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Speaker 1: Hello, and welcome to The Credit Edge, a weekly markets podcast.

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Speaker 1: My name is James Crombie. I'm a senior editor at Bloomberg.

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Speaker 1: This week, we're very pleased to welcome Lindsay Rosner, head

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Speaker 1: of multi sector investing at Golden Sechs Asset Management.

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Speaker 2: How are you, Lindsay, I'm great, Thank you for having me.

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Speaker 1: Thank you so much for joining us today. Very excited

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Speaker 1: to have you on the show. Also delighted to see

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Speaker 1: Jody Lurie with Bloomberg Intelligence.

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Speaker 3: Hello Jody, Hello James, how are you very well?

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Speaker 1: Good to see you. And so, just to set the

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Speaker 1: scene a bit before we chat, credit markets have rallied

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Speaker 1: after taking a beating at the start of August, and

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Speaker 1: most investors now sound pretty optimistic when it comes to bonds,

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Speaker 1: but we're bracing for volatility in the run up to

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Speaker 1: FED easing, which is expected to start this month, and

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Speaker 1: the US election is happening in November. Lower rates will

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Speaker 1: take some of the pressure off week companies that were

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Speaker 1: struggling with high borrowing costs for the last few years,

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Speaker 1: and it may also reduce the appeal of floating rate

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Speaker 1: assets like loans. We'll get into that. Meanwhile, there's a

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Speaker 1: ton of debt issuance. Companies are racing to take advantage

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Speaker 1: of a very strong investor demand for corporate bonds and

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Speaker 1: loans with yields at historically high levels. There seems to

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Speaker 1: be a real urgency to this across bonds, loans, structured finance,

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Speaker 1: and unibonds. Big borrowers in their urgency are telling you

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Speaker 1: that they're worried about the outlook for the next few months.

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Speaker 1: But there is still a lot of demand more than

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Speaker 1: net supply of corporate debt, which is a technical boost

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Speaker 1: on the whole. Credit markets are supported by resilience in

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Speaker 1: the economy. Investors are betting on a soft landing, But

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Speaker 1: I do still think there's a lot to worry about.

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Speaker 1: Debt markets were still seeing a fair amount of distress, defaults, bankruptcies,

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Speaker 1: there's commercial real estate stress. Obviously, war, geopolitics, and recession

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Speaker 1: risk hasn't gone away. So lindsay, let's start there. Where

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Speaker 1: do we go from here? A credit market's still a

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Speaker 1: good place to be.

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Speaker 2: Credit markets are still a good place to be, but

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Speaker 2: I think that you have to be with an active manager.

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Speaker 2: That's really the story that we're telling why they are

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Speaker 2: a good place to be. Is because there is still yield.

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Speaker 2: What's been the story of all year is that spreads

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Speaker 2: have moved around a bit. As you mentioned, there's even

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Speaker 2: been spread movement in August alone. Spreads have moved around

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Speaker 2: a bit. Spreads sit in most parts of fixed income

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Speaker 2: at the very tight end of if you look over

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Speaker 2: the past fifteen years percentiles. But again that yield is attractive.

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Speaker 2: Just have to be thoughtful about how the economy may

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Speaker 2: play out, how the rates world may play out, and

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Speaker 2: where you want to be in the capital structure and

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Speaker 2: doing your work bottom up.

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Speaker 3: So doing your work bottom up is something I am

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Speaker 3: very familiar with, Lindsay, but I just for our listeners

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Speaker 3: want to get a better understanding of where you fit

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Speaker 3: in the Goldman Sex ecosystem, and then I'll have a

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Speaker 3: follow up question for you on that thought.

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Speaker 2: Yeah, of course. So I am head of multisector investing

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Speaker 2: that lives underneath the wealth and asset management arm of

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Speaker 2: Goldman Sachs. Specifically, my area is public fixed income. So

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Speaker 2: in acid and wealth management we do all sorts of

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Speaker 2: things public private equity, fixed income, real assets, quantitative work,

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Speaker 2: all the things that you would expect from a full

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Speaker 2: service asset manager. I specifically, as I mentioned, focused on

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Speaker 2: public fixed income and manage funds for institutional and retail clients.

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Speaker 3: That is fits very nicely with what we do over

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Speaker 3: here at Bloomberg Intelligence in the credit side, focusing at

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Speaker 3: least for my end on mostly public bonds. Now, when

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Speaker 3: we think about coming into the next few weeks, we

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Speaker 3: have quite a lot going on between the FED meeting,

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Speaker 3: right and then you know, commentary on whether or not

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Speaker 3: there is going to be a cut or two or

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Speaker 3: three or four who knows, and we also have the election.

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Speaker 3: So how are you thinking about all those How are

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Speaker 3: you measuring that risk? How are you sort of thinking

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Speaker 3: about it when you're looking at it at a multi

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Speaker 3: asset level. What sort of the area that you're sort

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Speaker 3: of most excited about at this point?

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Speaker 2: Sure, So, taking a step back on how we think

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Speaker 2: about the market, it's really important to understand some of

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Speaker 2: the elements that you've brought up, which is the macro backdrop.

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Speaker 2: The macro backdrop, not that it isn't well televised at

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Speaker 2: this point in time, but we are about to embark

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Speaker 2: on the pivot set a different way. The FED put

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Speaker 2: is at the money they will be cutting a lot

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Speaker 2: of questions as to not when they begin. I think

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Speaker 2: it's pretty much baked in that they're going to go

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Speaker 2: in September, but a lot of questions of do they

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Speaker 2: start with twenty five, do they start with fifty? And

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Speaker 2: then what does the journey look after that. There's a

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Speaker 2: lot of discussion in the market right now focused solely

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Speaker 2: on that September is it twenty five? Is at fifty

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Speaker 2: and there's so much airtime being dedicated to that. But

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Speaker 2: for us, what's really important is what is the trajectory

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Speaker 2: after that? And where James started off when he was

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Speaker 2: talking about companies looking for some rate relief, that would

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Speaker 2: would mean that rates have to move significantly, and what's

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Speaker 2: being priced in right now is about two hundred basis

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Speaker 2: points worth of cuts through the end of twenty twenty five.

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Speaker 2: And the big thing we are asking ourselves when we're

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Speaker 2: assessing that macro backdrop, how that trajectory moves. When we

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Speaker 2: think about allocating to different asset classes and think about

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Speaker 2: it as a bond investor, you're really lending money to companies,

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Speaker 2: You're lending money to countries, to structures and wondering if

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Speaker 2: you get your money back. When you're thinking about the

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Speaker 2: cuts that could happen. Do two hundred basis points or

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Speaker 2: does two hundred basis points really move the needle? Is

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Speaker 2: that rate relief? And so those are the big questions

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Speaker 2: that we're asking. In many cases the one hundred basis

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Speaker 2: points are so that's priced in for the end of

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Speaker 2: twenty twenty four, starting in September. That's not really going

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Speaker 2: to move the needle too much for any company. So

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Speaker 2: it goes back to doing that really good fundamental work

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Speaker 2: and thinking about are you actually compensated given the spreads

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Speaker 2: that are afforded in the current market. From yield perspective,

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Speaker 2: as I started, it is enticing. But from a spread perspective,

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Speaker 2: do you have much cushion or another word that we

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Speaker 2: use in the bond market, is there a lot of

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Speaker 2: carry to be had? And in many cases the answer

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Speaker 2: to that is no, and that therefore puts us in

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Speaker 2: the posture of being on the lower end of our

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Speaker 2: risk usage or on the lower end of taking active

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Speaker 2: spread risk. We think there are much more, many more opportunities,

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Speaker 2: specifically in the macro world and also in the relative

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Speaker 2: value space of doing that idiosyncratic work in in credit.

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Speaker 1: The flip side, though, of course, is that the FED

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Speaker 1: is easy because they see some issue in the economy

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Speaker 1: which is obviously going to hurt some companies ability to pay.

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Speaker 1: So do you see significant chance of recession or any

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Speaker 1: sort of risk that earnings are going to slow significantly

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Speaker 1: or fundamentals will deteriorate.

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Speaker 2: So the story right now is that we are having

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Speaker 2: a soft landing. But now I think it's time we

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Speaker 2: got past the initial conversation is soft is it hard? Okay,

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Speaker 2: it seems to be soft, but within soft, there's there's

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Speaker 2: a big gradient there and trying to figure out what

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Speaker 2: that looks like. What we've received and this was part

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Speaker 2: of the market reaction that we had on Friday with

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Speaker 2: non farm payrolls is that there is a softness in

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Speaker 2: the labor market, and the big question is how pronounced

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Speaker 2: is it. We do not think that we are headed

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Speaker 2: into a deep, dark, scary recession. On average, for any

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Speaker 2: given year, recession odds are about seven percent. We would

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Speaker 2: say that it's probably something like fifteen twenty percent for

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Speaker 2: recession odds now. But this isn't a recession with a

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Speaker 2: lock that we think it is absolutely happening. Quite the opposite.

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Speaker 2: But the labor market is normalizing there are parts of

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Speaker 2: the consumer world that are very soft and are in

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Speaker 2: fact struggling with inflation and would benefit from rate relief.

