1 00:00:00,080 --> 00:00:12,960 Speaker 1: Ye. Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene 2 00:00:13,480 --> 00:00:17,560 Speaker 1: Jay Ley. We bring you insight from the best in economics, finance, investment, 3 00:00:18,000 --> 00:00:23,520 Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 4 00:00:23,600 --> 00:00:27,920 Speaker 1: Bloomberg dot Com, and of course on the Bloomberg. It 5 00:00:28,040 --> 00:00:29,640 Speaker 1: is great to have Brown wife scene at the Mite 6 00:00:29,640 --> 00:00:32,400 Speaker 1: with us now. Morgan Stanley Investment Management, Head of Global 7 00:00:32,440 --> 00:00:34,559 Speaker 1: fixed Income Brown, we have come a long day, a 8 00:00:34,600 --> 00:00:38,279 Speaker 1: long year, a long way, yields down and now we've 9 00:00:38,320 --> 00:00:40,080 Speaker 1: had a little bit of a bounce off around one 10 00:00:40,240 --> 00:00:42,680 Speaker 1: forty in the last couple of months. Back up to 11 00:00:44,200 --> 00:00:48,040 Speaker 1: what are your talent clients now? Not to expect rates 12 00:00:48,080 --> 00:00:50,160 Speaker 1: to go up that much, but they're still too low. 13 00:00:50,600 --> 00:00:53,400 Speaker 1: It's amazing. I think you're right that ten year notes 14 00:00:53,440 --> 00:00:56,800 Speaker 1: went from three to one forty. Unloved the whole time. 15 00:00:56,920 --> 00:00:59,000 Speaker 1: I think I was with you when when they were 16 00:00:59,040 --> 00:01:01,360 Speaker 1: loved to think you and uh, and we discussed that 17 00:01:01,400 --> 00:01:04,679 Speaker 1: was too low. Listen to five seems like a good 18 00:01:04,680 --> 00:01:07,679 Speaker 1: ceiling for now. Central banks don't want to ease, but 19 00:01:07,920 --> 00:01:09,920 Speaker 1: rates do seem low. You're confident we've come out of 20 00:01:09,920 --> 00:01:13,440 Speaker 1: this growth scale. No, we wish we were and there's 21 00:01:13,520 --> 00:01:16,120 Speaker 1: a hundred reasons to be optimistic, but you really haven't 22 00:01:16,160 --> 00:01:19,319 Speaker 1: seen a lot of data that shows it is. Um Listen, 23 00:01:19,480 --> 00:01:21,080 Speaker 1: the markets are expecting p M I is to go up, 24 00:01:21,080 --> 00:01:23,600 Speaker 1: the markets are expecting employment to be okay. The danger 25 00:01:23,720 --> 00:01:25,319 Speaker 1: is that that it doesn't come through. At this point, 26 00:01:25,480 --> 00:01:30,440 Speaker 1: our bonds linked to equities now, yes, it looks like 27 00:01:30,480 --> 00:01:33,320 Speaker 1: it us. I mean if you told me, what if 28 00:01:33,319 --> 00:01:35,440 Speaker 1: you ask me what's the most dangerous thing for equities? 29 00:01:35,680 --> 00:01:37,679 Speaker 1: I would think it could be meaningfully higher rates. I 30 00:01:37,680 --> 00:01:39,800 Speaker 1: think it would. It would ruin the narrative that you 31 00:01:39,840 --> 00:01:41,560 Speaker 1: have to find yield, you have to move out the 32 00:01:41,560 --> 00:01:44,720 Speaker 1: curve that you have to We've been looking for meaningfully 33 00:01:44,840 --> 00:01:48,600 Speaker 1: higher rates for what fifteen years at least? I mean, 34 00:01:48,640 --> 00:01:50,720 Speaker 1: do do you? Can you guys? You guys have made 35 00:01:50,720 --> 00:01:53,640 Speaker 1: some really important calls. Ellen sentor Mike Wilson and the rest. 36 00:01:53,960 --> 00:01:56,680 Speaker 1: Can you make a call that we range out and 37 00:01:56,720 --> 00:01:59,559 Speaker 1: break through to higher yields? I don't hear that. No, 38 00:02:00,200 --> 00:02:02,080 Speaker 1: it's hard to make that call. You don't see inflation, 39 00:02:02,160 --> 00:02:04,200 Speaker 1: you don't see growth breaking out. It would take some 40 00:02:04,240 --> 00:02:07,600 Speaker 1: other policy movement I think to break out. I'm watching 41 00:02:07,640 --> 00:02:10,280 Speaker 1: European bond markets because we're focused on the US market, 42 00:02:10,440 --> 00:02:13,880 Speaker 1: But frankly, uh, European bonds have actually had a much 43 00:02:13,880 --> 00:02:17,320 Speaker 1: bigger sell off, and I want to get a sense 44 00:02:17,560 --> 00:02:21,760 Speaker 1: of this being capitulation. The negative yields a haven't worked, 45 00:02:21,800 --> 00:02:24,480 Speaker 1: and that be the ECB has no more ammunition. Are 46 00:02:24,520 --> 00:02:26,560 Speaker 1: you more concerned about the European debt market right now 47 00:02:26,600 --> 00:02:31,000 Speaker 1: than the US? No? Not not really. I think to 48 00:02:31,080 --> 00:02:33,920 Speaker 1: say negative fields haven't worked is is you have to 49 00:02:33,919 --> 00:02:36,160 Speaker 1: break it down a little bit more granularly. Obviously, if 50 00:02:36,200 --> 00:02:38,720 Speaker 1: you're borrowing at higher rates, like some of the periphery 51 00:02:38,880 --> 00:02:41,560 Speaker 1: was lower rates and negative rates been very important. Do 52 00:02:41,560 --> 00:02:44,680 Speaker 1: you think Italy would issue a sixty basis point bond today? 53 00:02:44,600 --> 00:02:47,040 Speaker 1: They should they? I mean should they be able to? 54 00:02:47,280 --> 00:02:48,919 Speaker 1: It's a it's a great question, but that they are, 55 00:02:48,919 --> 00:02:51,520 Speaker 1: it's great for them, it's great for for risk assets. 56 00:02:51,639 --> 00:02:54,359 Speaker 1: So listen, I think European heels are going to stay low. 57 00:02:54,400 --> 00:02:55,799 Speaker 1: I don't think they're going to give up on the 58 00:02:55,840 --> 00:02:59,040 Speaker 1: negative yield experiment. Um and and and yes there's been 59 00:02:59,080 --> 00:03:01,359 Speaker 1: a sell off, but they're still pretty negative. So I 60 00:03:01,400 --> 00:03:04,160 Speaker 1: don't think a forty or fifty base point moving European 61 00:03:04,240 --> 00:03:07,440 Speaker 1: yield from negative seventy. Negative thirty or to zero is 62 00:03:07,440 --> 00:03:08,960 Speaker 1: what's going to break the card. With the policy right 63 00:03:08,960 --> 00:03:11,160 Speaker 1: at negative fifty basis points, it's hard to construct an 64 00:03:11,200 --> 00:03:14,000 Speaker 1: argument the front end of the yield curve in Europe 65 00:03:14,040 --> 00:03:16,040 Speaker 1: is going to sell off massively with the policy rate 66 00:03:16,040 --> 00:03:18,560 Speaker 1: where it is. Brian totally totally agreed, And as I said, 67 00:03:18,560 --> 00:03:21,640 Speaker 1: I wish I could give you a magical high interest 68 00:03:21,720 --> 00:03:24,120 Speaker 1: rate call, but