 5: and that's what has to replace the system, a system

939
00:50:23,440 --> 00:50:24,759
Speaker 5: that people can believe in.

940
00:50:25,239 --> 00:50:28,719
Speaker 4: And what's being floated now just blows my mind, and.

941
00:50:28,640 --> 00:50:31,680
Speaker 5: That is that we're going to because we have tariffs

942
00:50:31,719 --> 00:50:34,359
Speaker 5: that are raising a few hundred billion dollars a year

943
00:50:34,400 --> 00:50:36,920
Speaker 5: if they stay in place, well, that means that we

944
00:50:36,920 --> 00:50:40,440
Speaker 5: should give two thousand dollars to everybody as a tariff dividend.

945
00:50:41,120 --> 00:50:44,960
Speaker 5: We don't have any money. We're borrowing two trillion dollars.

946
00:50:45,000 --> 00:50:46,799
Speaker 5: We don't have two thousand dollars.

947
00:50:46,600 --> 00:50:47,640
Speaker 4: To throw away at people.

948
00:50:47,680 --> 00:50:50,880
Speaker 5: Again, didn't we learn that in twenty twenty to twenty

949
00:50:50,920 --> 00:50:53,840
Speaker 5: twenty two that giving money to people causes inflation?

950
00:50:54,400 --> 00:50:58,080
Speaker 4: Remember people talking about modern monetary theory? What a joke?

951
00:50:58,560 --> 00:51:00,680
Speaker 5: You know, you never had anybody talk about that anymore

952
00:51:00,760 --> 00:51:02,720
Speaker 5: because by modern military theory?

953
00:51:03,719 --> 00:51:04,839
Speaker 2: How can no one talks about that.

954
00:51:06,320 --> 00:51:08,640
Speaker 4: Because of inflation? What's a nine point one person?

955
00:51:09,080 --> 00:51:12,279
Speaker 3: Can I ask one last question? Are you like it

956
00:51:12,400 --> 00:51:15,080
Speaker 3: seemed like, you know, you mentioned Trump floating the idea

957
00:51:15,080 --> 00:51:18,000
Speaker 3: of a two thousand dollars tariff dividend to the public,

958
00:51:19,120 --> 00:51:21,759
Speaker 3: But do you like are you was there an opportunity

959
00:51:21,880 --> 00:51:24,600
Speaker 3: in your view for Trump to have changed the status?

960
00:51:24,719 --> 00:51:28,160
Speaker 3: Quote like, are you disappointed that someone with sort of

961
00:51:28,440 --> 00:51:33,480
Speaker 3: Trump's persona energy, sort of perceived outsider status, did not

962
00:51:33,800 --> 00:51:37,080
Speaker 3: do has not done anything that actually changes some of

963
00:51:37,200 --> 00:51:42,279
Speaker 3: whether the fiscal or economic trajectory.

964
00:51:42,480 --> 00:51:47,480
Speaker 4: He can't. The problem is, look at look at this

965
00:51:47,560 --> 00:51:50,839
Speaker 4: government shutdown. You know what is going on here?

966
00:51:51,840 --> 00:51:54,560
Speaker 5: Why why do we have to pay taxes if the

967
00:51:54,600 --> 00:52:00,600
Speaker 5: government is shut should taxes not be charged for one days?

968
00:52:00,880 --> 00:52:04,800
Speaker 5: Shouldn't you have life an eleven percent tax rebate? Because

969
00:52:04,920 --> 00:52:07,960
Speaker 5: what's going on? Well, it's just because there's this massive

970
00:52:08,200 --> 00:52:13,280
Speaker 5: entrenched interest that is the kind of the uniparty government

971
00:52:13,800 --> 00:52:17,319
Speaker 5: that will fight tooth and nail. Just look at all

972
00:52:17,360 --> 00:52:20,480
Speaker 5: the lawfare at look at all the indictments, all the stuff.

973
00:52:20,840 --> 00:52:23,160
Speaker 5: I mean, they'll do anything they can to hold on

974
00:52:23,239 --> 00:52:28,560
Speaker 5: to power until such time as the people that vote

975
00:52:28,680 --> 00:52:32,239
Speaker 5: these people in say no, mass, no more of this.

976
00:52:32,520 --> 00:52:36,960
Speaker 5: And that began with Trump. It's been furthered just this

977
00:52:37,080 --> 00:52:41,440
Speaker 5: month with Mam Donnie Man. Donnie won because people do

978
00:52:41,520 --> 00:52:43,720
Speaker 5: not believe it's a little bit different.

