WEBVTT - Surveillance: Trump Has Abandoned Kurds, Kamarck Says 0:00:09.840 --> 0:00:13.800 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene Jai Ley. 0:00:13.960 --> 0:00:17.560 We bring you insight from the best in economics, finance, investment, 0:00:18.000 --> 0:00:23.520 and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 0:00:23.600 --> 0:00:27.280 Bloomberg dot Com, and of course on the Bloomberg. It 0:00:27.400 --> 0:00:30.080 is Wednesday, so we have trade talks and then we'll 0:00:30.120 --> 0:00:32.640 we have trade talks tomorrow at a higher level partial 0:00:32.640 --> 0:00:34.960 true talk. We've had low level trade talks through the week. 0:00:34.960 --> 0:00:37.320 Why don't you bring in our partial guest, Drew Matis, 0:00:37.360 --> 0:00:40.280 MetLife Investment Management, Chief Market Strategies. Good morning to Drew. 0:00:40.360 --> 0:00:42.640 Good morning. We're back to square one, aren't we. It 0:00:42.680 --> 0:00:45.559 seems to be the United States takes a deal like that, 0:00:45.800 --> 0:00:48.160 like the one that's been reported in the Financial Times, 0:00:48.159 --> 0:00:52.040 an extra ten million tons of US soybeans and call 0:00:52.080 --> 0:00:55.080 it a truce. What would your take be that we 0:00:55.240 --> 0:00:59.520 just lost? Uh? You know, I think you know. The 0:00:59.640 --> 0:01:02.360 alca with this trade story is going to be, do 0:01:02.400 --> 0:01:06.280 we have a long term sustainable solution for the US 0:01:06.360 --> 0:01:08.880 and for China in terms of our ability to trade 0:01:08.959 --> 0:01:12.680 with each other, and if we don't end up at 0:01:12.680 --> 0:01:16.120 a place where we think it's fair trade between both 0:01:16.160 --> 0:01:20.360 countries in perpetuity. Then this whole thing has been wasted, 0:01:21.120 --> 0:01:23.039 um and we should have just never done it in 0:01:23.040 --> 0:01:25.759 the first place. So I think, you know, I can't 0:01:25.760 --> 0:01:27.960 imagine that this is this is something that's going to 0:01:28.040 --> 0:01:31.080 play well. And but you know, obviously though, markets are 0:01:31.120 --> 0:01:34.720 taking it positively, and you know, you kind of look 0:01:34.720 --> 0:01:36.600 at that and you think to yourself, you know, should 0:01:36.600 --> 0:01:38.800 you be taking this positively or should you be thinking, 0:01:38.840 --> 0:01:40.680 as you just said, we're back to square one. Well, 0:01:40.680 --> 0:01:43.399 they're taking it positively. People want to hear from dramatic 0:01:43.480 --> 0:01:47.160 is because you have a taking positive view of the economy. 0:01:47.240 --> 0:01:50.840 Can you model a sub two percent GDP growth? Are 0:01:50.840 --> 0:01:54.000 you still nicely above two percent at some former run rate? 0:01:54.760 --> 0:01:57.360 We're still above two percent for this year and for 0:01:57.440 --> 0:01:59.880 next year. You know where where it gets tricky is 0:02:00.400 --> 0:02:02.960 you're beginning to see economy wide profit margins begin to 0:02:03.000 --> 0:02:06.280 dip a little bit. That could eventually lead to firms 0:02:06.640 --> 0:02:09.400 looking to cut back on things like investment and and 0:02:09.120 --> 0:02:12.680 and labor um. But we haven't seen the cut off 0:02:12.800 --> 0:02:16.040 on the labor side yet. Uh And claims. You know, 0:02:16.120 --> 0:02:18.760 for me, claims is the most important data point around. 0:02:18.960 --> 0:02:21.440 It's not payrolls. I don't care how many jobs are created. 0:02:21.520 --> 0:02:23.440 I just need to know whether the consumer has to 0:02:23.440 --> 0:02:25.720 worry about being fired. And right now the answers no, 0:02:26.000 --> 0:02:27.960 claims are inching up just a little bit, just a 0:02:27.960 --> 0:02:30.160 little bit, Drew, Why is that data point so important? 0:02:30.560 --> 0:02:32.600 And why for you is that not a lagging indicator? 