it's not. It's that doesn't seem like 69 00:03:24,200 --> 00:03:26,240 Speaker 1: it's in the cards. Markets are telling you a story 70 00:03:26,280 --> 00:03:29,240 Speaker 1: about the future. The fundamentals continue a very different story 71 00:03:29,280 --> 00:03:32,280 Speaker 1: in German Germany right now. Arguably we're in a recession 72 00:03:32,560 --> 00:03:36,080 Speaker 1: in Germany, yet the decks in is up around about 73 00:03:37,360 --> 00:03:39,520 Speaker 1: and button yields have had a massive move. What do 74 00:03:39,520 --> 00:03:42,480 Speaker 1: you make of the spread between sentiment and fundamentals at 75 00:03:42,520 --> 00:03:45,880 Speaker 1: the moment. The one thing I'll say about equity markets 76 00:03:46,040 --> 00:03:49,920 Speaker 1: is that there was a big swoon between October November 77 00:03:49,920 --> 00:03:51,840 Speaker 1: of last year and today. So I think the SMP 78 00:03:52,040 --> 00:03:54,600 Speaker 1: from the October highs is only up about six percent, 79 00:03:55,280 --> 00:03:57,480 Speaker 1: depends how you measure it. So, yes, equities are done well. 80 00:03:58,720 --> 00:04:00,839 Speaker 1: I think the I think go back to what Tom said, 81 00:04:00,880 --> 00:04:02,920 Speaker 1: which is that I think that this promise of lower 82 00:04:03,000 --> 00:04:05,920 Speaker 1: yields is driving people in equity markets. And even though 83 00:04:05,920 --> 00:04:09,040 Speaker 1: people don't feel great about the world, it's an unloved 84 00:04:09,040 --> 00:04:12,440 Speaker 1: equity market. Uh, they're still slowly trickling in and and 85 00:04:12,760 --> 00:04:16,760 Speaker 1: levels keep going higher. Extraordinary the market action yesterday, just 86 00:04:16,800 --> 00:04:20,200 Speaker 1: the sector by sector diffusion and the dynamics of it. John, 87 00:04:20,240 --> 00:04:23,880 Speaker 1: I can honestly say I've never seen all time high 88 00:04:24,160 --> 00:04:26,520 Speaker 1: on the natstack, on a Dow and on the SMP 89 00:04:26,560 --> 00:04:32,520 Speaker 1: five hundred as well. The outperformance yesterday coming from energy industrials, financials, 90 00:04:32,800 --> 00:04:35,640 Speaker 1: the value sectors that many people have been waiting for 91 00:04:35,640 --> 00:04:39,080 Speaker 1: this rotation into and waiting for tracery yields to move 92 00:04:39,160 --> 00:04:42,280 Speaker 1: with it. Your call now going into year end? What's 93 00:04:42,279 --> 00:04:44,880 Speaker 1: the conviction call now for you? Brian? The conviction call 94 00:04:44,960 --> 00:04:47,120 Speaker 1: for us is that that some of these unloved sectors 95 00:04:47,120 --> 00:04:48,839 Speaker 1: are going to find some love. So you can see 96 00:04:48,839 --> 00:04:50,440 Speaker 1: them in fix income too. Right, if you look at 97 00:04:50,440 --> 00:04:53,320 Speaker 1: what's underperformed emerging markets, and and and the energy sectors 98 00:04:53,320 --> 00:04:55,719 Speaker 1: in high yield, a few others, So we'd buy triple 99 00:04:55,760 --> 00:04:57,800 Speaker 1: cities in high guild. Well it's not that simple, right, 100 00:04:57,839 --> 00:04:59,520 Speaker 1: A bunch of those triple cs are actually really bad. 101 00:05:00,279 --> 00:05:02,080 Speaker 1: So you can't just go and buy the triple C index, 102 00:05:02,480 --> 00:05:04,320 Speaker 1: but you can certainly find names that in there that 103 00:05:04,400 --> 00:05:06,480 Speaker 1: that are Okay, It's not easy, I'll be honest. Fixed 104 00:05:06,480 --> 00:05:10,760 Speaker 1: income valuations are are are are not obviously wide. For 105 00:05:10,839 --> 00:05:13,320 Speaker 1: the benefit of our listeners, I asked that question smiling 106 00:05:13,640 --> 00:05:15,640 Speaker 1: quite a lot because I know how complex that is 107 00:05:15,680 --> 00:05:17,480 Speaker 1: in that space. Right now, By a second, I want 108 00:05:17,480 --> 00:05:21,039 Speaker 1: to just give a little statistic. Yesterday the one day 109 00:05:21,120 --> 00:05:24,719 Speaker 1: move in triple C rated bond yields, they went from 110 00:05:24,720 --> 00:05:27,880 Speaker 1: eleven point two percent to ten point nine percent. Bam. 111 00:05:28,000 --> 00:05:30,680 Speaker 1: It was just a massive rally in the triple C space, 112 00:05:30,720 --> 00:05:32,880 Speaker 1: and it was really on the heels in particular of 113 00:05:32,920 --> 00:05:35,599 Speaker 1: the energy rally that we saw. But really interesting to 114 00:05:35,600 --> 00:05:37,600 Speaker 1: see people going back into that. There are so few 115 00:05:37,640 --> 00:05:39,880 Speaker 1: things that you can pick fixed income. They have that 116 00:05:39,920 --> 00:05:41,919 Speaker 1: type of coupone. So it's funny, well, the well, the 117 00:05:41,960 --> 00:05:44,520 Speaker 1: fundamentals and the and the technicals separated. In other words, 118 00:05:44,520 --> 00:05:46,240 Speaker 1: will you buy what's terrible just to get the yield 119 00:05:46,240 --> 00:05:48,360 Speaker 1: for a little while. It's definitely a danger right here, 120 00:05:48,440 --> 00:05:51,840 Speaker 1: yea Aprom, We appreciate your time this morning, thanks for 121 00:05:51,920 --> 00:05:54,600 Speaker 1: running back into the studio, But I'm staying the Stanley 122 00:05:54,720 --> 00:06:14,880 Speaker 1: Investment Management head of Global fixed Income, Phoenix Klein, now 123 00:06:14,960 --> 00:06:16,760 Speaker 1: with us, it was sock Jen as we look at 124 00:06:16,839 --> 00:06:22,880 Speaker 1: emerging market, Phoenix, can you link a better China directly 125 00:06:23,040 --> 00:06:26,479 Speaker 1: into a better e M or is it a discreete 126 00:06:26,600 --> 00:06:31,520 Speaker 1: matter right now? I think the Chinese story has become 127 00:06:31,920 --> 00:06:34,280 Speaker 1: a huge part of the e M overall story, and 128 00:06:34,560 --> 00:06:36,640 Speaker 1: I think that's one of the reasons why you know, 129 00:06:36,680 --> 00:06:40,239 Speaker 1: our our views and e M is grossly intricately tied 130 00:06:40,279 --> 00:06:42,640 Speaker 1: to what happens to China over the course of the 131 00:06:42,640 --> 00:06:45,680 Speaker 1: next month. Is it a broader dollar coal head, Phoenix? 