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Speaker 2: So we aren't seeing a big recession, but we do

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Speaker 2: see some concerning things in the data. One thing that

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Speaker 2: gives us solace is that while we aren't seeing hirings

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Speaker 2: in the labor market in a really robust fashion, we

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Speaker 2: also aren't seeing firings. And so those are the kind

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Speaker 2: of indicators that we're looking at to watch the health

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Speaker 2: of the economy and get an idea of what is

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Speaker 2: that flavor of soft landing and is it becoming something

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Speaker 2: more precarious.

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Speaker 3: Now, lindsay you touched a bit on the consumer, and

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Speaker 3: you touched on a few different points that I'm hoping

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Speaker 3: I can neatly wrap up into a bow of a question.

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Speaker 3: So just for reference, I cover leisure, lodging, gaming, restaurants,

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Speaker 3: and mental car companies, So all the companies that have

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Speaker 3: been doing very well in this post pandemic environment. The

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Speaker 3: revenge spending aspect that has now sort of played out,

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Speaker 3: And so when we think about going into next year

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Speaker 3: and we think about the consumer, we're sort of saying, Okay,

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Speaker 3: what does this mean if the consumer is pulling back

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Speaker 3: a little bit in certain areas, which companies are going

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Speaker 3: to do well, which ones are not. But then thinking

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Speaker 3: about it from the perspective of the companies, if they're

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Speaker 3: able to refinance their debt to eke out the additional

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Speaker 3: kind of margin on the interest level, should the FED

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Speaker 3: cut that two hundred basis points? I mean, what are

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Speaker 3: you sort of thinking in that perspective, Because on the

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Speaker 3: one hand, if consumers are pulling back, companies are not

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Speaker 3: going to have as robust revenue. But on the other

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Speaker 3: hand they'll be better positioned at least from a funding perspective.

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Speaker 2: Yeah, So to something you said there, I think is

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Speaker 2: in fact related to how the FED thinks about the

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Speaker 2: economy and how much they want to cut. But I

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Speaker 2: want to be clear that when the FED is thinking

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Speaker 2: about how much they want to cut, it really isn't

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Speaker 2: solely focused on the health of the consumer. So you

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Speaker 2: could have pockets of the consumer that are in fact weakening,

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Speaker 2: and the FED may decide that from the totality of

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Speaker 2: the data, and I'm using Powell's words, and the totality

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Speaker 2: of the data, it doesn't say that you in fact

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Speaker 2: need cuts to happen. Why the FED is cutting is

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Speaker 2: because they are trying to get that perfect balance. They

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Speaker 2: have that dual mandate they're looking after. They're not concerned

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Speaker 2: about inflation anymore. Funny enough, we do have CPIS coming

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Speaker 2: in on Wednesday, but that is something that has been

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Speaker 2: part of very few conversations lately, which feels a bit

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Speaker 2: strange that it was all we focused on for so long.

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Speaker 2: But they are very much focused on the labor market

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Speaker 2: and they just want to see the health of the

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Speaker 2: economy and what they're trying to get to is that

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Speaker 2: neutral rate that keeps that balance on the seesaw working.

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Speaker 2: That may be a world in which there are pockets

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Speaker 2: of the consumer that aren't doing well. So just want

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Speaker 2: to be clear in that that doesn't always mean that if,

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Speaker 2: for example, the lowest income which is what we're seeing

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Speaker 2: right now, is struggling, that doesn't mean therefore the fat

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Speaker 2: has to cut. It may be symptomatic of something broader,

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Speaker 2: and all those conditions in totality means that they do

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Speaker 2: and fact have to cut. Why they are cutting is

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Speaker 2: to try to get to that neutral rate. So with that,

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Speaker 2: let me transition into the consumer and what we're seeing

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Speaker 2: it is that lower echelon that is really suffering here,

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Speaker 2: and how you can think about it is specifically food

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Speaker 2: and rent, which is what affects that part of the

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Speaker 2: market the most, has had the greatest growth in inflation

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Speaker 2: versus the other parts of the inflation basket that we

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Speaker 2: think about. So the lower end is really getting squeezed

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Speaker 2: when it comes to the food that they have to

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Speaker 2: put on the table and the rent. In many cases

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Speaker 2: they don't own their own home and if not experience,

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Speaker 2: it's that wealth effect that many have that is where

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Speaker 2: they are feeling really cramped. So what we are seeing

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Speaker 2: maybe no surprise and is that wholesale and also discount

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Speaker 2: offerers or discount stores are doing really well. That's what

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Speaker 2: came through in the earnings. What has been surprising is

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Speaker 2: that we have seen a lot of the middle and

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Speaker 2: upper echelon socioeconomically going to those stores, maybe some stores

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Speaker 2: that they have never gone to before. So that's been

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Speaker 2: maybe one of the interesting tells of what's going on

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Speaker 2: in the economy. And all of that for us represents

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Speaker 2: the theme of consumers being choosier about consuming. Some may

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Speaker 2: be out of personal preference and optimizing their cash flow,

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Speaker 2: others because they're being forced to do so because they

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Speaker 2: are really feeling the pain.

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Speaker 3: And lindsay, I want to touch on a couple of

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Speaker 3: points that they brought up as it relates to the consumer.

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Speaker 3: So we're actually in agreement in that point. You know,

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Speaker 3: we've been touching on the sort of concept of that

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Speaker 3: two speed economy, the lower end consumer pulling back, but

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Speaker 3: the benefit that we're seeing from by and large, they're

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Speaker 3: being more wealth in the pockets of the consumer. Right,

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Speaker 3: it might be unequally allocated, but at the same time,

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Speaker 3: there's a certain portion of the population that is doing

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Speaker 3: quite well, in fact, the best they've ever done. That said,

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Speaker 3: I mean, when you think about you know, you think

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Speaker 3: about the consumer, you think about consensus and what we're seeing.

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Speaker 3: And I believe you said fifteen percent is what you're

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Speaker 3: sort of estimating for a recession, whereas normally it's seven percent. Right,

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Speaker 3: I'm just thinking back to I think it was twenty thirteen.

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Speaker 3: Everybody expected that rates were going to rise. Everybody, it

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Speaker 3: was across the street. That was the consensus that you know,

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Speaker 3: we were going to have this one situation happen and

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Speaker 3: the opposite happened, right, and so you know, or rates

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Speaker 3: were going to fall, actually, I believe, and we had

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Speaker 3: the rate shock right, and so I'm just sort of

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Speaker 3: curious as to how you're sort of measuring for that

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Speaker 3: tail risk of a potential instead of soft landing hard landing.

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Speaker 2: So I think one of the big themes I would

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Speaker 2: say in my career, and I think is important for

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Speaker 2: most investors is humility. And when you brought up that consensus,

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Speaker 2: thought one way and it ended up being something very different.

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Speaker 2: I always try to keep that in the back of

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Speaker 2: my head and think about black Swan's or the tail

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Speaker 2: risks that aren't really being priced in in terms of

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Speaker 2: where I think the real tail risk is would be

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Speaker 2: if jobs continue to weaken but CPI reaccelerates and the

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Speaker 2: FED can't cut That I think is a pretty challenging

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Speaker 2: market because that would be in which rates sell off

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Speaker 2: and spreads actually widen as well. That is not what

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Speaker 2: people are positioned for right now, but that is definitely

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Speaker 2: something that we think about at Goldman. We're trying to

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Speaker 2: think about the full probability set and what are all

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Speaker 2: the possible outcomes That one I think would be the

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Speaker 2: most challenging. Back to something I said earlier is because

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Speaker 2: of spread valuations, and when we think about what are

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Speaker 2: tail risks or what kind of losses you could experience

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Speaker 2: and detail, we feel like even though spreads, if you

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Speaker 2: look yere to date, there hasn't been much move. There's

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Speaker 2: been move if you look at the whole graph, but

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Speaker 2: if you did start at the beginning of the year

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Speaker 2: and look at it where it is now, the Investment

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Speaker 2: Great Index hasn't moved that much, The high Old index

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Speaker 2: hasn't moved that much, and you could maybe paint a

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Speaker 2: picture where nothing happened. We all know that something did,

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Speaker 2: in fact happen. But that is why we've really spent

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Speaker 2: the year being less constructive than typical around spread because

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Speaker 2: that cushion that exists isn't that much and so there

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Speaker 2: are tail rists out there. There's also something that we

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Speaker 2: was touched on earlier in this podcast, which is something

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Speaker 2: we haven't talked about geopolitics. There's still geopolitical issues out

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Speaker 2: there unresolved, and also geopolitical issues that have not come

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Speaker 2: to four but they could. And then you've got the

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Speaker 2: election on certainty. So all of these things taken together

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Speaker 2: make us want to be a little bit more cautious

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Speaker 2: around having beta or active spread risk versus our benchmarks

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Speaker 2: when we're thinking about portfolio management. It also, though, does

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Speaker 2: make us think that there is a good place in

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Speaker 2: portfolios for having a bond allocation or an allocation to rates.