0:02:32.680 --> 0:02:34.680 For many people, they might look at that situation and say, 0:02:34.720 --> 0:02:36.359 you know what, if we wait for hours work to 0:02:36.440 --> 0:02:39.400 drop away for claims to pick up, we're too late 0:02:39.480 --> 0:02:43.120 to the party. In fact, the party's over well because 0:02:43.160 --> 0:02:45.760 I think we've gone through such a tight labor market 0:02:45.800 --> 0:02:48.119 for such a long period of time that I think 0:02:48.120 --> 0:02:51.960 if you asked CEOs and hiring managers if things slow 0:02:52.040 --> 0:02:54.720 down or you're gonna pull job openings, are you not 0:02:54.800 --> 0:02:58.240 going to hire um? They might say, well, we're going 0:02:58.280 --> 0:03:01.519 to be more cautious in our hiring. None of them, though, 0:03:01.560 --> 0:03:04.320 are at the point where they feel that things are 0:03:04.320 --> 0:03:06.360 weak enough where they think they can let someone go 0:03:06.440 --> 0:03:08.880 because they know someone else is waiting to hire that person. 0:03:09.200 --> 0:03:11.880 So once that person walks out the door, they are gone. 0:03:12.080 --> 0:03:14.520 And you've got to start this process of sifting through 0:03:14.560 --> 0:03:17.280 the labor market. What's left of the labor market or 0:03:17.320 --> 0:03:19.240 the part of the labor markets looking for work to 0:03:19.240 --> 0:03:21.680 try and replace that position. So, from a market perspective, 0:03:21.680 --> 0:03:23.720 where is the opportunity right now? Last week we get 0:03:23.760 --> 0:03:25.760 punched in the face by a growth scare. The SMP 0:03:25.840 --> 0:03:28.840 five only drops a third of one percent. This week 0:03:29.600 --> 0:03:31.960 whip sword by trade headlines, we drop a couple of 0:03:31.960 --> 0:03:35.000 percentage points. What do you do in this environment right now? 0:03:35.000 --> 0:03:37.720 What are you suggesting people do to? Uh? You know, 0:03:37.800 --> 0:03:40.480 we've been looking for ways to take smart risk, UM 0:03:40.880 --> 0:03:43.280 know what risk you're taking first of all, because they're there. 0:03:43.360 --> 0:03:45.880 You know, you can take credit risk, you can take 0:03:45.960 --> 0:03:49.000 duration risk so that you can lengthen your investments. UM, 0:03:49.320 --> 0:03:52.400 you can take liquidity risk UM and and so if 0:03:52.440 --> 0:03:55.880 you're worried about what things might do going forward. You know, 0:03:55.920 --> 0:03:57.680 one of the things that we've been looking at, you know, 0:03:57.960 --> 0:04:00.240 because of our our you know, what we're able to 0:04:00.320 --> 0:04:03.040 invest in, is we look a lot at private assets 0:04:03.120 --> 0:04:06.200 right now. And the reason we do that is because, UM, 0:04:06.400 --> 0:04:08.800 we're willing to give up some of the liquidity to 0:04:08.840 --> 0:04:11.160 get the higher yield UM. And of course some of 0:04:11.160 --> 0:04:13.800 those some of those purchases also come with better protection. 0:04:13.880 --> 0:04:18.400 So you're taking potentially potentially less credit risk. Uh. And 0:04:18.440 --> 0:04:21.719 you're getting some liquidity risk, assuming that when you go 0:04:21.800 --> 0:04:24.680 to sell your public assets that those are actually as 0:04:24.720 --> 0:04:26.320 liquid as you thought they were in the first place 0:04:26.440 --> 0:04:29.560 the stock market. Can you go international in emerging markets? 0:04:29.760 --> 0:04:31.719 Are you all domestic all the time? With the two 0:04:32.160 --> 0:04:35.480 relative that's like a relative ginormous economy, isn't it. Well, 0:04:35.480 --> 0:04:37.880 our investment management arm is really focused on fixed in coming. 0:04:38.400 --> 0:04:42.000 But give me an equity. Uh yeah, I mean you can, 0:04:42.080 --> 0:04:44.760 You certainly can. And and then the question is, well, 0:04:45.000 --> 0:04:46.760 you know where do you want to expose yourself too? 0:04:46.800 --> 0:04:49.280 And I tend to think of the world in as 0:04:49.360 --> 0:04:51.880 divided into two ways. You have the U S supply 0:04:52.000 --> 0:04:55.680 chain um, and then you have the China supply chain um. 0:04:55.720 --> 0:04:58.360 And although the two are linked in many ways there 0:04:58.360 --> 0:05:00.920 are they are pretty distin to if you kind of 0:05:00.960 --> 0:05:03.680 dig down into the details. Yes, we all