132 00:06:47,920 --> 00:06:51,680 Speaker 1: Is it a broader dollar coal here? Yes, So so 133 00:06:51,800 --> 00:06:53,560 Speaker 1: that in terms of the dollar call, you know, we're 134 00:06:53,560 --> 00:06:57,239 Speaker 1: expecting for dollar c n y to go towards seven 135 00:06:57,240 --> 00:06:59,880 Speaker 1: point five by the end of the third quarter and 136 00:07:00,200 --> 00:07:03,320 Speaker 1: years so, you know, within twelve months UM, and that's 137 00:07:03,360 --> 00:07:07,359 Speaker 1: going to likely to lead to further EM weakness UM 138 00:07:07,400 --> 00:07:11,600 Speaker 1: across the M complex. So uh, So far, we've gotten 139 00:07:11,680 --> 00:07:15,400 Speaker 1: a number of pm I data industrial production data out 140 00:07:15,440 --> 00:07:18,360 Speaker 1: of merging markets, particularly in Eastern Europe, and it does 141 00:07:18,400 --> 00:07:20,920 Speaker 1: appear that there is at least some bottoming out or 142 00:07:20,920 --> 00:07:22,680 Speaker 1: getting a whole host of p M I s this 143 00:07:22,760 --> 00:07:26,560 Speaker 1: week as well from other developing markets. What are you expecting? 144 00:07:26,560 --> 00:07:31,840 Speaker 1: How important are those figures? Those figures are quite essential 145 00:07:32,000 --> 00:07:35,120 Speaker 1: in reflecting the state of the economies, especially in Eastern 146 00:07:35,160 --> 00:07:38,160 Speaker 1: European markets. And as we've seen in the numbers released 147 00:07:38,200 --> 00:07:41,840 Speaker 1: yesterday from Poland, there is spill over from the weakness 148 00:07:41,880 --> 00:07:44,680 Speaker 1: coming out of the German manufacturing complex. And that's still 149 00:07:44,720 --> 00:07:47,360 Speaker 1: I think a long term story ahead for this economy's 150 00:07:47,920 --> 00:07:50,560 Speaker 1: um and and that's likely to weigh on the economic 151 00:07:50,560 --> 00:07:53,800 Speaker 1: growth picture and and still hold back the overall region. 152 00:07:53,840 --> 00:07:56,720 Speaker 1: So I think that's still going to impact currencies in particular. 153 00:07:57,120 --> 00:08:00,400 Speaker 1: So how tied is a slowdown in industrial production to 154 00:08:00,520 --> 00:08:02,040 Speaker 1: what we're seeing in China, I mean just sort of 155 00:08:02,040 --> 00:08:06,120 Speaker 1: connecting it back to the U N Yeah, So I 156 00:08:06,120 --> 00:08:08,680 Speaker 1: think that this is part of a much bigger global 157 00:08:08,720 --> 00:08:12,800 Speaker 1: trade story, and China's slowdown has certainly impacted other regions, 158 00:08:12,880 --> 00:08:16,840 Speaker 1: and Germany's linked into that intricately. Um And I think 159 00:08:16,840 --> 00:08:20,120 Speaker 1: that's that's kind of the global slowdown that's being reflected 160 00:08:20,480 --> 00:08:23,040 Speaker 1: across the manufacturing in the season in particular, and unless 161 00:08:23,040 --> 00:08:26,440 Speaker 1: so in the services and season, do you partition e 162 00:08:26,720 --> 00:08:32,920 Speaker 1: M bigger more sophisticated big cap companies away from other 163 00:08:33,080 --> 00:08:38,760 Speaker 1: e M stocks or is it all one basket? Now, 164 00:08:38,760 --> 00:08:41,480 Speaker 1: there's there's a huge amount of videos incre seas and 165 00:08:42,320 --> 00:08:45,720 Speaker 1: diversity across the e M world, So I think there's 166 00:08:45,760 --> 00:08:49,480 Speaker 1: there's lots of ways to partition its um. And certainly 167 00:08:49,480 --> 00:08:51,320 Speaker 1: you know some of the countries as well as well 168 00:08:51,360 --> 00:08:55,240 Speaker 1: as bill functioned by blocks, still functions by regions. And 169 00:08:55,280 --> 00:08:58,160 Speaker 1: then there are the videos and that we hear from 170 00:08:58,200 --> 00:09:00,240 Speaker 1: time to time. We'll give us an idiosync at a 171 00:09:00,320 --> 00:09:03,679 Speaker 1: sock gen view. What what where is that opportunity right 172 00:09:03,720 --> 00:09:08,160 Speaker 1: now geographically on a nation's basis? Where where would you 173 00:09:08,160 --> 00:09:11,640 Speaker 1: suggest the opportunity is for someone that believes these ill 174 00:09:11,679 --> 00:09:14,320 Speaker 1: winds will clear and that we will have a better market. 175 00:09:16,960 --> 00:09:19,680 Speaker 1: But that goes against the core sucks and dow which 176 00:09:19,720 --> 00:09:24,400 Speaker 1: is quite bearish in nature in fact, and because in 177 00:09:24,480 --> 00:09:27,040 Speaker 1: terms of new US growth for next year, we're expecting 178 00:09:27,160 --> 00:09:30,160 Speaker 1: for US to print only zero point seven present GDP 179 00:09:30,520 --> 00:09:34,319 Speaker 1: versus consensus at one point seven. So um, yeah, I 180 00:09:34,360 --> 00:09:36,400 Speaker 1: think what you are kind of the standouts in terms 181 00:09:36,400 --> 00:09:38,520 Speaker 1: of the market, in terms of how bearished we think 182 00:09:39,240 --> 00:09:42,880 Speaker 1: the economy will perform um And in that context, you 183 00:09:42,920 --> 00:09:45,000 Speaker 1: know our our views are along the lines of still 184 00:09:45,120 --> 00:09:50,400 Speaker 1: being very bullish bond various currencies. Yeah, very good. We 185 00:09:50,480 --> 00:09:52,439 Speaker 1: gotta get you back on that Phoenix. Kalin will be 186 00:09:52,480 --> 00:09:55,480 Speaker 1: appearing with us every three months here on a zero 187 00:09:55,559 --> 00:09:58,640 Speaker 1: point seven g d picle. I mean, John, that's extraordinary. 188 00:09:58,679 --> 00:10:01,240 Speaker 1: It is famous. Kind that is I'm gonna call that 189 00:10:01,280 --> 00:10:03,920 Speaker 1: a hundred and twenty basis points South, director of a 190 00:10:04,080 --> 00:10:20,199 Speaker 1: M strategy gun into. One of the great things you 191 00:10:20,240 --> 00:10:22,600 Speaker 1: can do is drive across the fabric of the country 192 00:10:22,640 --> 00:10:25,920 Speaker 1: and outside Des Moines there's a sign five and eighty 193 00:10:25,960 --> 00:10:30,600 Speaker 1: miles Denver, and that's where Eastern coast people like me go, oh, 194 00:10:30,640 --> 00:10:34,199 Speaker 1: it's a big country out there. Joseph Fricketts lived in 195 00:10:34,240 --> 00:10:37,680 Speaker 1: He's the second most famous person out of Nebraska City, Nebraska. 