979
00:52:43,800 --> 00:52:47,279
Speaker 4: Well, Trump was more like the lower middle class. They

980
00:52:47,280 --> 00:52:49,040
Speaker 4: felt that nobody was listening to them.

981
00:52:49,280 --> 00:52:52,920
Speaker 5: Now it's just young people, just broadly, people under I

982
00:52:52,960 --> 00:52:55,719
Speaker 5: don't know, thirty five years old, people that lost three

983
00:52:55,800 --> 00:53:01,480
Speaker 5: years of education with lockdowns and all these policies. They

984
00:53:01,640 --> 00:53:05,440
Speaker 5: feel like they have no chance of ever having the

985
00:53:05,520 --> 00:53:09,239
Speaker 5: life experience that the baby boomers had. Home prices are

986
00:53:09,239 --> 00:53:13,640
Speaker 5: more affordable, less affordable than they've ever been. People have

987
00:53:14,160 --> 00:53:18,320
Speaker 5: educations that aren't worth anything, jobs aren't available, nobody's hiring.

988
00:53:18,760 --> 00:53:21,800
Speaker 5: They feel like there's no future for them that looks

989
00:53:21,840 --> 00:53:25,040
Speaker 5: anything like what they look at Nancy Pelosi and Chuck

990
00:53:25,040 --> 00:53:27,759
Speaker 5: Schumer and Mitch McConnell and all these other people had.

991
00:53:28,040 --> 00:53:30,680
Speaker 5: They don't have it, and so they are not going

992
00:53:30,719 --> 00:53:33,080
Speaker 5: to go along with this. And so that's why Mount

993
00:53:33,120 --> 00:53:35,880
Speaker 5: Dombi one. It's just like, I don't have a shot

994
00:53:35,920 --> 00:53:38,719
Speaker 5: here in New York City as a young person, and

995
00:53:38,960 --> 00:53:43,160
Speaker 5: that's what's taking over, and so Trump can't do it himself.

996
00:53:43,520 --> 00:53:48,520
Speaker 5: He's caught on to something that was obviously kind of

997
00:53:49,239 --> 00:53:53,080
Speaker 5: hibernating within the psyche of part of the population, but

998
00:53:53,239 --> 00:53:56,120
Speaker 5: it's now become a generational thing. I wouldn't be surprised

999
00:53:56,120 --> 00:53:59,200
Speaker 5: talk about another crazy gunlock idea. I wouldn't be surprised

1000
00:53:59,239 --> 00:54:03,319
Speaker 5: if are putting in place an age tax, not a

1001
00:54:03,360 --> 00:54:06,160
Speaker 5: wealth tax, which they're doing to a certain extent through

1002
00:54:06,200 --> 00:54:09,440
Speaker 5: electricity bills and stuff like that these days already, but

1003
00:54:09,520 --> 00:54:11,839
Speaker 5: you could put it together an age tax that if

1004
00:54:11,880 --> 00:54:15,680
Speaker 5: you're over age fifty five, you have a cer tax

1005
00:54:16,040 --> 00:54:20,720
Speaker 5: based upon you had a better environment to accumulate wealth

1006
00:54:20,800 --> 00:54:25,160
Speaker 5: than the subsequent generations have, and so you should give

1007
00:54:25,200 --> 00:54:25,880
Speaker 5: some of that back.

1008
00:54:26,440 --> 00:54:27,760
Speaker 4: I think that might actually happen.

1009
00:54:27,880 --> 00:54:32,480
Speaker 2: That would be a popular platform with certainly a specific demographic.

1010
00:54:32,520 --> 00:54:35,440
Speaker 5: Are you going to run, Jeff positively?

1011
00:54:35,520 --> 00:54:39,080
Speaker 4: No? No chance? All right, absolutely no chance.

1012
00:54:39,440 --> 00:54:39,839
Speaker 1: All right.

1013
00:54:39,920 --> 00:54:41,839
Speaker 2: We shall leave it there, Jeff, thank you so much

1014
00:54:41,880 --> 00:54:42,400
Speaker 2: for coming on.

1015
00:54:42,440 --> 00:54:42,880
Speaker 1: All thoughts.

1016
00:54:42,920 --> 00:54:43,839
Speaker 2: Really appreciate it.

1017
00:54:44,080 --> 00:54:46,239
Speaker 4: Well, thanks for having me on. I'm you're kind of

1018
00:54:46,280 --> 00:54:48,919
Speaker 4: all over the map today, but I hope your audience.