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Speaker 2: Rates often serve as a ballast to your portfolio, you

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Speaker 2: can think about it. They are usually the recipient of

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Speaker 2: the flight to quality rallies that has not been so

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Speaker 2: formidable recently because rates were in the eye of the

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Speaker 2: monetary policy storm. They were the tool in which the

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Speaker 2: FED was using to deal with inflation. Mainly so now

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Speaker 2: that we're entering a new regime starting on the eighteenth

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Speaker 2: of a FED that's in motion, I think that we

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Speaker 2: have an opportunity now to add rates to our portfolio

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Speaker 2: to help us whether some of the bumpiness that could

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Speaker 2: occur in spreads.

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Speaker 1: What's the trade here, lindsay? And on the credit side,

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Speaker 1: when we talk about the consumer, you know two tier consumer.

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Speaker 1: The high end is doing okay, the lower is squeezed.

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Speaker 1: Is it as simple as you know, buying Tiffany and

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Speaker 1: selling dollar general of flip side of that? I mean,

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Speaker 1: what's what's the trade here? I'm always always curious as

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Speaker 1: to what the investor would do with that information.

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Speaker 2: Look, I think it really is that you just brought

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Speaker 2: up to names in particular, but it is really about

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Speaker 2: doing this specific homework around the companies. What is the

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Speaker 2: health of their consumer, what are they relying upon, what

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Speaker 2: their debt profile looks like, back to what kind of

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Speaker 2: interest coverage relief do they think they could get. Where

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Speaker 2: do they need to refine or extend. So I think

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Speaker 2: it really depends. We've had a focus, for example and

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Speaker 2: structured product. We think that's a really interesting part of

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Speaker 2: the market. And specifically what we're looking at is the

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Speaker 2: credit enhancement that protects us in some of those downside

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Speaker 2: scenarios within corporate credit. Really focusing again on names specific,

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Speaker 2: but it also has to do with what the management

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Speaker 2: teams are doing. It's not just about the consumer. I

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Speaker 2: think we need to think about how the management team

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Speaker 2: is approaching their own balance sheets. If I painted this

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Speaker 2: picture for you that we have weakening on the lower

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Speaker 2: end and there is a chance of recession, that would

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Speaker 2: probably paint a picture in which you shy away from

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Speaker 2: looking at Triple b's for example. Well, in fact, Triple

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Speaker 2: B companies haven't added debt to their balance sheets. They're

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Speaker 2: retaining cash and they're not levering up. Triple b's are

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Speaker 2: still a part of the market that we really like.

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Speaker 2: So it is about doing that work and understanding not

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Speaker 2: only on the demand side, what's the demand for the

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Speaker 2: good or the service a company is offering, but also

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Speaker 2: just what is the management company doing and are they

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Speaker 2: doing smart things? And that's why we have a really

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Speaker 2: deep fundamental research and analyst bench to help us do

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Speaker 2: those things.

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Speaker 3: So to the listeners, I hope that you hear everything

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Speaker 3: Lindsay just said, because we are not paying her to

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Speaker 3: say this, but we happen to agree very much. And

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Speaker 3: by that I mean is that going into this year

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Speaker 3: and even with our mid year outlook, something that we've

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Speaker 3: been harping on is that it's a company by company,

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Speaker 3: bond by bond selection, particularly my area. Now, last year

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Speaker 3: you could buy anything in the leisure space and it

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Speaker 3: did well. This year, most companies are but we are

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Speaker 3: starting to see areas of concern. For example, in restaurants,

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Speaker 3: we are seeing a little bit of a pullback from

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Speaker 3: the consumer. We are seeing some areas of worry, and

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Speaker 3: we are seeing companies communicate moderation and so even some

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Speaker 3: of the companies we're a little bit more comfortable. We

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Speaker 3: think that there's a relative value play in Marriotte, Hyatt,

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Speaker 3: what have you. At the same time, they're even communicating

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Speaker 3: that they might not see as robust activity at least

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Speaker 3: as it relates to the traditional consumer of their product.

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Speaker 3: On the flip side, business and conference travel is coming back,

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Speaker 3: and so we are seeing the benefit there. And where

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Speaker 3: I would say that we've been more constructive than others

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Speaker 3: is in the cruise line space. And I think that

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Speaker 3: goes back to Lindsay's point that you look at the

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Speaker 3: management team and the management teams that have been focused

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Speaker 3: on de leveraging, bringing back their balance sheet towards investment

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Speaker 3: grade levels. Really focusing on simplifying their capital structures I

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Speaker 3: think is key and being cognizant of that and the

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Speaker 3: ability of management teams to hold onto liquidity as we

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Speaker 3: kind of come to this point of uncertainty, whether it

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Speaker 3: be the FED or the election, so monetary or fiscal policy.

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Speaker 3: I think that that's really key here, especially going into

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Speaker 3: twenty twenty five.

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Speaker 1: So it's not as simple then. It's just you know,

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Speaker 1: looking at that rally and retail and leisure bonds, partly

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Speaker 1: on the high yield side, over the last you know,

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Speaker 1: this year, they've just shot up in a straight line,

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Speaker 1: which seems surprising given that, you know, the economy is

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Speaker 1: supposed to be slowing, consumers are supposed to be out

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Speaker 1: of all that, all those savings, the revenge spending is over.

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Speaker 1: It's not as simple then it's just as selling that

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Speaker 1: rally and moving on. I mean, you're going into it

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Speaker 1: much more on a kind of name by name basis

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Speaker 1: at this point. Is that right?

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Speaker 3: That's what our recommendation has been. That's exactly and it

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Speaker 3: sounds like lindsay it's similar on your end too. You

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Speaker 3: know that fundamental research is really alive and well and

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Speaker 3: very important. But I'd love to hear from you a

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Speaker 3: little bit more on how you're sort of using that

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Speaker 3: in your multi asset strategy.

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Speaker 2: Definitely, So obviously I look at more than just corporate credit.

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Speaker 2: So we at Goldman we're thinking about the relationship between

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Speaker 2: these different sectors and how much active risks we want

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Speaker 2: to take versus a benchmark where we want to get

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Speaker 2: that risk sector specific and then doing the work sub

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Speaker 2: sector and name to build a whole portfolio to solve

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Speaker 2: a client's needs. Whether that's the alpha they're looking to

399
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Speaker 2: generate and cognizant of tracking error for sure. So we

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Speaker 2: are thinking about asset allocation as we talked about a

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Speaker 2: little bit earlier. We're thinking about tail risk too, because

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Speaker 2: that's really important when the world gets outside of that

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Speaker 2: middle of the distribution into those tales, how are you

404
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Speaker 2: going to perform? But back to kind of research and

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Speaker 2: thinking about things and how that's played out. A really

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Speaker 2: good example of that is in the investment great space

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Speaker 2: we have like banks, financials have outperformed from an excess

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Speaker 2: return perspective. That has been something that's made a lot

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Speaker 2: of sense to us. But additionally, it's not just us

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Speaker 2: money center banks. We felt like there was an opportunity

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Speaker 2: in French banks where there was uncertainty around the French election,

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Speaker 2: and French banks are set up differently than US banks.

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Speaker 2: But again, you need the analysts who are able to

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Speaker 2: do the work and help us understand that, and that's

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Speaker 2: why we have so many resources to have that expertise.

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Speaker 2: Something else that I wanted to bring up that I

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Speaker 2: think is helpful. I mean to take a word from

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Speaker 2: the name of this podcast, where do we have an edge?

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Speaker 2: So I think what's really helpful for us when we're

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Speaker 2: looking at the market, or I particularly am thinking about

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Speaker 2: the market. Is a lot of what goes on is technicals,

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Speaker 2: and some of that is preferred habitat of different styles

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Speaker 2: of investors, and when you have different businesses within your ecosystem.

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Speaker 2: Back to your question, where am I in the ecosystem?

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Speaker 2: At Goldman, it's about being able to really lever our

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Speaker 2: insights from the different client bases we deal with, and

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Speaker 2: to give you an example of a couple of them,

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Speaker 2: we have a really big liquidity business and so that's

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Speaker 2: focused on the front end of the curve. So much

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Speaker 2: of what people want to know right now is when

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Speaker 2: does that six and a half trillion leave money market funds?

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Speaker 2: And where is it going? What are we seeing, what

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Speaker 2: are the where's the money going to move to? Is

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Speaker 2: it going to look like it looked ten years ago?