196 00:10:37,720 --> 00:10:41,040 Speaker 1: Greg Whorton, football player, is the most famous. Joe Ricketts 197 00:10:41,080 --> 00:10:43,160 Speaker 1: joins us. The book is the harder you work, luckier 198 00:10:43,160 --> 00:10:45,599 Speaker 1: you getting. Yes, we will talk a merry trade, and 199 00:10:45,679 --> 00:10:49,120 Speaker 1: yes we will talk cubs. At some point. What was 200 00:10:49,240 --> 00:10:53,320 Speaker 1: Nebraska City like in World War Two? And I bring 201 00:10:53,360 --> 00:10:57,640 Speaker 1: that up because we have a president nostalgic for the 202 00:10:57,760 --> 00:11:01,200 Speaker 1: smallness of America of the forties, of these sixties, what 203 00:11:01,360 --> 00:11:03,800 Speaker 1: was it. I was born in forty one, so I 204 00:11:03,960 --> 00:11:09,319 Speaker 1: was a baby during the war. I remember though, the 205 00:11:09,400 --> 00:11:12,160 Speaker 1: anxiety that people had. I felt it as a baby. 206 00:11:12,679 --> 00:11:15,040 Speaker 1: But coming out of the war, which is when I 207 00:11:15,080 --> 00:11:16,960 Speaker 1: started to become a child and grew up through the 208 00:11:17,000 --> 00:11:22,240 Speaker 1: late fifties, Nebraska City was the perfect place to grow up. 209 00:11:23,000 --> 00:11:25,439 Speaker 1: I had the freedom to room, to ride my bicycle 210 00:11:25,640 --> 00:11:28,160 Speaker 1: in the morning, and the summertime, my wife or my 211 00:11:28,320 --> 00:11:30,200 Speaker 1: mother would give me a zack lunch and I didn't 212 00:11:30,200 --> 00:11:31,880 Speaker 1: come back. And you capture that in your book and 213 00:11:31,920 --> 00:11:34,560 Speaker 1: the fabulous photographs as well. We have a president who 214 00:11:34,559 --> 00:11:39,679 Speaker 1: you support, President Trump, who has a nostalgia for what was. 215 00:11:40,520 --> 00:11:44,400 Speaker 1: How do we take our belief in what was and 216 00:11:44,520 --> 00:11:50,000 Speaker 1: drag it forward into the modern America. I I don't 217 00:11:50,000 --> 00:11:55,240 Speaker 1: know how to answer that question correctly, accept to say 218 00:11:55,280 --> 00:11:57,480 Speaker 1: that if we don't keep the free enterprise system, our 219 00:11:57,520 --> 00:12:01,959 Speaker 1: society is going to change dramatically for the worlds. So 220 00:12:02,000 --> 00:12:03,760 Speaker 1: that one of the reasons why I wrote the book 221 00:12:04,480 --> 00:12:08,160 Speaker 1: was to encourage young people, if they have an entrepreneurial band, 222 00:12:08,360 --> 00:12:10,480 Speaker 1: to start a business. And suggested John, we don't have 223 00:12:10,480 --> 00:12:13,839 Speaker 1: a vote here for Senator Warren. Let's let's talk about 224 00:12:13,840 --> 00:12:20,080 Speaker 1: it carry on, please do we No, no, no, I'm 225 00:12:20,320 --> 00:12:25,560 Speaker 1: stunned at the conversation that's that's in the arena today 226 00:12:25,640 --> 00:12:29,760 Speaker 1: with this presidential election coming up. Our greatness comes from 227 00:12:29,760 --> 00:12:35,240 Speaker 1: pre enterprise. Every society that has tried socialism has failed, 228 00:12:36,480 --> 00:12:41,760 Speaker 1: and there is poverty and despair that comes out of socialism. 229 00:12:41,880 --> 00:12:44,760 Speaker 1: Senator Warren says, she's a capitalist. She just wants markets 230 00:12:44,800 --> 00:12:47,920 Speaker 1: to work more efficiently. Do you believe that? No, not 231 00:12:48,000 --> 00:12:50,320 Speaker 1: at all, not when you listen. What is it that 232 00:12:50,360 --> 00:12:52,440 Speaker 1: tells you that she's not what she says she is 233 00:12:52,640 --> 00:12:56,440 Speaker 1: Because all the benefits that she says she as the 234 00:12:56,600 --> 00:12:59,319 Speaker 1: leader of the government is going to provide to society 235 00:12:59,400 --> 00:13:02,760 Speaker 1: is going to read ware that she changed society dramatically 236 00:13:03,320 --> 00:13:06,600 Speaker 1: and not in favor of for enterprise. She says, all 237 00:13:06,640 --> 00:13:09,360 Speaker 1: she needs to do to get Medicare for rule is 238 00:13:09,400 --> 00:13:12,240 Speaker 1: tax the billionaires. The billionaires are the only people that 239 00:13:12,280 --> 00:13:14,440 Speaker 1: are going to be paid more. And last count I 240 00:13:14,440 --> 00:13:17,360 Speaker 1: think Forbes had six hundred and seven billionaires in the 241 00:13:17,400 --> 00:13:20,080 Speaker 1: United States of America's still quite a rare think, isn't 242 00:13:20,080 --> 00:13:22,640 Speaker 1: it joke to be that it's a very that much money, 243 00:13:22,880 --> 00:13:26,200 Speaker 1: very rare thing. And these are the people that make 244 00:13:26,280 --> 00:13:28,880 Speaker 1: society work. If you'll look at that list with the 245 00:13:28,920 --> 00:13:32,680 Speaker 1: top four billionaires, they're all people that are in business 246 00:13:32,880 --> 00:13:37,559 Speaker 1: that are providing jobs and providing benist society. Did you 247 00:13:37,760 --> 00:13:40,160 Speaker 1: ever think did you ever think they're becoming a billionaire 248 00:13:40,200 --> 00:13:42,760 Speaker 1: would be seen as a sign not of success but 249 00:13:42,840 --> 00:13:47,760 Speaker 1: of market failure. Never never dreamed of it. No, not 250 00:13:47,840 --> 00:13:50,240 Speaker 1: at all, Joe. We got to bring in and introduce you. 251 00:13:50,440 --> 00:13:53,600 Speaker 1: Lisa Abrahamo. It's her great claim to fame is at 252 00:13:53,640 --> 00:13:56,520 Speaker 1: the University of Chicago. She begged Richard Taylor to go 253 00:13:56,559 --> 00:13:59,160 Speaker 1: to the Cubs game with him, but it never worked out. Dude, 254 00:13:59,240 --> 00:14:01,720 Speaker 1: when you said when you said your claim to frame, 255 00:14:01,960 --> 00:14:04,480 Speaker 1: I got this wave of nervousness come over me. I 256 00:14:04,520 --> 00:14:06,959 Speaker 1: had no no clue where you're going with that. But 257 00:14:07,160 --> 00:14:09,960 Speaker 1: the number of the number of Nobel laureates that darkened 258 00:14:09,960 --> 00:14:12,600 Speaker 1: the door of really field is just something to talk about. Yeah, 259 00:14:12,640 --> 00:14:13,920 Speaker 1: And I could never get them to go with it 260 00:14:14,000 --> 00:14:16,720 Speaker 1: with me to a Cubs game. But I will ask you, Um, 261 00:14:16,880 --> 00:14:19,080 Speaker 1: you talk about free enterprise, and that brings me to 262 00:14:19,120 --> 00:14:23,040 Speaker 1: the business of TD merrit Trade, which you founded. Uh. 263 00:14:23,240 --> 00:14:27,280 Speaker 1: Increasingly it's moving toward free trading of assets, and I'm 264 00:14:27,320 --> 00:14:30,600 Speaker 1: wondering can you connect that the idea of uh, sort 265 00:14:30,640 --> 00:14:34,040 Speaker 1: of the availability and the ease of which people can 266 00:14:34,280 --> 00:14:38,560 Speaker 1: buy and sell securities without paying anything. Do you think 267 00:14:38,560 --> 00:14:41,640 Speaker 