sourced from 0:05:03.680 --> 0:05:07.040 each other, but those two supply chains, you can usually 0:05:07.080 --> 0:05:09.800 see who's doing better by what the how those emerging 0:05:09.839 --> 0:05:11.840 market countries are affairing. I got to go back to 0:05:11.839 --> 0:05:15.119 your original work of more hears fed, one and done. 0:05:16.160 --> 0:05:19.920 We are one and done. Uh for this year? Um, 0:05:19.960 --> 0:05:21.920 we don't expect rate cuts next year. We don't think 0:05:21.920 --> 0:05:24.680 they're going to be necessary. Um. And we think if 0:05:24.720 --> 0:05:26.680 you if you go more than one this year, then 0:05:26.680 --> 0:05:28.800 you're then you're really calling into question this whole idea 0:05:28.839 --> 0:05:30.760 that this is a mid cycle slowdown or that these 0:05:30.760 --> 0:05:37.600 are insurance cuts pre a miserable with us. And the 0:05:37.640 --> 0:05:40.040 reason you need to listen to this is John knows 0:05:40.080 --> 0:05:43.240 she adds value not only across all that John Frew 0:05:43.360 --> 0:05:46.039 and time can do, but really adds value on the 0:05:46.040 --> 0:05:49.000 real yield. You'll see it Friday here one p m. 0:05:49.240 --> 0:05:52.080 Jean Bloomberg TV. And it really has come down John 0:05:52.120 --> 0:05:55.480 to the real and the nominal yield, a permanence there. 0:05:55.720 --> 0:05:57.760 She's fantastic and we're lucky to get some of her 0:05:57.760 --> 0:06:01.160 time this morning. Pree of these securities, think glob will 0:06:01.200 --> 0:06:03.320 Head of Right Strategy Pray. Let's start with the debate 0:06:03.360 --> 0:06:06.200 of the last twenty four hours. It's q A, it's 0:06:06.240 --> 0:06:08.680 not QA. Chairman Power says it isn't q A. Does 0:06:08.720 --> 0:06:13.360 it matter whether it is or isn't. Prayer, what's the difference? Yes, So, hello, 0:06:13.760 --> 0:06:16.320 thanks for having me on, thank you for the kind words. 0:06:16.320 --> 0:06:19.240 So it does matter because you know, I think, um, 0:06:19.279 --> 0:06:23.359 what they're actually doing helps repo marketed. It brings reserves 0:06:23.360 --> 0:06:26.000 into the system. But a lot of the impact of 0:06:26.080 --> 0:06:28.719 QI was through the signaling channel. If you remember from 0:06:28.720 --> 0:06:31.360 oh nine to two fourteen, when they did QUEI, they 0:06:31.360 --> 0:06:33.880 were actually trying to push out the start of the 0:06:33.920 --> 0:06:36.919 first higher of the first high. I thought that that 0:06:37.000 --> 0:06:40.120 signal through forward guidance was probably more powerful than the 0:06:40.160 --> 0:06:42.400 actual stock of buying. So I think what the FED 0:06:42.520 --> 0:06:44.400 is trying very hard to say is that this is 0:06:44.440 --> 0:06:47.480 not monetary policy. If they're buying treasuries and they're likely 0:06:47.480 --> 0:06:50.400 to buy bills, that this is not that we should 0:06:50.400 --> 0:06:53.280 not be taking any signal from monetary policy. So therefore 0:06:53.279 --> 0:06:55.880 it should not mean higher stocks. It shouldn't mean lower rates. 0:06:56.080 --> 0:06:59.279 I think that signal value. It's it's important to distinguish. 0:06:59.480 --> 0:07:01.479 They really need another name for it. I don't love 0:07:01.520 --> 0:07:03.880 the organic QUI name. It makes it sound like what 0:07:04.000 --> 0:07:07.480 was the earlier QUEI, like toxic or you know, conventional queie. 0:07:07.520 --> 0:07:09.760 So I think we need a name like reserve management 0:07:09.760 --> 0:07:12.920 buying or liability driven buying. Sort of boring names, but 0:07:13.440 --> 0:07:18.120 liability liability driven buying just rolls right off the top. 0:07:20.480 --> 0:07:24.000 The great unspoken yesterday at the International Monetary Fund as 0:07:24.000 --> 0:07:27.480 a percent of full faith and credit debt worldwide with 0:07:27.560 --> 0:07:30.840 a negative yield. This morning Greece, where their three month 0:07:30.960 --> 0:07:35.360 T bill a negative yield, grease is well. Is that 0:07:35.440 --> 0:07:38.080 a linear function or is there a kink or a 0:07:38.120 --> 0:07:43.200 tip point