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Speaker 2: The short answer there is that we are seeing investors

436
00:24:51,040 --> 00:24:54,960
Speaker 2: in the front end through this whole most recent monetary

437
00:24:55,000 --> 00:25:00,560
Speaker 2: policy get really smart. When the FED started hiking deposit

438
00:25:00,760 --> 00:25:03,960
Speaker 2: rates at banks didn't move as quickly. The deposit beta

439
00:25:04,040 --> 00:25:07,320
Speaker 2: in other words, was slower or lower than maybe historically

440
00:25:07,359 --> 00:25:10,800
Speaker 2: it happened, and so investors got really smart and moved

441
00:25:10,920 --> 00:25:14,679
Speaker 2: into money market funds to have someone manage their money,

442
00:25:16,240 --> 00:25:19,640
Speaker 2: not just that the yields are close to FED funds

443
00:25:19,680 --> 00:25:21,919
Speaker 2: and then just move te bills, but also look at

444
00:25:21,920 --> 00:25:25,240
Speaker 2: other asset classes. Additionally, in the liquidity business, we are

445
00:25:25,280 --> 00:25:29,400
Speaker 2: people seeing people really think about tax rates and could

446
00:25:29,480 --> 00:25:32,040
Speaker 2: you use Muni's in the front end. I'll give you

447
00:25:32,080 --> 00:25:35,840
Speaker 2: another example. We have a very robust insurance business. Have

448
00:25:35,960 --> 00:25:38,320
Speaker 2: the finger on the pulse of what insurance companies are

449
00:25:38,320 --> 00:25:41,440
Speaker 2: thinking about. And one thing that I find really interesting

450
00:25:41,520 --> 00:25:46,160
Speaker 2: there is that historically insurance companies were really in corporate

451
00:25:46,160 --> 00:25:49,280
Speaker 2: credit and treasuries for a lot of management and some

452
00:25:49,359 --> 00:25:54,719
Speaker 2: derivative management overlaid. Now insurance companies are thinking about all

453
00:25:54,760 --> 00:25:57,120
Speaker 2: the asset classes that are out there. They're thinking about

454
00:25:57,160 --> 00:26:01,040
Speaker 2: private credit, they're thinking about securitized product. So that changes

455
00:26:01,160 --> 00:26:05,400
Speaker 2: the mix of who's buying the assets that I look

456
00:26:05,440 --> 00:26:09,159
Speaker 2: at in public fixed income. So the edge for us,

457
00:26:09,320 --> 00:26:11,439
Speaker 2: I think is not just the expertise we have and

458
00:26:11,480 --> 00:26:14,440
Speaker 2: I can rely on. I joke around that there's embarrassment

459
00:26:14,480 --> 00:26:16,119
Speaker 2: of riches here, which is a good thing to be

460
00:26:16,160 --> 00:26:20,240
Speaker 2: part of, but is also all of these client solution

461
00:26:20,480 --> 00:26:24,520
Speaker 2: conversations we have and as we're offering solutions to clients.

462
00:26:24,560 --> 00:26:28,000
Speaker 2: We're also learning about that many of them have more

463
00:26:28,040 --> 00:26:31,640
Speaker 2: degrees of freedom than they had historically, and that changes

464
00:26:32,240 --> 00:26:35,160
Speaker 2: the buy and sell dynamic that's going on in markets,

465
00:26:35,600 --> 00:26:39,359
Speaker 2: and it really makes for a more robust marketplace. And

466
00:26:39,400 --> 00:26:42,640
Speaker 2: it's important to be on top of because we're, for example,

467
00:26:42,800 --> 00:26:47,520
Speaker 2: in agency mortgages, if the flows historically we're the GSS. Well,

468
00:26:47,880 --> 00:26:50,040
Speaker 2: there are many other drivers now and you need to

469
00:26:50,119 --> 00:26:54,320
Speaker 2: know who those individuals or groups are.

470
00:26:56,200 --> 00:26:59,480
Speaker 3: Lindsay, you touched on banks as an area that has

471
00:27:00,720 --> 00:27:03,200
Speaker 3: outperformed or done very well for you this year, and

472
00:27:03,920 --> 00:27:07,440
Speaker 3: you talk a little bit about insurance companies having more

473
00:27:07,480 --> 00:27:09,800
Speaker 3: degrees of freedom in terms of where they can put

474
00:27:09,840 --> 00:27:13,760
Speaker 3: their assets, and so you think about asset liability mismatch

475
00:27:14,720 --> 00:27:16,960
Speaker 3: in the context of what we saw last year, right

476
00:27:17,080 --> 00:27:21,639
Speaker 3: last March a year ago in Silicon Valley Bank and

477
00:27:21,680 --> 00:27:24,160
Speaker 3: a few others, and some of that carried over into

478
00:27:24,200 --> 00:27:28,159
Speaker 3: this year. And so putting that all together and adding

479
00:27:28,200 --> 00:27:31,520
Speaker 3: in that private credit conversation now, I know obviously you

480
00:27:31,520 --> 00:27:35,159
Speaker 3: do public but thinking about it in that context, I mean,

481
00:27:35,200 --> 00:27:40,560
Speaker 3: are you at all at least concerned because there aren't

482
00:27:40,600 --> 00:27:43,320
Speaker 3: as many I don't want to use the word handcuffs,

483
00:27:43,359 --> 00:27:45,800
Speaker 3: but there aren't as many restrictions or there's more degrees

484
00:27:45,840 --> 00:27:48,920
Speaker 3: of freedom. Are you at all concerned by the fact

485
00:27:49,119 --> 00:27:53,800
Speaker 3: that there's certain areas that are showing worrism signs, whether

486
00:27:53,840 --> 00:27:55,960
Speaker 3: you talk about the consumer or you talk about certain

487
00:27:56,000 --> 00:28:00,240
Speaker 3: banks that had to ride through uncomfortable situations. How are

488
00:28:00,280 --> 00:28:02,600
Speaker 3: you sort of measuring that? And I guess it goes

489
00:28:02,640 --> 00:28:04,840
Speaker 3: back to that tail risk, But beyond that, what are

490
00:28:04,880 --> 00:28:06,560
Speaker 3: you thinking as you go into twenty five?

491
00:28:07,600 --> 00:28:10,280
Speaker 2: Yeah, so I think at the crux of your question

492
00:28:10,520 --> 00:28:15,560
Speaker 2: is are there concerns about system wide risks? And a

493
00:28:15,600 --> 00:28:19,240
Speaker 2: big question with Silicon Valley Bank was is there contagion?

494
00:28:20,880 --> 00:28:23,679
Speaker 2: Is there another shoe to drop and another shoe to drop?

495
00:28:24,520 --> 00:28:26,720
Speaker 2: These are the kind of things that we really think

496
00:28:26,760 --> 00:28:31,119
Speaker 2: about and spend a lot of time caring about. From

497
00:28:31,160 --> 00:28:34,959
Speaker 2: a system wide situation, one of the things that can

498
00:28:35,000 --> 00:28:37,439
Speaker 2: be most problematic is a lot of leverage in the

499
00:28:37,560 --> 00:28:41,000
Speaker 2: system and that is just not something we're seeing right now.

500
00:28:41,720 --> 00:28:44,360
Speaker 2: Doesn't mean that there can be other issues, but the

501
00:28:44,480 --> 00:28:47,160
Speaker 2: leverage one doesn't seem to be one right now that

502
00:28:47,440 --> 00:28:53,000
Speaker 2: is concerning. Actually, we're finding that we're seeing a healthy,

503
00:28:53,160 --> 00:28:56,360
Speaker 2: but maybe more strained consumer balance sheet, and company bale

504
00:28:56,520 --> 00:28:59,000
Speaker 2: balance sheets or corporate balance sheets as we just discussed,

505
00:28:59,400 --> 00:29:02,600
Speaker 2: are in an okay place. These are exactly the kind

506
00:29:02,600 --> 00:29:05,600
Speaker 2: of things we're monitoring when we think about how much

507
00:29:05,680 --> 00:29:07,600
Speaker 2: risk we want to put on in our portfolio and

508
00:29:07,640 --> 00:29:11,240
Speaker 2: where we want to pivot to. Some areas though that

509
00:29:11,280 --> 00:29:14,200
Speaker 2: I want to point out that people were nervous about

510
00:29:14,240 --> 00:29:18,280
Speaker 2: that we are finding opportunity in are An example of

511
00:29:18,320 --> 00:29:22,360
Speaker 2: that is commercial mortgage backed securities. Back to your question

512
00:29:22,480 --> 00:29:26,600
Speaker 2: of should there be concerns about banks, one bad bank

513
00:29:26,720 --> 00:29:30,800
Speaker 2: should not sour for example, or one challenged bank should

514
00:29:30,800 --> 00:29:34,040
Speaker 2: not sour all banks, This is where you really need

515
00:29:34,080 --> 00:29:38,800
Speaker 2: to be discerning about credits and evaluate if an issue

516
00:29:38,800 --> 00:29:42,040
Speaker 2: that would befallen a certain bank actually extends more broadly

517
00:29:42,080 --> 00:29:46,240
Speaker 2: to the entire sector. Commercial real estate is something very similar.

518
00:29:46,680 --> 00:29:51,160
Speaker 2: So just because there are some problem properties with very

519
00:29:51,200 --> 00:29:55,120
Speaker 2: low vacancies and a problem with their cost of capital

520
00:29:55,240 --> 00:29:57,400
Speaker 2: or the cost of debt, that doesn't mean that the

521
00:29:57,560 --> 00:30:01,040
Speaker 2: entire asset class has something wrong with it. So what

522
00:30:01,080 --> 00:30:02,959
Speaker 2: we've been able to do is find a lot of

523
00:30:03,040 --> 00:30:07,560
Speaker 2: opportunities and commercial mortgage backed securities to take advantage of. Again,

524
00:30:07,680 --> 00:30:10,800
Speaker 2: with a lot of structural enhancement, especially in the highest

525
00:30:10,800 --> 00:30:13,239
Speaker 2: of quality. That's been a really good ballast in our

526
00:30:13,240 --> 00:30:17,040
Speaker 2: portfolio to corporate credit. So just big picture, these are

527
00:30:17,080 --> 00:30:19,120
Speaker 2: all things that you brought up. These are all things

528
00:30:19,120 --> 00:30:21,880
Speaker 2: that we're looking at, the health of the consumer, what's

529
00:30:21,920 --> 00:30:24,920
Speaker 2: going on in the real estate market. Are there problems

530
00:30:24,920 --> 00:30:28,160
Speaker 2: on balance sheets with banks. These are all the things

531
00:30:28,200 --> 00:30:31,280
Speaker 2: that our analysts are looking at every single day. But

532
00:30:31,400 --> 00:30:35,040
Speaker 2: we are not seeing something really system wide right now

533
00:30:35,120 --> 00:30:38,480
Speaker 2: that is flashing a red light. But what we are

534
00:30:38,520 --> 00:30:42,160
Speaker 2: seeing is a softening economy as it's supposed to be.