1: that that is a good thing. I'm not sure. I 268 00:14:41,680 --> 00:14:44,240 Speaker 1: think it has to play out. I I am hesitant 269 00:14:44,320 --> 00:14:46,720 Speaker 1: to say it's a good thing. First of all, is 270 00:14:46,760 --> 00:14:50,480 Speaker 1: the culmination of what happened in so we've had all 271 00:14:50,480 --> 00:14:53,560 Speaker 1: of this time for the discount brokerage industry free evolved 272 00:14:53,560 --> 00:14:55,560 Speaker 1: to come to this point. But the thing that we 273 00:14:55,600 --> 00:14:58,240 Speaker 1: need to be careful with f from my point of view, 274 00:14:58,320 --> 00:15:00,760 Speaker 1: is we don't want to equate I in a stock 275 00:15:01,480 --> 00:15:05,120 Speaker 1: with betting on a football game. That and if that 276 00:15:05,280 --> 00:15:07,160 Speaker 1: kind of goes there, it's going to turn out to 277 00:15:07,160 --> 00:15:09,160 Speaker 1: be a bad thing. Do you think that that's sort 278 00:15:09,160 --> 00:15:13,760 Speaker 1: of implication of having no fees on these transactions. I 279 00:15:13,800 --> 00:15:15,640 Speaker 1: don't know. We have to see it play out. That's 280 00:15:15,640 --> 00:15:17,760 Speaker 1: my hesitation. That's what I don't know. That's what we're 281 00:15:17,760 --> 00:15:20,520 Speaker 1: gonna have to see. We don't want the wrong type 282 00:15:20,520 --> 00:15:22,680 Speaker 1: of volume in the business. I would point out, the 283 00:15:22,680 --> 00:15:25,000 Speaker 1: harder you work, the lucky to get. Joe Rickerson back 284 00:15:25,160 --> 00:15:28,040 Speaker 1: of the book says it all he's got. George will uh, 285 00:15:28,600 --> 00:15:31,680 Speaker 1: channeling branch Rickey, X of the Cardinals, a guy named 286 00:15:31,680 --> 00:15:34,080 Speaker 1: Diamond in the banking business, and one of your arch 287 00:15:34,120 --> 00:15:37,560 Speaker 1: competitors Charles Schwab as well. You invent a t DA merritrade. 288 00:15:37,600 --> 00:15:41,360 Speaker 1: I remember the wonder of it off of Mayday in 289 00:15:41,400 --> 00:15:44,480 Speaker 1: all that, but has it become a barbell business where 290 00:15:44,480 --> 00:15:49,800 Speaker 1: it's adults holding equities forever essentially versus the micro hyper trading? 291 00:15:50,080 --> 00:15:52,920 Speaker 1: Does that industry that you invent do they now live 292 00:15:52,960 --> 00:15:57,400 Speaker 1: and die on that hyper trading? Uh, that hyper trading segment. 293 00:15:58,040 --> 00:16:00,520 Speaker 1: A lot of them do, but a lot of them 294 00:16:00,560 --> 00:16:05,480 Speaker 1: also don't. We have evolved out of Merritorde just from 295 00:16:05,480 --> 00:16:08,640 Speaker 1: providing trades to providing a lot of other services that 296 00:16:08,720 --> 00:16:11,960 Speaker 1: the customer can pay for, which include financial planning. So 297 00:16:12,000 --> 00:16:14,200 Speaker 1: there's an evolution that has come about it. So there's 298 00:16:14,240 --> 00:16:17,880 Speaker 1: spectrum of traders that are in the customer base of 299 00:16:17,920 --> 00:16:20,680 Speaker 1: our merritrade, but there's also the buy and hold people 300 00:16:24,320 --> 00:16:28,640 Speaker 1: your silence. I mean, look, I think that it's an 301 00:16:28,640 --> 00:16:33,640 Speaker 1: interesting point, this idea of uh, you know, whether removing 302 00:16:33,680 --> 00:16:36,680 Speaker 1: the difficulty of entrance, the barriers to entry in the 303 00:16:36,720 --> 00:16:41,000 Speaker 1: market will encourage imprudent behavior and will encourage people to 304 00:16:41,160 --> 00:16:45,080 Speaker 1: trade more and not necessarily be deep dive investors. But 305 00:16:45,280 --> 00:16:50,120 Speaker 1: in some way, don't index funds already do that. They do. Yes, 306 00:16:50,160 --> 00:16:54,080 Speaker 1: they trade often, and they provide a lot of volume 307 00:16:54,080 --> 00:16:56,600 Speaker 1: to the business, which is good. It's help the market 308 00:16:56,680 --> 00:17:01,240 Speaker 1: grow in depth. Uh So, it's not so much that 309 00:17:01,280 --> 00:17:03,520 Speaker 1: they're going to harm the market, is that they may 310 00:17:03,560 --> 00:17:07,000 Speaker 1: not help themselves. I want to ask you about the 311 00:17:07,040 --> 00:17:09,280 Speaker 1: title of your book, the Harder you Work, the Lucky 312 00:17:09,359 --> 00:17:12,399 Speaker 1: You Get, which is an ethos of Pete Peterson's Nebraska. 313 00:17:12,440 --> 00:17:15,920 Speaker 1: You're in Nebraska as well, and it speaks to a 314 00:17:16,000 --> 00:17:20,159 Speaker 1: massive body of disaffected Republicans who have had it with 315 00:17:20,320 --> 00:17:23,639 Speaker 1: this president. What do you say, and your family is 316 00:17:24,040 --> 00:17:26,679 Speaker 1: raised funds for President Trump, what do you say to 317 00:17:26,720 --> 00:17:29,199 Speaker 1: the group of the Grand Old Party out there? It 318 00:17:29,320 --> 00:17:33,480 Speaker 1: doesn't like this guy's style. I really don't feel like 319 00:17:33,520 --> 00:17:35,120 Speaker 1: I have to talk to them, but I can tell 320 00:17:35,119 --> 00:17:36,679 Speaker 1: you this. All you have to do is look at 321 00:17:36,720 --> 00:17:39,359 Speaker 1: the figures. Look at the employment figures, look at the 322 00:17:39,359 --> 00:17:42,840 Speaker 1: gross national product, look at our factories. I thinks are 323 00:17:42,840 --> 00:17:45,879 Speaker 1: reviving in a fresh way in the United States. We 324 00:17:45,960 --> 00:17:47,920 Speaker 1: gotta come on, Joe, we gotta we gotta run rate 325 00:17:47,960 --> 00:17:51,040 Speaker 1: of one point nine g d p of for lucky 326 00:17:51,080 --> 00:17:53,560 Speaker 1: on a trade ward that this guy invented. I mean, 327 00:17:53,600 --> 00:17:57,760 Speaker 1: what does that trade war doing to a farmer? Forget 328 00:17:57,800 --> 00:18:00,920 Speaker 1: about that. My distance is wrong, John, I think New Jersey. 329 00:18:00,960 --> 00:18:03,000 Speaker 1: What is this due to a farmer four hundred and 330 00:18:03,000 --> 00:18:06,119 Speaker 1: seventy miles west of Omaha on the way to cose It? 331 00:18:06,280 --> 00:18:08,720 Speaker 1: What's it due to him? I think that in the 332 00:18:08,760 --> 00:18:10,560 Speaker 1: short term is you I know what I read in 333 00:18:10,600 --> 00:18:13,880 Speaker 1: the papers. It's it's caused them some harm, but he's 334 00:18:13,920 --> 00:18:16,280 Speaker 1: given them some help and now he's got one of 335 00:18:16,320 --> 00:18:19,520 Speaker 1: the biggest trade arrangements for soybeans that the United States 336 00:18:19,560 --> 00:18:22,280 Speaker 1: have ever had with China. I don't you worry about 337 00:18:22,280 --> 00:18:24,840 Speaker 1: that though, that that help came from the government. The 338 00:18:24,880 --> 00:18:33,160 Speaker 1: farm is increasingly depending on handouts. I prefer society without handouts, 339 00:18:34,119 --> 00:18:39,840 Speaker 1: but sometimes there needs to be some help for a society. 