where there's too much negative debt? Yeah? So 0:07:43.320 --> 0:07:46.240 I think BUG and easy B are realizing this. I mean, 0:07:46.280 --> 0:07:49.560 I think at some point negative rates become counterproductive. I 0:07:49.560 --> 0:07:52.480 would actually argue in the US, any negative rates is 0:07:52.560 --> 0:07:56.040 extremely counterproductive. It can potentially break the financial system because 0:07:56.080 --> 0:07:59.040 we've got you know, money market funds with fixed navs, 0:07:59.280 --> 0:08:01.840 we've got a fact reserve system. I actually think the 0:08:01.920 --> 0:08:05.360 US negative won't work. But even in Europe and Japan 0:08:05.840 --> 0:08:08.559 now they're trying theory, you know, they're trying other things 0:08:08.600 --> 0:08:13.120 to try and reduce the counterproductiveness. I think essentially, you know, 0:08:13.320 --> 0:08:15.000 it's hard for a central banker to say this, but 0:08:15.040 --> 0:08:16.840 they have to say that at some point we're done. 0:08:17.080 --> 0:08:19.679 We really need the structural side, We need the fiscal 0:08:19.720 --> 0:08:22.400 side to come on, because at some point you can't 0:08:22.480 --> 0:08:25.720 keep lowering rates. I don't think, you know, even the 0:08:25.800 --> 0:08:30.080 other central banks will probably lower much more into negative territory. 0:08:30.280 --> 0:08:32.760 But for the US I think actually Chapo has already 0:08:32.760 --> 0:08:35.560 said it's not on his list of things, but certainly 0:08:35.600 --> 0:08:38.000 among investors, I'm getting a lot of questions that is 0:08:38.040 --> 0:08:40.400 the US next for negative And you know that just 0:08:40.480 --> 0:08:43.600 creates more of the stitch field and people take risks 0:08:43.600 --> 0:08:46.280 that they're not they should not be takeing this confidence 0:08:46.360 --> 0:08:48.280 issue again, John, Yeah, Look, I think we all think 0:08:48.320 --> 0:08:50.719 the European fixed income market is totally nuts because it 0:08:50.880 --> 0:08:53.000 is there any surprise that the three months bill that 0:08:53.120 --> 0:08:55.040 yield on it in grace is negative when you have 0:08:55.040 --> 0:08:59.800 a negative fifty basis point policy, right a CP I mean, 0:09:00.160 --> 0:09:01.360 that's what you've got a price off. Do you think 0:09:01.400 --> 0:09:03.920 Greece is money good for three months? Most people would 0:09:03.920 --> 0:09:06.840 assume they probably are for three months. Therefore, why shouldn't 0:09:06.920 --> 0:09:09.760 you would be down there and there's a currency calculation. Look, 0:09:09.920 --> 0:09:11.680 you'll get a ton of push back against that call. 0:09:11.720 --> 0:09:13.880 I have no doubt pre that's where we're at. It's 0:09:13.920 --> 0:09:16.840 crazy talk in the bond market, and as you points out, 0:09:17.160 --> 0:09:20.400 given where Europe is priced right now, whether you're to 0:09:20.400 --> 0:09:22.280 go in the United States. One of the really interesting 0:09:22.320 --> 0:09:25.040 developments I think of the last couple of weeks was 0:09:25.120 --> 0:09:28.040 Japan and the b o J really really focusing on 0:09:28.040 --> 0:09:31.280 the front end and a focus that may drift towards 0:09:31.280 --> 0:09:34.760 the Federal Reserve. Chairman Powell talked about that yesterday, Prayer, 0:09:34.800 --> 0:09:38.240 what are your thoughts about it? So, I think again, 0:09:38.320 --> 0:09:41.440 in the attempt to communicate that this ACCID buying is 0:09:41.480 --> 0:09:44.000 not jewey, I think they're going to try and focus 0:09:44.040 --> 0:09:46.320 on the front end. I'm actually not a big fan 0:09:46.400 --> 0:09:49.080 of that because we've seen massive influence into the front end. 0:09:49.280 --> 0:09:51.600 So the fan and it all depends on how they're 0:09:51.600 --> 0:09:53.400 going to do this. I hope it's over time, and 0:09:53.400 --> 0:09:55.800 I hope they actually had the report market through report 0:09:55.840 --> 0:09:59.600 operations until they bid that buffer. But they really should 0:09:59.600 --> 0:10:01.760 not be eating a scarcity in the front end. So 0:10:01.800 --> 0:10:03.680 I was kind of hoping that they'll buy across the curve. 