535
00:30:42,760 --> 00:30:46,600
Speaker 2: When you've had restrictive rates at restrictive levels for a very.

536
00:30:46,400 --> 00:30:50,080
Speaker 1: Long time on the commercial mortgage backed securities, and we've

537
00:30:50,080 --> 00:30:51,800
Speaker 1: heard a lot of people get quite excited about that,

538
00:30:52,400 --> 00:30:55,000
Speaker 1: mostly because they got so cheap and people were dropping

539
00:30:55,000 --> 00:30:57,320
Speaker 1: them because of the worries about you know, back to

540
00:30:57,360 --> 00:30:59,400
Speaker 1: office and all that stuff. Is there still a trade,

541
00:30:59,400 --> 00:31:01,680
Speaker 1: There is the still opportunity or is it over?

542
00:31:02,440 --> 00:31:05,440
Speaker 2: No, There still is an opportunity. If you think about

543
00:31:05,480 --> 00:31:11,040
Speaker 2: fifteen year percentiles CMBs is probably somewhere in the forty

544
00:31:11,080 --> 00:31:15,360
Speaker 2: to fiftieth depending on credit quality, bucket, and style. But

545
00:31:15,600 --> 00:31:17,720
Speaker 2: there are a lot of opportunities there when if I

546
00:31:17,720 --> 00:31:19,560
Speaker 2: were to give you the same kind of statistics in

547
00:31:19,600 --> 00:31:23,040
Speaker 2: the investment grade space, it's in the top death style

548
00:31:23,400 --> 00:31:28,120
Speaker 2: of tightness or lowest spreads. So relative value is really there.

549
00:31:28,880 --> 00:31:31,200
Speaker 2: And if you can do that kind of work to

550
00:31:31,320 --> 00:31:33,800
Speaker 2: find the right properties, you have a lot of opportunity

551
00:31:33,840 --> 00:31:35,040
Speaker 2: for compression.

552
00:31:35,120 --> 00:31:36,640
Speaker 1: And it's a big trade for you at the moment.

553
00:31:36,920 --> 00:31:40,640
Speaker 2: It is a decent part of our portfolios. But again,

554
00:31:40,680 --> 00:31:45,120
Speaker 2: this is overall risk budgeted and we very much do

555
00:31:45,200 --> 00:31:47,520
Speaker 2: not create portfolios where you're coming to us for a

556
00:31:47,600 --> 00:31:51,480
Speaker 2: multisector portfolio and actually, wait a second, it's a CMPs portfolio.

557
00:31:52,000 --> 00:31:55,480
Speaker 2: We don't do that purposefully, but it is a good

558
00:31:55,560 --> 00:31:59,440
Speaker 2: portion of our portfolio and we think it generates a

559
00:31:59,480 --> 00:32:01,680
Speaker 2: decent amount of carry or spread.

560
00:32:02,640 --> 00:32:05,520
Speaker 3: So if you're sort of I want to say, overweight

561
00:32:05,600 --> 00:32:10,640
Speaker 3: cnbs at the moment, where are you going very heavily underweight?

562
00:32:10,720 --> 00:32:11,760
Speaker 3: Is it leverage loans?

563
00:32:12,040 --> 00:32:12,320
Speaker 1: Is it?

564
00:32:12,840 --> 00:32:13,040
Speaker 2: You know?

565
00:32:13,680 --> 00:32:15,960
Speaker 3: I mean you mentioned Muni's as an area to go

566
00:32:16,040 --> 00:32:19,080
Speaker 3: into on the short end, But are there certain parts

567
00:32:19,160 --> 00:32:21,960
Speaker 3: of the fixed income landscape that you're saying, you know what,

568
00:32:22,000 --> 00:32:23,920
Speaker 3: We're just not going to play in it right now.

569
00:32:25,200 --> 00:32:30,120
Speaker 2: This is maybe a little bit niche, but specifically the

570
00:32:30,200 --> 00:32:34,000
Speaker 2: back end of the investment grade curve we are finding

571
00:32:34,200 --> 00:32:37,720
Speaker 2: to be less attractive. So if there's a place that

572
00:32:37,760 --> 00:32:42,280
Speaker 2: we're underweight, that would be an example. When when you

573
00:32:42,320 --> 00:32:47,240
Speaker 2: say underweight, we managed, we managed portfolios versus a variety

574
00:32:47,240 --> 00:32:51,960
Speaker 2: of benchmarks, the largest benchmark being the US aggregate or

575
00:32:52,000 --> 00:32:56,280
Speaker 2: the global aggregate. And then also there are many different

576
00:32:56,360 --> 00:32:59,960
Speaker 2: styles and they're put against a cash surrogate like T build.

577
00:33:00,800 --> 00:33:03,520
Speaker 2: So in any of those examples that I just gave you,

578
00:33:03,720 --> 00:33:07,000
Speaker 2: the aggregate obviously being an investment grade only proxy for

579
00:33:07,040 --> 00:33:11,800
Speaker 2: fixed income, there isn't anything on the below investment grade

580
00:33:12,120 --> 00:33:16,400
Speaker 2: to underweight unless you actually actively go out and put

581
00:33:16,400 --> 00:33:20,120
Speaker 2: on a short. Even at these spread levels that can

582
00:33:20,160 --> 00:33:23,719
Speaker 2: be expensive. So that isn't something we're doing. But what

583
00:33:23,760 --> 00:33:27,200
Speaker 2: I will say is we have dialed down some of

584
00:33:27,240 --> 00:33:30,640
Speaker 2: our loan exposure in our portfolios. I would say we

585
00:33:30,680 --> 00:33:34,320
Speaker 2: feel more neutral about the sector than we have before.

586
00:33:34,720 --> 00:33:36,600
Speaker 2: That was a very good trade for us this year,

587
00:33:36,920 --> 00:33:39,320
Speaker 2: and we've moved in that direction to lower it a bit.

588
00:33:40,520 --> 00:33:43,920
Speaker 2: The technicals are not something that is really worrying to us,

589
00:33:44,080 --> 00:33:48,040
Speaker 2: as the loan market has a very strong COLO machine

590
00:33:48,080 --> 00:33:52,200
Speaker 2: supporting it and retail is a smaller portion of that

591
00:33:52,320 --> 00:33:55,560
Speaker 2: market than it has historically been. So if there are

592
00:33:55,640 --> 00:33:59,880
Speaker 2: in fact retail flows outflows, I should say, because of

593
00:34:00,240 --> 00:34:02,959
Speaker 2: the base rate going lower and loans being a floating

594
00:34:03,000 --> 00:34:07,400
Speaker 2: rate product, we do not see it being that impactful

595
00:34:08,120 --> 00:34:10,799
Speaker 2: at this point in time to that market. Just pray.

596
00:34:10,840 --> 00:34:14,520
Speaker 1: Briefing back to CMBs, lindsay, is it a regional trade?

597
00:34:14,640 --> 00:34:17,200
Speaker 1: Is there opportunity in certain parts of the country, or

598
00:34:17,280 --> 00:34:20,880
Speaker 1: is it you know, is there any kind of theme

599
00:34:20,920 --> 00:34:23,000
Speaker 1: that you're chasing there or is it all over the place?

600
00:34:23,239 --> 00:34:25,680
Speaker 2: Yeah, I think it's more of a quality theme, so

601
00:34:25,920 --> 00:34:30,080
Speaker 2: high quality properties. If we felt that there was a

602
00:34:30,120 --> 00:34:34,200
Speaker 2: secular shift in the other direction you mentioned, I believe

603
00:34:34,239 --> 00:34:38,040
Speaker 2: it was you. If it wasn't Jodie the what is

604
00:34:38,080 --> 00:34:40,960
Speaker 2: back to office? What does it look like? If there

605
00:34:41,080 --> 00:34:44,160
Speaker 2: was confidence that every single person would be in the

606
00:34:44,200 --> 00:34:46,520
Speaker 2: office five days a week and we're going back to

607
00:34:46,560 --> 00:34:49,920
Speaker 2: the old way, then I think you could say office

608
00:34:49,960 --> 00:34:53,520
Speaker 2: writ large that I do not believe to be the

609
00:34:53,560 --> 00:34:57,919
Speaker 2: way of the future. Vacancy rates in an office would

610
00:34:58,000 --> 00:35:02,160
Speaker 2: prove that. But there are some very special properties that

611
00:35:02,320 --> 00:35:05,280
Speaker 2: are super desirable, and so that's the kind of stuff

612
00:35:05,280 --> 00:35:09,400
Speaker 2: we're focused on. Another thing that I've spoken about before

613
00:35:09,440 --> 00:35:14,759
Speaker 2: with Bloomberg is industrial warehouse, the logistics place. As an

614
00:35:14,800 --> 00:35:20,080
Speaker 2: avid Amazon user, that is where my boxes go before

615
00:35:20,120 --> 00:35:23,480
Speaker 2: they come to my house. I don't see my Amazon

616
00:35:23,560 --> 00:35:28,839
Speaker 2: purchasing stopping anytime soon, sorry to my husband. So those

617
00:35:29,040 --> 00:35:31,560
Speaker 2: those I think will be pretty safe properties on a

618
00:35:31,640 --> 00:35:37,200
Speaker 2: going forward, unless you know, drones somehow get things from

619
00:35:37,239 --> 00:35:40,400
Speaker 2: a factory and skip that middle part, which you know,

620
00:35:40,480 --> 00:35:44,239
Speaker 2: technology is interesting, it could happen, could happen sooner than

621
00:35:44,280 --> 00:35:48,279
Speaker 2: I think, but industrial warehouse is certainly a place that

622
00:35:48,560 --> 00:35:50,080
Speaker 2: we think continues to make sense.