340 00:18:39,880 --> 00:18:43,080 Speaker 1: I know that my grandfather had one of the most 341 00:18:43,119 --> 00:18:46,800 Speaker 1: successful farms near Manly, Nebraska, and he went broken during 342 00:18:46,800 --> 00:18:50,080 Speaker 1: the depression and he moved to a house in Nebraska 343 00:18:50,160 --> 00:18:52,520 Speaker 1: City to work in the packing house, into a house 344 00:18:52,520 --> 00:18:55,200 Speaker 1: with dirt floors. I mean, there was no social programs, 345 00:18:55,280 --> 00:18:57,760 Speaker 1: So there needs to be some where you where you 346 00:18:57,840 --> 00:19:00,240 Speaker 1: draw that line is the big question. Can do a 347 00:19:00,240 --> 00:19:03,639 Speaker 1: surveillance correction, Joe, in honor of you in Nebraska? I 348 00:19:03,680 --> 00:19:07,000 Speaker 1: mentioned four and seventy miles west of Omah, that would 349 00:19:07,040 --> 00:19:10,399 Speaker 1: be Sydney, Nebraska out I eighty. I was wrong Cosad's 350 00:19:10,440 --> 00:19:14,320 Speaker 1: in closer to Omah than I recall, okay years ago. 351 00:19:15,040 --> 00:19:19,760 Speaker 1: That's our surveillance correction for the Dayphy. The harder you work, 352 00:19:19,800 --> 00:19:22,120 Speaker 1: the luckier you get get you know him from merri Tree. 353 00:19:22,200 --> 00:19:25,040 Speaker 1: The family's got a night and acquaintance with Anthony Rizzo 354 00:19:25,040 --> 00:19:28,120 Speaker 1: in the Chicago Cubs as well, and we thank him 355 00:19:28,160 --> 00:19:32,440 Speaker 1: for coming in today. Uh truly. And I think John, 356 00:19:32,440 --> 00:19:54,320 Speaker 1: in the history it's forgotten. They revolutionized the business. John, 357 00:19:54,320 --> 00:19:57,320 Speaker 1: I've really been looking forward to this, this serious bontom 358 00:19:57,400 --> 00:20:00,520 Speaker 1: dynamics to discuss, really really happy to site it. Joining 359 00:20:00,680 --> 00:20:03,879 Speaker 1: Lisa Tom of myself is Lally too of j O H. 360 00:20:03,920 --> 00:20:06,640 Speaker 1: C Mly Good morning to you, Good morning, big day 361 00:20:06,720 --> 00:20:09,560 Speaker 1: yesterday for credit spreads, some real tightening. What do you 362 00:20:09,560 --> 00:20:12,320 Speaker 1: make of the moves with staying at the moment? Complacency 363 00:20:12,400 --> 00:20:14,000 Speaker 1: is a beautiful thing, isn't it? Is that what you 364 00:20:14,000 --> 00:20:15,920 Speaker 1: think it is? Complacency at the moment? Well, look e 365 00:20:16,000 --> 00:20:17,680 Speaker 1: t f are getting inflows. And when e t f 366 00:20:17,760 --> 00:20:20,800 Speaker 1: s have gone inflows, uh, they're just buy. That's just 367 00:20:20,840 --> 00:20:22,440 Speaker 1: the rule of the game. And if you actually look 368 00:20:22,480 --> 00:20:25,479 Speaker 1: at the active manager cash holdings, it's been steadily rising. 369 00:20:26,160 --> 00:20:28,440 Speaker 1: What I mean my complacency is everybody's hiding out in 370 00:20:28,480 --> 00:20:30,720 Speaker 1: the same trade. Everybody's long double bees. That's just the 371 00:20:30,800 --> 00:20:34,520 Speaker 1: name of the game. When is it not complacency? Uh, 372 00:20:35,040 --> 00:20:37,320 Speaker 1: if you're getting returned so far, you're to date on 373 00:20:37,400 --> 00:20:39,879 Speaker 1: higail bonds of twelve point one percent, I mean at 374 00:20:39,880 --> 00:20:43,440 Speaker 1: a certain point, they're right, it's right. But when you 375 00:20:43,600 --> 00:20:45,679 Speaker 1: cash in and just say, you know what, going forward, 376 00:20:45,720 --> 00:20:49,760 Speaker 1: because you got to look forward, not backwards. So going forward, 377 00:20:49,920 --> 00:20:52,000 Speaker 1: what's the best you can make out of double bees today, 378 00:20:52,000 --> 00:20:54,440 Speaker 1: which you'll three point eight percent? I think it's interesting 379 00:20:54,440 --> 00:20:58,000 Speaker 1: that you're delineating double bees, which have a much lower 380 00:20:58,080 --> 00:21:00,760 Speaker 1: yield and have had a much bigger rally versus triple 381 00:21:00,800 --> 00:21:03,920 Speaker 1: cs versus single bees. Is now the time to either 382 00:21:04,240 --> 00:21:06,440 Speaker 1: take big risk or go home, go into the triple 383 00:21:06,480 --> 00:21:09,600 Speaker 1: cs or not by high yield. I'm going home? Are 384 00:21:09,600 --> 00:21:12,800 Speaker 1: you coming home? Are you d risking? At the moment, 385 00:21:13,400 --> 00:21:15,879 Speaker 1: we we have been um so remember we run a 386 00:21:15,880 --> 00:21:19,639 Speaker 1: comingal portfolio between equities and credit. When you look at 387 00:21:19,640 --> 00:21:22,520 Speaker 1: the restroared ratio, to me, equities seem a lot more 388 00:21:22,680 --> 00:21:25,360 Speaker 1: interesting if you think the growth is going to recover 389 00:21:25,520 --> 00:21:28,000 Speaker 1: than than credit from here, and if you think we're 390 00:21:28,000 --> 00:21:30,439 Speaker 1: gonna sell off. Look, I think people forget credit is 391 00:21:30,440 --> 00:21:35,399 Speaker 1: a risk asset class. It is not a hedge against equities. 392 00:21:35,440 --> 00:21:37,720 Speaker 1: If you want to hedge, you go by treasuries, you 393 00:21:37,840 --> 00:21:41,640 Speaker 1: don't go by credit. Well, in your research note, you've 394 00:21:41,640 --> 00:21:44,159 Speaker 1: got something pro which I want you to explain to 395 00:21:44,160 --> 00:21:46,640 Speaker 1: the public, which is how much of bonds are trading 396 00:21:46,680 --> 00:21:49,680 Speaker 1: the first call. This is a really important idea of folks. 