1019
00:54:48,600 --> 00:55:03,719
Speaker 2: Insurator clearly a lot to unpack their Joe one of

1020
00:55:03,760 --> 00:55:06,319
Speaker 2: the things. Actually this was towards the end, so that's

1021
00:55:06,320 --> 00:55:08,080
Speaker 2: why it's in my mind. But you know, when he

1022
00:55:08,120 --> 00:55:11,360
Speaker 2: was talking about the FED buying corporate bonds in twenty twenty,

1023
00:55:11,440 --> 00:55:15,040
Speaker 2: I really think that was an underappreciated moment in financial

1024
00:55:15,080 --> 00:55:18,640
Speaker 2: markets because I remember, again we're being very introspective here.

1025
00:55:19,080 --> 00:55:22,439
Speaker 2: I remember writing pieces about the corporate bond market being

1026
00:55:22,480 --> 00:55:26,200
Speaker 2: problematic in like circa twenty fifteen. Yeah, and I used

1027
00:55:26,239 --> 00:55:28,360
Speaker 2: to have commenters who were like, Okay, so what's the

1028
00:55:28,400 --> 00:55:31,880
Speaker 2: worst case scenario. And the most extreme scenario that we

1029
00:55:32,000 --> 00:55:33,920
Speaker 2: used to talk about was, well, what if the FED

1030
00:55:34,000 --> 00:55:36,759
Speaker 2: has to come in and buy corporate bonds? That was

1031
00:55:36,840 --> 00:55:40,560
Speaker 2: the extreme scenario, and that's what happened in twenty twenty.

1032
00:55:40,680 --> 00:55:42,920
Speaker 2: So I kind of I take his point about how

1033
00:55:43,040 --> 00:55:46,000
Speaker 2: quickly these things can change and you can deviate from

1034
00:55:46,040 --> 00:55:46,880
Speaker 2: norms totally.

1035
00:55:48,200 --> 00:55:50,719
Speaker 3: Remember we interviewed Bill Gross on the Beach a couple

1036
00:55:50,760 --> 00:55:52,640
Speaker 3: of years ago and he called out Jeff for like

1037
00:55:52,680 --> 00:55:56,480
Speaker 3: being the pretend bond king. Anyway, I liked Jeff returning

1038
00:55:56,560 --> 00:56:00,960
Speaker 3: the favor by pointing out the short lived, the short

1039
00:56:00,960 --> 00:56:04,399
Speaker 3: lived Janis on Constrained fund that Bill ran after having

1040
00:56:04,480 --> 00:56:07,520
Speaker 3: left Kim KOs So, I see that the rivalry.

1041
00:56:07,760 --> 00:56:10,840
Speaker 2: The rivalry continues. Yeah, we should have them both on

1042
00:56:11,000 --> 00:56:12,400
Speaker 2: and just let them do get.

1043
00:56:12,239 --> 00:56:15,560
Speaker 3: Just let them seriously, it's like, just do it. Yeah,

1044
00:56:15,719 --> 00:56:17,759
Speaker 3: just both come on. People would love that.

1045
00:56:17,960 --> 00:56:19,960
Speaker 2: Oh I'm sure, I'm sure that would raise.

1046
00:56:19,880 --> 00:56:21,760
Speaker 3: Some money for charity or something.

1047
00:56:22,160 --> 00:56:25,400
Speaker 2: Okay, Jeff, if you are still listening, and Bill, if

1048
00:56:25,880 --> 00:56:28,840
Speaker 2: you are listening, we should put pretend bond King in

1049
00:56:28,880 --> 00:56:33,120
Speaker 2: the headline and maybe lure him on open invitation to

1050
00:56:33,200 --> 00:56:37,080
Speaker 2: come on all bots and debate, but on a serious note,

1051
00:56:37,239 --> 00:56:39,640
Speaker 2: more serious note. The other thing I was thinking about

1052
00:56:39,760 --> 00:56:42,479
Speaker 2: was when it comes to private credit. Yeah, I thought

1053
00:56:42,480 --> 00:56:45,560
Speaker 2: the point about how everyone's been piling into private credit

1054
00:56:45,600 --> 00:56:49,319
Speaker 2: because it's outperformed public credit. That is changing now, you

1055
00:56:49,320 --> 00:56:52,040
Speaker 2: know empirically that has changed this year. But then secondly,

1056
00:56:52,080 --> 00:56:55,000
Speaker 2: everyone's been piling into private credit because of that low