623
00:35:51,080 --> 00:35:54,560
Speaker 3: So one area of CNBS or of the real estate

624
00:35:54,560 --> 00:35:57,640
Speaker 3: market at large that that you didn't discuss with which

625
00:35:58,320 --> 00:36:02,520
Speaker 3: kind of relates to that Amazon conversation is the mall, right,

626
00:36:02,600 --> 00:36:07,440
Speaker 3: the retail space. And Lindsey Dutch, who is a retail

627
00:36:07,480 --> 00:36:10,160
Speaker 3: analyst on the equity side, she also does reads, she

628
00:36:10,239 --> 00:36:12,799
Speaker 3: does shopping mall reads, and something that she said that

629
00:36:12,840 --> 00:36:15,200
Speaker 3: was very interesting back at our State of the Consumer

630
00:36:15,239 --> 00:36:20,359
Speaker 3: event in May is that in fact those properties, whether

631
00:36:20,400 --> 00:36:23,879
Speaker 3: it be the big ROX properties or others, there's there's

632
00:36:23,920 --> 00:36:28,080
Speaker 3: actually a lack of supply there and that even when

633
00:36:28,280 --> 00:36:31,440
Speaker 3: companies go out of business, those properties are getting scooped

634
00:36:31,480 --> 00:36:35,279
Speaker 3: up very quickly by other retailers, and there's expansion going on,

635
00:36:35,920 --> 00:36:39,399
Speaker 3: and so I'm wondering, you know, sort of looking back

636
00:36:39,440 --> 00:36:42,040
Speaker 3: at you know, you say your Amazon's not stopping, but

637
00:36:42,040 --> 00:36:43,799
Speaker 3: then you think about the mall and the fact that

638
00:36:43,800 --> 00:36:46,640
Speaker 3: the mall is quote unquote dead or so some people say,

639
00:36:47,160 --> 00:36:49,719
Speaker 3: but you have that narrative. How are you sort of

640
00:36:49,760 --> 00:36:51,640
Speaker 3: putting that in or are you just not touching it

641
00:36:51,719 --> 00:36:53,640
Speaker 3: because it's too uncertain at the moment.

642
00:36:54,960 --> 00:36:59,000
Speaker 2: So I didn't I have to say this. This is

643
00:36:59,320 --> 00:37:04,239
Speaker 2: new to me that there is there's more supply, more

644
00:37:04,320 --> 00:37:07,440
Speaker 2: stores that want to be in malls. Based on my

645
00:37:07,560 --> 00:37:10,400
Speaker 2: anecdotal experience, that is not what I've I've seen, but

646
00:37:10,640 --> 00:37:13,600
Speaker 2: you know that's that's anecdotal, that that is not statistical.

647
00:37:14,680 --> 00:37:18,000
Speaker 2: So I'm actually surprised by that comment. I kind of

648
00:37:18,040 --> 00:37:22,520
Speaker 2: think about, like, how many how many jump zones can

649
00:37:22,640 --> 00:37:27,640
Speaker 2: replace uh, the anchor source, the big, the big, you know,

650
00:37:27,880 --> 00:37:31,080
Speaker 2: the department stores at malls. I didn't think there were

651
00:37:31,200 --> 00:37:35,480
Speaker 2: that many. Although my children are definitely avid users of

652
00:37:35,560 --> 00:37:41,319
Speaker 2: jumper zones throughout the US, specifically in our portfolios, that

653
00:37:41,400 --> 00:37:44,000
Speaker 2: has just not been an area that we've needed to

654
00:37:44,080 --> 00:37:47,640
Speaker 2: focus on. When we want to leverage the real estate market,

655
00:37:47,680 --> 00:37:50,600
Speaker 2: we're finding much better ways and much better spread levels

656
00:37:50,640 --> 00:37:55,600
Speaker 2: through the CMBs market. And again when it comes to

657
00:37:56,160 --> 00:38:00,960
Speaker 2: where we're exposed in in kind of the financial consumer

658
00:38:01,120 --> 00:38:05,680
Speaker 2: space in investment grade, for example, we we have not

659
00:38:05,920 --> 00:38:09,160
Speaker 2: been leaning in that direction. So if those are new

660
00:38:09,200 --> 00:38:12,520
Speaker 2: trends that are happening, we should we should take look

661
00:38:12,760 --> 00:38:13,400
Speaker 2: or take watch.

662
00:38:14,080 --> 00:38:16,360
Speaker 1: Just sue me out a bit, Lindsay for a second.

663
00:38:17,160 --> 00:38:19,239
Speaker 1: You know, one of the things I'm really excited about

664
00:38:19,280 --> 00:38:20,960
Speaker 1: having on the show for is that you're you have

665
00:38:21,000 --> 00:38:24,080
Speaker 1: a really broad perspective, not just credit, but you do

666
00:38:24,120 --> 00:38:26,640
Speaker 1: other things. A lot of people come on the show

667
00:38:26,680 --> 00:38:28,920
Speaker 1: and they tell us it's the golden age, it's the

668
00:38:29,360 --> 00:38:32,439
Speaker 1: best time ever, it's equity light returns. But obviously they're

669
00:38:32,480 --> 00:38:35,319
Speaker 1: in credit, a lot of them. And you know, I'm

670
00:38:35,440 --> 00:38:38,040
Speaker 1: probably been doing way too long to believe everything that

671
00:38:38,040 --> 00:38:41,000
Speaker 1: I'm told about. You know how wonderful the opportunity is.

672
00:38:41,600 --> 00:38:43,600
Speaker 1: Could you give us more perspective on, you know, how

673
00:38:43,600 --> 00:38:45,840
Speaker 1: it compares to other markets that you look at, and

674
00:38:46,320 --> 00:38:49,960
Speaker 1: really what is the value proposition of credit versus other stuff?

675
00:38:50,680 --> 00:38:53,960
Speaker 2: Yeah, so the value proposition with credit and this is

676
00:38:54,040 --> 00:38:56,040
Speaker 2: kind of an always thing is where it sits in

677
00:38:56,080 --> 00:38:59,520
Speaker 2: the capital structure, right, So your closest to the assets

678
00:38:59,840 --> 00:39:02,480
Speaker 2: being in fixed income right being in the bond part

679
00:39:02,520 --> 00:39:04,480
Speaker 2: as opposed to the equity. So that's kind of an

680
00:39:04,520 --> 00:39:07,640
Speaker 2: always thing that I think is really important. What maybe

681
00:39:08,160 --> 00:39:13,000
Speaker 2: drives the difference between bonds or stocks or prefers which

682
00:39:13,080 --> 00:39:16,879
Speaker 2: kind of in between her, is where you think that

683
00:39:17,239 --> 00:39:20,560
Speaker 2: growth is going to fall out over the next year.

684
00:39:21,120 --> 00:39:25,840
Speaker 2: And what we've seen so far in terms of guidance

685
00:39:26,160 --> 00:39:31,080
Speaker 2: and specifically for the next quarter from different companies is

686
00:39:31,120 --> 00:39:34,520
Speaker 2: still okay, we're not seeing a big guide down, but

687
00:39:34,600 --> 00:39:37,840
Speaker 2: if you look at the multiples that equities are trading

688
00:39:37,880 --> 00:39:40,080
Speaker 2: at right now, there is going to have to be

689
00:39:40,560 --> 00:39:44,000
Speaker 2: pretty decent year over your growth to sustain that. I

690
00:39:44,040 --> 00:39:47,279
Speaker 2: think what's helpful in bonds is that you don't need

691
00:39:47,360 --> 00:39:50,520
Speaker 2: necessarily that kind of growth to sustain the yields that

692
00:39:50,560 --> 00:39:54,160
Speaker 2: we see or what it's affording you as a ballast

693
00:39:54,360 --> 00:39:58,319
Speaker 2: of some protection in your portfolio with less volatility. And

694
00:39:58,600 --> 00:40:00,800
Speaker 2: some word that's been i I think used a couple

695
00:40:00,760 --> 00:40:04,160
Speaker 2: of times so far in this podcast has been uncertainty.

696
00:40:04,239 --> 00:40:08,680
Speaker 2: And the uncertainty is absolutely increasing right now in the market.