397 00:21:49,680 --> 00:21:52,359 Speaker 1: This goes way back to the Bloomberg y a screen 398 00:21:52,400 --> 00:21:55,159 Speaker 1: where you have language like yield the worst, yield, the 399 00:21:55,200 --> 00:21:57,879 Speaker 1: first call, et cetera. What is yield the first call? Me? 400 00:21:58,000 --> 00:22:01,359 Speaker 1: I mean, I know, yield the last call, you know, 401 00:22:01,440 --> 00:22:06,119 Speaker 1: but what is yield the first call? So, unlike investment grade, 402 00:22:06,359 --> 00:22:09,640 Speaker 1: high yield bonds are always callable, and they're typically callable 403 00:22:10,200 --> 00:22:14,040 Speaker 1: three to four years first year after the issuance, and 404 00:22:14,240 --> 00:22:17,720 Speaker 1: the way the call is calculated is a function of 405 00:22:17,800 --> 00:22:20,800 Speaker 1: the yields and the spreads. So if it's cheaper for 406 00:22:20,840 --> 00:22:24,720 Speaker 1: the company to refinance. Today where the things are trading, 407 00:22:25,080 --> 00:22:27,600 Speaker 1: it is likely that the call then will come forward. 408 00:22:27,920 --> 00:22:30,000 Speaker 1: And when you look at the high yield market today 409 00:22:30,080 --> 00:22:33,159 Speaker 1: between the double bees and the and even the single bees, 410 00:22:33,880 --> 00:22:37,360 Speaker 1: majority of the market close to somewhere like I would 411 00:22:37,400 --> 00:22:40,359 Speaker 1: say three quarters of the market is trading into the 412 00:22:40,359 --> 00:22:44,280 Speaker 1: first call and in some cases trading at above prices 413 00:22:44,400 --> 00:22:47,000 Speaker 1: the first call. This is so important, folks, because another 414 00:22:47,000 --> 00:22:49,520 Speaker 1: way to say this is yield to refinance or yield 415 00:22:49,520 --> 00:22:52,880 Speaker 1: to rollover. It's just assume the liquidity is out there, 416 00:22:53,440 --> 00:22:56,560 Speaker 1: is theirsty out there to do the refive three to 417 00:22:56,640 --> 00:23:01,040 Speaker 1: four years out. Well, today is the belief of it is? 418 00:23:01,080 --> 00:23:03,560 Speaker 1: I mean today it's there, right, liquidity, You know, I 419 00:23:03,640 --> 00:23:05,639 Speaker 1: joke about it and I say, like, liquidity is kind 420 00:23:05,640 --> 00:23:07,480 Speaker 1: of like having a line as a pet. Right. It's 421 00:23:07,520 --> 00:23:10,439 Speaker 1: really nice when they're calm, but once no whilecomes and 422 00:23:10,520 --> 00:23:13,960 Speaker 1: just molds you. Um, So today we're in that calm period. 423 00:23:14,480 --> 00:23:18,760 Speaker 1: But when I hear things like investment grade managers are 424 00:23:18,760 --> 00:23:22,359 Speaker 1: looking at triple A CLO spreads to add a little 425 00:23:22,400 --> 00:23:25,359 Speaker 1: bit on the margin. Insurance company is going to look 426 00:23:25,400 --> 00:23:29,119 Speaker 1: at buying stubs of bonds that haven't been tenders, so 427 00:23:29,160 --> 00:23:37,199 Speaker 1: they can earn extra twenty BIPs. But but here's the 428 00:23:37,240 --> 00:23:40,679 Speaker 1: problem with that. And I'm sympathized with that view as 429 00:23:40,800 --> 00:23:43,720 Speaker 1: as someone who enjoys the sensational kinds of headlines. But 430 00:23:43,760 --> 00:23:45,359 Speaker 1: the reality has people have been doing this for a 431 00:23:45,359 --> 00:23:48,560 Speaker 1: while and they've been winning. So the question is when 432 00:23:48,640 --> 00:23:51,440 Speaker 1: is this imprudent? What are you looking for that indicates 433 00:23:51,520 --> 00:23:54,440 Speaker 1: this can't keep going? Sure, and we've been winning as well, 434 00:23:54,600 --> 00:23:56,399 Speaker 1: and there's nothing wrong with winning. You just have to 435 00:23:56,480 --> 00:23:58,680 Speaker 1: know when it is time to pack your bags and 436 00:23:58,840 --> 00:24:01,280 Speaker 1: call it a day. Um, and I think we're slowly 437 00:24:01,280 --> 00:24:03,640 Speaker 1: getting to that point. I'm just on a risk adjusted basis. Look, 438 00:24:03,640 --> 00:24:06,200 Speaker 1: if I have an extra dollar to to spend, I'm 439 00:24:06,240 --> 00:24:08,119 Speaker 1: not telling you don't put it anywhere in the markets. 440 00:24:08,119 --> 00:24:10,360 Speaker 1: I'm just saying I rather put it in the equities 441 00:24:10,640 --> 00:24:13,000 Speaker 1: and the cyclicals, where I think I can make almost 442 00:24:13,000 --> 00:24:15,560 Speaker 1: two extra money and by the way, earn a dividend 443 00:24:15,680 --> 00:24:18,240 Speaker 1: yield that probably two x what you can earn on 444 00:24:18,280 --> 00:24:21,159 Speaker 1: the treasury then basically hiding out in the double b. 445 00:24:21,359 --> 00:24:24,080 Speaker 1: So it's just a function of how you want to 446 00:24:24,119 --> 00:24:26,240 Speaker 1: craft your portfolio. And now you don't like me talking 447 00:24:26,280 --> 00:24:28,439 Speaker 1: about your performance too much. But for anyone that's interested, 448 00:24:28,440 --> 00:24:30,240 Speaker 1: you can't go on the Bloombow terminal and take you look, 449 00:24:30,440 --> 00:24:34,320 Speaker 1: look yourself. It is a really really good year, Arlo. 450 00:24:34,440 --> 00:24:37,280 Speaker 1: Let's talk about where else is crowded. You've mentioned the 451 00:24:37,320 --> 00:24:40,320 Speaker 1: double bees part of high Yield. Where else is crowded 452 00:24:40,359 --> 00:24:42,439 Speaker 1: at the moment that you think if people are in, 453 00:24:42,800 --> 00:24:45,440 Speaker 1: they should be considering getting out, regardless of the performance 454 00:24:45,480 --> 00:24:47,879 Speaker 1: at the moment. I mean broadly, I think the credit 455 00:24:47,920 --> 00:24:52,240 Speaker 1: asset is I really struggle with making heads or titles 456 00:24:52,280 --> 00:24:53,760 Speaker 1: out of it. And I know I wrote this like 457 00:24:53,800 --> 00:24:56,240 Speaker 1: long email tea. I was trying to justify myself. But 458 00:24:56,320 --> 00:24:59,159 Speaker 1: look at the triple C's right, because I mean the 459 00:24:59,280 --> 00:25:01,600 Speaker 1: math has to matter at some point in time, and 460 00:25:01,640 --> 00:25:03,720 Speaker 1: this is the flow of averages. Everybody looks at the 461 00:25:03,760 --> 00:25:06,359 Speaker 1: averages and they look at this high you'll spread that 462 00:25:06,400 --> 00:25:08,560 Speaker 1: has been exceptionally well behaved. They say, you know what, 463 00:25:09,160 --> 00:25:12,040 Speaker 1: four hundred spread. It doesn't look that bad. I can 464 00:25:12,080 --> 00:25:14,760 Speaker 1: still earn it when you start digging into it. It 465 00:25:14,840 --> 00:25:17,680 Speaker 1: just tells you a different story. If you assume half 466 00:25:17,720 --> 00:25:20,320 Speaker 1: of the triple sees default just half of the triple seeds, 467 00:25:20,359 --> 00:25:23,560 Speaker 1: which is not outrageous because they tend to default. That's 468 00:25:23,640 --> 00:25:26,520 Speaker 1: fift of the market at seven and a half percent. 