1057
00:56:55,120 --> 00:56:58,680
Speaker 2: volatility pitch, which is one that we've heard a number

1058
00:56:58,680 --> 00:57:01,120
Speaker 2: of times on the podcast. Now, this idea that well,

1059
00:57:01,160 --> 00:57:03,440
Speaker 2: you don't have to market to market, and that's actually

1060
00:57:03,680 --> 00:57:06,759
Speaker 2: a big strength that sales pitch starts to lose a

1061
00:57:06,800 --> 00:57:10,279
Speaker 2: lot of power and conviction when you're going from one

1062
00:57:10,320 --> 00:57:12,200
Speaker 2: hundred to zero in the space of a month.

1063
00:57:12,640 --> 00:57:15,520
Speaker 3: I don't like how there are new ones like every day. Yeah,

1064
00:57:15,640 --> 00:57:18,560
Speaker 3: I'm saying it's like each one of these little credit

1065
00:57:18,600 --> 00:57:21,920
Speaker 3: cockroaches are pretty small in the grand scheme of things.

1066
00:57:21,920 --> 00:57:22,479
Speaker 4: But two things.

1067
00:57:22,520 --> 00:57:24,600
Speaker 3: A they're small, and yet they seem to be touching

1068
00:57:24,640 --> 00:57:28,040
Speaker 3: a wide number. And I don't like how they keep popping.

1069
00:57:28,240 --> 00:57:28,400
Speaker 5: Right.

1070
00:57:28,480 --> 00:57:30,320
Speaker 3: I'm a little I'm a little ancient.

1071
00:57:30,160 --> 00:57:32,400
Speaker 2: Right, because you think the scale is small, but then

1072
00:57:32,440 --> 00:57:36,240
Speaker 2: it just keeps well. This is also why why the

1073
00:57:36,240 --> 00:57:39,040
Speaker 2: cockroach analogy is so perfect, right, because if you see one,

1074
00:57:39,400 --> 00:57:40,640
Speaker 2: you know you have more than one.

1075
00:57:40,880 --> 00:57:41,120
Speaker 4: Yeah.

1076
00:57:41,240 --> 00:57:44,280
Speaker 2: I once read an entire book about cockroaches just because

1077
00:57:44,280 --> 00:57:47,240
Speaker 2: I figured, like, know your enemy in New York, and

1078
00:57:47,280 --> 00:57:50,880
Speaker 2: it was actually really interesting. Shall we leave it there,

1079
00:57:51,040 --> 00:57:53,960
Speaker 2: Let's leave it there. Okay, this has been another episode

1080
00:57:54,000 --> 00:57:56,720
Speaker 2: of the Authoughts podcast. I'm Tracy Alloway. You can follow

1081
00:57:56,760 --> 00:57:58,160
Speaker 2: me at Tracy Alloway and.

1082
00:57:58,120 --> 00:58:00,360
Speaker 3: I'm Jill Why isnt Thal? You can follow me at

1083
00:58:00,360 --> 00:58:04,200
Speaker 3: the Stalwart. Follow our guest Jeffrey Gunlock. He's at Truth Gunlock.

1084
00:58:04,320 --> 00:58:08,080
Speaker 3: Follow our producers Kerman Rodriguez at Kerman Ermann, Dashel Bennett

1085
00:58:08,120 --> 00:58:11,000
Speaker 3: at Dashbot, and Keil Brooks at Keil Brooks. For more

1086
00:58:11,040 --> 00:58:13,880
Speaker 3: Oddlows content, go to Bloomberg dot com slash od Lots

1087
00:58:13,920 --> 00:58:16,560
Speaker 3: with the daily newsletter and all of our episodes, and

1088
00:58:16,600 --> 00:58:18,720
Speaker 3: you can chat about all of these topics twenty four

1089
00:58:18,760 --> 00:58:23,600
Speaker 3: to seven in our discord Discord dot gg slash od lots.

1090
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Speaker 2: And if you enjoy odd Lots, if you want Jeff

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Speaker 2: Gunlock and Bill Groves to duke it out on the podcast,

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Speaker 2: then I should say proverbially, not literally, then please leave

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Speaker 2: us a positive review on your favorite podcast platform. And remember,

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Speaker 2: if you are a Bloomberg subscriber, you can listen to

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Speaker 2: all of our episodes absolutely ad free. All you need

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Speaker 2: to do is find the Bloomberg channel on Apple Podcasts

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Speaker 2: and follow the instructions there. Thanks for listening in