697
00:40:08,880 --> 00:40:11,080
Speaker 2: While we know, for example, that fed put is at

698
00:40:11,080 --> 00:40:14,960
Speaker 2: the money, we do not know how quickly they're going

699
00:40:15,040 --> 00:40:18,880
Speaker 2: to go. They could go fifty basis points and pause,

700
00:40:19,160 --> 00:40:21,279
Speaker 2: they could go through twenty fives for the end of

701
00:40:21,280 --> 00:40:23,919
Speaker 2: the year. I mean, there's a lot of bid offer there,

702
00:40:24,840 --> 00:40:27,240
Speaker 2: and it even just grows when you get into twenty

703
00:40:27,280 --> 00:40:30,839
Speaker 2: twenty five. So there's uncertainty there. There is, certainly it

704
00:40:30,920 --> 00:40:33,840
Speaker 2: is I think literally a coin flip right now according

705
00:40:33,880 --> 00:40:38,080
Speaker 2: to polling organizations. When it comes to the election, Interestingly,

706
00:40:39,200 --> 00:40:42,399
Speaker 2: the debate will happen and we'll see how that goes.

707
00:40:42,440 --> 00:40:45,200
Speaker 2: As we were chatting before this podcast kicked off. So

708
00:40:45,320 --> 00:40:49,040
Speaker 2: there's uncertainty that it bounds. And in many times when

709
00:40:49,040 --> 00:40:52,319
Speaker 2: there's uncertainty, your best friend is the bond. So I

710
00:40:52,360 --> 00:40:55,520
Speaker 2: think it is a great time for fixed income. You

711
00:40:55,600 --> 00:40:58,680
Speaker 2: are correct, James, and noting if you're if you grow

712
00:40:58,760 --> 00:41:00,640
Speaker 2: up as a fixed income investor, it's hard for you

713
00:41:00,680 --> 00:41:03,680
Speaker 2: to not love it. Guilty is charged, But I think

714
00:41:03,680 --> 00:41:05,839
Speaker 2: it is really a unique time for bonds.

715
00:41:06,080 --> 00:41:08,320
Speaker 1: Okay, And are there any other sectors other than banks

716
00:41:08,320 --> 00:41:09,680
Speaker 1: that you see opportunity in right now?

717
00:41:12,040 --> 00:41:15,359
Speaker 2: An area that we maybe turn this a little bit

718
00:41:15,400 --> 00:41:19,680
Speaker 2: around where we think there's less and we're focusing less

719
00:41:19,719 --> 00:41:24,200
Speaker 2: on is utilities. That's an underweight in our portfolio. Uh,

720
00:41:24,520 --> 00:41:28,280
Speaker 2: the idea of how much capex needs to be done

721
00:41:28,480 --> 00:41:31,880
Speaker 2: for the green transition that is just going to place

722
00:41:31,920 --> 00:41:35,279
Speaker 2: them in a different kind of balance sheet posture than

723
00:41:35,280 --> 00:41:38,080
Speaker 2: we think is advantageous to being a bond holder. So

724
00:41:38,160 --> 00:41:40,200
Speaker 2: that's an area that we are underweight.

725
00:41:40,360 --> 00:41:40,640
Speaker 1: Okay.

726
00:41:41,160 --> 00:41:44,000
Speaker 2: Besides from that, I think what we again find most

727
00:41:44,040 --> 00:41:47,640
Speaker 2: interesting in corporate credit is the curve and that that

728
00:41:47,760 --> 00:41:50,759
Speaker 2: front end we really feel will outperform the back end.

729
00:41:50,960 --> 00:41:52,480
Speaker 1: Okay because just the rates.

730
00:41:53,040 --> 00:41:55,880
Speaker 2: Yeah, and something else back to that that edge that

731
00:41:55,920 --> 00:42:02,359
Speaker 2: I refer to before about understanding different areas of the

732
00:42:02,400 --> 00:42:05,720
Speaker 2: investor base. A big one of those and a big

733
00:42:05,760 --> 00:42:09,960
Speaker 2: shift I think that we're really at the vanguard of

734
00:42:10,280 --> 00:42:13,160
Speaker 2: is that the LDI business speaking of the long end

735
00:42:13,200 --> 00:42:15,759
Speaker 2: of the curve, used to be long duration investing, that's

736
00:42:15,760 --> 00:42:20,279
Speaker 2: what that's what it stood for. Now it's more liability

737
00:42:20,360 --> 00:42:25,080
Speaker 2: driven and understanding that liability also the change in funding

738
00:42:25,120 --> 00:42:29,759
Speaker 2: status of a lot of pensions that's allowed that community

739
00:42:29,800 --> 00:42:33,880
Speaker 2: and also that investment space to think about different parts

740
00:42:33,920 --> 00:42:36,040
Speaker 2: of the curve, not just be in the long end.

741
00:42:36,200 --> 00:42:40,960
Speaker 2: So again, as the investor base changes in morphs over time,

742
00:42:41,360 --> 00:42:44,600
Speaker 2: that actually can change the preferred habitats and where we

743
00:42:44,680 --> 00:42:50,040
Speaker 2: see typical technicals or bids, and that can force things

744
00:42:50,080 --> 00:42:53,360
Speaker 2: to change in terms of valuations. And so that's a

745
00:42:53,360 --> 00:42:56,120
Speaker 2: piece of it as well, that we're seeing what was

746
00:42:56,160 --> 00:42:59,360
Speaker 2: an investor base that typically just lived out the curve.

747
00:43:00,120 --> 00:43:03,440
Speaker 2: Now they have much more flexibility, and that can also

748
00:43:03,560 --> 00:43:04,680
Speaker 2: change the shape of the curve.

749
00:43:05,080 --> 00:43:09,279
Speaker 3: Lindsay, going back to your commentary on utilities as an

750
00:43:09,320 --> 00:43:12,400
Speaker 3: area to sort of that you're not so excited about.

751
00:43:12,960 --> 00:43:15,439
Speaker 3: We're about trap up, but I'd love to just get

752
00:43:15,440 --> 00:43:18,399
Speaker 3: your thoughts on just using that as an example. Does

753
00:43:18,480 --> 00:43:22,040
Speaker 3: your view on that change depending on who gets into

754
00:43:22,080 --> 00:43:22,640
Speaker 3: the White House?

755
00:43:23,760 --> 00:43:30,399
Speaker 2: So we have done some work on obviously who who

756
00:43:30,480 --> 00:43:33,280
Speaker 2: would what would what would it mean if it's Trump

757
00:43:33,360 --> 00:43:38,480
Speaker 2: or if it's Harris. Specifically with utilities, I mean they

758
00:43:38,480 --> 00:43:44,560
Speaker 2: have different green initiatives or not. I am going to

759
00:43:44,640 --> 00:43:49,279
Speaker 2: try to keep myself from a compliance perspective in a

760
00:43:49,280 --> 00:43:52,200
Speaker 2: good place. Uh. And I would say that we are

761
00:43:52,280 --> 00:43:56,000
Speaker 2: still learning about their policies. I think that is totally true.

762
00:43:56,640 --> 00:43:59,560
Speaker 2: The debate, maybe we will learn more of the policies,

763
00:44:00,120 --> 00:44:02,440
Speaker 2: and I think it also has a lot to do

764
00:44:02,600 --> 00:44:05,880
Speaker 2: with what is the chance of any of those policies

765
00:44:05,920 --> 00:44:08,400
Speaker 2: crossing the finish line, And that has very much to

766
00:44:08,440 --> 00:44:10,480
Speaker 2: do not just with the top of the ticket, but

767
00:44:10,560 --> 00:44:13,480
Speaker 2: the rest of the ticket. So there are a lot

768
00:44:13,520 --> 00:44:15,920
Speaker 2: of moving pieces there, and so I don't want to

769
00:44:16,400 --> 00:44:21,800
Speaker 2: overstep by saying something in regard to what the outcome is.

770
00:44:22,360 --> 00:44:23,960
Speaker 1: Talking about your edge, what do you think is the

771
00:44:23,960 --> 00:44:27,279
Speaker 1: single best opportunity when you look at everything? I mean,

772
00:44:27,320 --> 00:44:29,759
Speaker 1: is it cnbs, is it banks? Is it T bill?

773
00:44:29,840 --> 00:44:31,960
Speaker 1: And chill?

774
00:44:32,080 --> 00:44:36,680
Speaker 2: So for the time being, when we think about what

775
00:44:36,800 --> 00:44:40,279
Speaker 2: is happening in terms of rates and where the FED

776
00:44:40,400 --> 00:44:44,120
Speaker 2: is going, they are not going to move that quickly.

777
00:44:44,480 --> 00:44:47,960
Speaker 2: Right what's being priced in right now is a fifty

778
00:44:48,600 --> 00:44:52,960
Speaker 2: or maybe a little bit more twenty five or so,

779
00:44:53,280 --> 00:44:55,000
Speaker 2: you know, a little bit over one hundred basis points

780
00:44:55,000 --> 00:44:59,160
Speaker 2: of cuts in twenty twenty four. Does that dislodge the

781
00:44:59,200 --> 00:45:02,080
Speaker 2: opportunity of sitting in a T bill and chilling so

782
00:45:02,200 --> 00:45:05,680
Speaker 2: to speak? No, I think like you can get your

783
00:45:05,719 --> 00:45:08,520
Speaker 2: margarita and lean back in your chase lounge and you

784
00:45:08,560 --> 00:45:11,400
Speaker 2: will be okay in T bills for a couple more months.