469 00:25:26,560 --> 00:25:28,879 Speaker 1: The fault rate, the average high you'll spread should be 470 00:25:28,880 --> 00:25:31,320 Speaker 1: around six hundred. It's not the triple sees that I 471 00:25:31,320 --> 00:25:33,639 Speaker 1: think are miss priced. It's the double bees and this 472 00:25:33,840 --> 00:25:38,000 Speaker 1: defensive that everybody is hiding out in that is grossly mispriced. 473 00:25:38,800 --> 00:25:41,040 Speaker 1: I think the call point is really interesting because it's 474 00:25:41,080 --> 00:25:45,280 Speaker 1: also indicating that people are buying bonds at prices that 475 00:25:45,359 --> 00:25:48,160 Speaker 1: are higher than where the company can buy it back 476 00:25:48,600 --> 00:25:51,920 Speaker 1: from them at right, So it's basically guaranteeing a loss 477 00:25:52,200 --> 00:25:56,560 Speaker 1: if the company chooses to refinance. I'm just wondering you're saying, 478 00:25:56,640 --> 00:25:59,640 Speaker 1: if triple cees see like half of them default, are 479 00:25:59,640 --> 00:26:03,919 Speaker 1: you see any fundamental signs of deterioration? I mean the 480 00:26:03,960 --> 00:26:06,000 Speaker 1: easiest one. So there's two things you can look at. 481 00:26:06,160 --> 00:26:09,280 Speaker 1: One is just look at the ratings, upgrades and down grades. 482 00:26:09,280 --> 00:26:11,440 Speaker 1: You are now on a trend. You're seeing more down 483 00:26:11,520 --> 00:26:15,080 Speaker 1: grades broadly speaking, than upgrades. The other part you see 484 00:26:15,200 --> 00:26:18,159 Speaker 1: is it's you know, look at the volatility both in 485 00:26:18,200 --> 00:26:20,159 Speaker 1: the loan and the high yield market. Right a company 486 00:26:20,240 --> 00:26:22,960 Speaker 1: reports good earnings, maybe the bonds go up half a 487 00:26:22,960 --> 00:26:25,920 Speaker 1: point to a point, you report bad numbers. I mean 488 00:26:25,960 --> 00:26:29,160 Speaker 1: we've seen three, five, ten, in some cases twenty points 489 00:26:29,160 --> 00:26:33,159 Speaker 1: of downside. It's insane, like bonds are not supposed to 490 00:26:33,200 --> 00:26:35,879 Speaker 1: be like that. Like at the moment. If we let 491 00:26:35,880 --> 00:26:37,760 Speaker 1: you go right now, many of our listeners will think 492 00:26:37,760 --> 00:26:40,399 Speaker 1: you're this uber bear who's sound in the alarm on 493 00:26:40,640 --> 00:26:43,280 Speaker 1: global markets. That's not the case. Let's wrap things up 494 00:26:43,280 --> 00:26:45,600 Speaker 1: with the opportunities in front of you. In the equity market. 495 00:26:45,840 --> 00:26:47,760 Speaker 1: You've been doing wow this year. I imagine that's coming 496 00:26:47,760 --> 00:26:49,960 Speaker 1: a lot also from your equity investments. What are you 497 00:26:50,000 --> 00:26:53,480 Speaker 1: doing at the moment in stocks, I mean equities. We 498 00:26:53,480 --> 00:26:55,880 Speaker 1: we always look at it from a portfolio castilation and 499 00:26:55,880 --> 00:26:57,800 Speaker 1: and think of it where where are we in credit 500 00:26:57,800 --> 00:27:00,560 Speaker 1: and where are we in equities? In context? So we 501 00:27:00,560 --> 00:27:03,119 Speaker 1: we like some of the cyclicals, we like some of 502 00:27:03,160 --> 00:27:05,800 Speaker 1: the you know, European financials is something that we've looked at. 503 00:27:06,040 --> 00:27:09,280 Speaker 1: Um it's and and really Europe and Asia are the 504 00:27:09,320 --> 00:27:12,000 Speaker 1: two areas where everybody has just thrown in the towel, 505 00:27:12,359 --> 00:27:15,320 Speaker 1: and sometimes you can find quite interesting companies have been 506 00:27:15,359 --> 00:27:17,959 Speaker 1: around for a long period of time that you know, 507 00:27:18,080 --> 00:27:21,200 Speaker 1: it's already pricing in a pretty bearish scenario. That doesn't 508 00:27:21,200 --> 00:27:23,560 Speaker 1: mean you can't go in a lower but people are 509 00:27:23,600 --> 00:27:28,399 Speaker 1: already assuming pretty much the worst. What a negative interest rates? 510 00:27:28,600 --> 00:27:31,520 Speaker 1: Due to your world you're removed from full faith and 511 00:27:31,560 --> 00:27:34,760 Speaker 1: credit Europe, but nevertheless there it is. Does that change 512 00:27:34,760 --> 00:27:38,480 Speaker 1: the dynamics of the non full faith and credit market? 513 00:27:39,680 --> 00:27:42,119 Speaker 1: I you know, simplistically, I don't think. I'm not a 514 00:27:42,119 --> 00:27:45,160 Speaker 1: believer that negative rates work. It doesn't work anywhere else. 515 00:27:45,200 --> 00:27:48,120 Speaker 1: And I think if you are company, including Mr Solomon 516 00:27:48,160 --> 00:27:50,840 Speaker 1: speaking to our Matthew Miller today in Berlin, you know, 517 00:27:51,080 --> 00:27:53,720 Speaker 1: I think if the US were to go negative too, 518 00:27:54,359 --> 00:27:57,360 Speaker 1: I mean you may perhaps can think of an example, 519 00:27:57,359 --> 00:27:59,160 Speaker 1: but I can't think of an example where the entire 520 00:27:59,160 --> 00:28:02,600 Speaker 1: world with negative of UM Today, I think it kind 521 00:28:02,600 --> 00:28:06,000 Speaker 1: of works because US is not negative, it's positive. You 522 00:28:06,040 --> 00:28:09,320 Speaker 1: can still do relative trades, and I think that's part 523 00:28:09,400 --> 00:28:11,840 Speaker 1: of the that's part of the challenge. You know, there's 524 00:28:11,880 --> 00:28:14,919 Speaker 1: a lot of influence coming into the US because we're positive. 525 00:28:15,400 --> 00:28:19,200 Speaker 1: You know, everybody is long US dollars, US exposure, US swaps. 526 00:28:19,280 --> 00:28:23,000 Speaker 1: I mean, follow the money trail. It's actually pretty scary. 527 00:28:24,040 --> 00:28:28,919 Speaker 1: Nice great to see you. M U sad fund manager 528 00:28:29,440 --> 00:28:32,520 Speaker 1: in New York City, so smart. Thanks for listening to 529 00:28:32,600 --> 00:28:37,119 Speaker 1: the Bloomberg Surveillance podcast. Subscribe and listen to interviews on 530 00:28:37,200 --> 00:28:43,000 Speaker 1: Apple Podcasts, SoundCloud, or whichever podcast platform you prefer. I'm 531 00:28:43,040 --> 00:28:46,360 Speaker 1: on Twitter at Tom Keane before the podcast. You can 532 00:28:46,400 --> 00:29:01,280 Speaker 1: always catch us worldwide. I'm Bloomberg Radio