785
00:45:11,800 --> 00:45:15,640
Speaker 2: We are, though, saying that there isn't a perfect time

786
00:45:15,719 --> 00:45:20,200
Speaker 2: to extend duration, and so we encourage investors to begin

787
00:45:20,400 --> 00:45:24,600
Speaker 2: extending duration. It makes more sense now where we're saying

788
00:45:24,640 --> 00:45:27,719
Speaker 2: to extend is into the intermediate part of the curve,

789
00:45:27,840 --> 00:45:30,920
Speaker 2: call it two through fives or threes through five year

790
00:45:31,040 --> 00:45:33,759
Speaker 2: duration that we feel like is the right place to be,

791
00:45:33,920 --> 00:45:36,440
Speaker 2: not the back end of the curve. Maybe in a

792
00:45:36,480 --> 00:45:40,040
Speaker 2: way that I can answer an election question is that

793
00:45:40,200 --> 00:45:42,880
Speaker 2: we think that the rates curve is likely to steep in.

794
00:45:43,640 --> 00:45:46,839
Speaker 2: A big part of that is that neither candidate is

795
00:45:47,640 --> 00:45:54,360
Speaker 2: running on a fiscal restraint program. Neither, so I feel

796
00:45:54,400 --> 00:45:57,440
Speaker 2: pretty confident about that is not going to be a

797
00:45:57,480 --> 00:46:01,160
Speaker 2: policy number one under Trump or Harris. So as a

798
00:46:01,200 --> 00:46:04,000
Speaker 2: result that, with a few other reasons, we think that

799
00:46:04,200 --> 00:46:07,200
Speaker 2: the treasury curve could really steepen out. And what that

800
00:46:07,280 --> 00:46:09,640
Speaker 2: means is the front end of the curve coming lower,

801
00:46:09,960 --> 00:46:14,560
Speaker 2: maybe tens through thirties stays put or comes in a

802
00:46:14,600 --> 00:46:16,360
Speaker 2: little bit, but it's going to be that front end

803
00:46:16,400 --> 00:46:18,800
Speaker 2: of the curve that moves much more. And you would

804
00:46:18,800 --> 00:46:22,799
Speaker 2: benefit from being out of tea bills into further out

805
00:46:22,840 --> 00:46:26,799
Speaker 2: the curve, and so te bill and chill. It's a

806
00:46:26,800 --> 00:46:29,600
Speaker 2: great phrase. I wish I came up with it. I didn't.

807
00:46:29,640 --> 00:46:32,239
Speaker 2: I can't take the credit for it. I don't have

808
00:46:32,320 --> 00:46:38,200
Speaker 2: anything really snazzy and snappy to say about threes through

809
00:46:38,200 --> 00:46:43,280
Speaker 2: fives through five. Yeah, some of that that works, that works,

810
00:46:43,280 --> 00:46:47,000
Speaker 2: and we have to think of a token drink for

811
00:46:47,040 --> 00:46:49,439
Speaker 2: that part of the curve. Doesn't come to me now yet.

812
00:46:49,719 --> 00:46:52,080
Speaker 2: I'll leave that one with you, Jody and James to

813
00:46:52,120 --> 00:46:54,440
Speaker 2: come up with what is the signature drink of the

814
00:46:54,480 --> 00:46:56,759
Speaker 2: three to five year part of the curve. But that's

815
00:46:56,800 --> 00:47:01,080
Speaker 2: where we really think there are there is opportunity.

816
00:47:00,120 --> 00:47:02,360
Speaker 1: Just seems too chilled out, and that's that's the issue

817
00:47:02,400 --> 00:47:04,719
Speaker 1: for me. For me, I just worry about that that.

818
00:47:04,920 --> 00:47:06,759
Speaker 1: You know, there are a lot of risks. We've talked

819
00:47:06,760 --> 00:47:10,080
Speaker 1: about them. There is you could say overvaluation in that

820
00:47:10,120 --> 00:47:11,920
Speaker 1: you know, spreads are very type of people just look

821
00:47:11,920 --> 00:47:14,439
Speaker 1: at the yield. They don't really care what to you

822
00:47:14,760 --> 00:47:17,080
Speaker 1: is the biggest risk in the markets you cover Of

823
00:47:17,200 --> 00:47:18,439
Speaker 1: the of the things that we.

824
00:47:18,360 --> 00:47:22,879
Speaker 2: Know about right well, hopefully all the different comments I've

825
00:47:22,880 --> 00:47:26,840
Speaker 2: made about really sorting through credits, being very specific and

826
00:47:26,840 --> 00:47:30,360
Speaker 2: purposeful in what we choose, and also being on the

827
00:47:30,440 --> 00:47:35,600
Speaker 2: lower end of our risk usage doesn't suggest that I'm

828
00:47:35,719 --> 00:47:39,560
Speaker 2: just chilling or a chill person. I think we are

829
00:47:39,680 --> 00:47:43,560
Speaker 2: are being very serious and we're super alert trying to

830
00:47:43,560 --> 00:47:47,440
Speaker 2: figure out what's going on in the market. But concerns

831
00:47:47,480 --> 00:47:50,600
Speaker 2: that I have out there is that there can be

832
00:47:52,200 --> 00:47:56,440
Speaker 2: future volatility if we've had you know, as I mentioned

833
00:47:56,440 --> 00:47:59,000
Speaker 2: August fifth, a quick episode of the vic scorn is sixty,

834
00:47:59,040 --> 00:48:02,000
Speaker 2: but is that twenty today as if nothing had ever happened,

835
00:48:02,760 --> 00:48:05,919
Speaker 2: And the move index is close to one hundred, it's

836
00:48:05,960 --> 00:48:08,920
Speaker 2: even below its average over the past five years, So

837
00:48:09,440 --> 00:48:12,359
Speaker 2: there is not a lot of volatility being priced into

838
00:48:12,440 --> 00:48:17,000
Speaker 2: the market. That for us, that lack of volatility being

839
00:48:17,040 --> 00:48:20,200
Speaker 2: priced in feels to us to be underpriced. And so

840
00:48:20,239 --> 00:48:22,600
Speaker 2: that goes back to our posture of how we want

841
00:48:22,600 --> 00:48:25,040
Speaker 2: to set up our portfolios with a little bit of

842
00:48:25,080 --> 00:48:28,280
Speaker 2: spread risk and really think about duration as a ballast

843
00:48:28,760 --> 00:48:32,520
Speaker 2: and then being able to take advantage of opportunities when

844
00:48:32,560 --> 00:48:35,520
Speaker 2: spread's widen and hopefully it'll be less fleeting than a

845
00:48:35,560 --> 00:48:37,880
Speaker 2: couple days like it was in the middle of August,

846
00:48:38,360 --> 00:48:41,080
Speaker 2: and then we can really step in where we think

847
00:48:41,160 --> 00:48:42,360
Speaker 2: value has been created.

848
00:48:42,880 --> 00:48:45,800
Speaker 1: Great stuff. Lindsay Rosna, head of Multi Sex for Investing

849
00:48:45,840 --> 00:48:47,360
Speaker 1: at Golden Sex, has been a pleasure having you on

850
00:48:47,360 --> 00:48:48,120
Speaker 1: the Credit Edge.

851
00:48:48,320 --> 00:48:49,920
Speaker 2: Thank you so much, really appreciate it.

852
00:48:50,080 --> 00:48:52,239
Speaker 1: And to Jody Leary with Bloomberg Intelligence, thank you very

853
00:48:52,320 --> 00:48:53,200
Speaker 1: much for joining us today.

854
00:48:53,560 --> 00:48:55,759
Speaker 3: It's been great to be here. Thanks Lindsay for the

855
00:48:55,760 --> 00:48:56,600
Speaker 3: great conversation.

856
00:48:57,200 --> 00:48:58,359
Speaker 2: Thank you for.

857
00:48:58,360 --> 00:49:01,400
Speaker 1: Even more analysisweedle of Jody great work on the Bloomberg Terminal.

858
00:49:01,440 --> 00:49:03,839
Speaker 1: Bloomberg Intelligence is part of our research department, with five

859
00:49:03,920 --> 00:49:07,040
Speaker 1: hundred analysts and strategies working across all the markets. Coverage

860
00:49:07,040 --> 00:49:09,759
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861
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Speaker 1: more than ninety industries and one hundred market industries, currencies

862
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Speaker 1: and commodities. Please do subscribe to the Credit Edge wherever

863
00:49:15,600 --> 00:49:18,279
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864
00:49:18,320 --> 00:49:21,680
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865
00:49:22,320 --> 00:49:24,400
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866
00:49:24,440 --> 00:49:28,520
Speaker 1: directly at Jcromby eight at Bloomberg dot net. I'm James Crumby.

867
00:49:28,600 --> 00:49:30,839
Speaker 1: It's been a pleasure having you join us again next

868
00:49:30,840 --> 00:49:48,120
Speaker 1: week on the Credit Edge.