0:10:03.880 --> 0:10:06.400 But I think because of the communication challenge they have 0:10:06.600 --> 0:10:08.760 talked about the front end. I don't think it's an 0:10:08.800 --> 0:10:10.679 attempt to steepen the curve. I think it's just an 0:10:10.720 --> 0:10:12.839 attempt to say, look, we're not taking any duration risk 0:10:12.880 --> 0:10:14.880 out of the market, so don't go and take on, 0:10:15.360 --> 0:10:18.320 you know, credit risk. Correctly, that's not the intent of 0:10:18.360 --> 0:10:21.760 this asset buying. Will there be a wave of new 0:10:21.840 --> 0:10:27.120 government paper and a wave of new issued corporate paper 0:10:27.200 --> 0:10:33.680 given permanence of low rates. So I think government paper absolutely. 0:10:33.760 --> 0:10:35.839 I mean I think depending on the election next day, 0:10:35.920 --> 0:10:39.160 I actually think this customerlus happens either way, it's the 0:10:39.240 --> 0:10:41.439 respective of the outcome. So I do think the deficit 0:10:41.520 --> 0:10:44.160 is going to keep rising. You know, corporate is interesting. 0:10:44.240 --> 0:10:48.040 Financial conditions are extremely easy, you know, credit spreads are tight, 0:10:48.400 --> 0:10:50.920 and yet COPID supply seems to be declining, which I 0:10:50.960 --> 0:10:55.160 think reflects the dropping capex. So I actually would love 0:10:55.240 --> 0:10:58.479 from a macro standpoint if there is a pickup in corporations. 0:10:58.520 --> 0:11:01.120 But I think if capex is week, then the demand 0:11:01.200 --> 0:11:04.120 side for corporates to issue all these people, you know, 0:11:04.160 --> 0:11:07.080 do they have productive um you know avenues to it? 0:11:07.160 --> 0:11:10.640 No they don't, But that's yeah. I I totally take 0:11:10.679 --> 0:11:12.480 your point out, An John. I think this is a 0:11:12.600 --> 0:11:17.520 huge deal. Is there a demand for all this money 0:11:17.559 --> 0:11:21.280 that's out there to go somewhere? And I'm not sure 0:11:21.320 --> 0:11:25.520 there is about access to capital across the capital the 0:11:25.600 --> 0:11:29.320 prayer right, um, you know, and if it's just financial engineering, 0:11:29.360 --> 0:11:32.160 you know, there's a there's some some limit to that, 0:11:32.200 --> 0:11:34.280 so I think this is the program if the FED 0:11:34.400 --> 0:11:38.160 is trying to resolve this uncertainty, you know, business investment, 0:11:38.360 --> 0:11:40.320 and all they do is cut treats. I'm not sure 0:11:40.360 --> 0:11:43.360 the seventified base points of insurance cuts say enough, do 0:11:43.400 --> 0:11:45.760 we do? We need a government investment. This is an 0:11:45.840 --> 0:11:48.880 enduring theme yesterday with a managing director. You know, you're 0:11:48.880 --> 0:11:50.840 in Davos and there's a big ad on the side 0:11:50.840 --> 0:11:53.640 of a bush. Plus you need to have infrastructure and 0:11:53.760 --> 0:11:56.720 name your central Asian country. Are we at a point 0:11:56.760 --> 0:12:00.480 here where we've finally got to do infrastructure coast to 0:12:00.559 --> 0:12:05.120 coast and worldwide. Yes, I think politically that might be 0:12:05.200 --> 0:12:07.439 harder in certain parts of the world. I think in 0:12:07.480 --> 0:12:09.560 the US, once we get the election out of the way, 0:12:09.640 --> 0:12:12.200 I think when policymakers are sort of looking at how 0:12:12.240 --> 0:12:15.199 do you stimulate, I think infrastructures the way out. It's 0:12:15.280 --> 0:12:17.600 just going to be up to details. Is it all 0:12:17.679 --> 0:12:20.000 fully government funded? I think all of that we have 0:12:20.040 --> 0:12:21.920 to figure out. But I'm kind of hoping that as 0:12:21.920 --> 0:12:25.079 we get into full on campaign season that both parties 0:12:25.120 --> 0:12:27.520 will sort of bring up this infrastructure idea as a 0:12:27.559 --> 0:12:32.760 boost to aggregate demand. That's a bit far off. Thank 0:12:32.760 --> 0:12:40.120 you so much the security. John, A lot going on 0:12:41.120 --> 0:12:43.280 right now. I see Brazil. It's it's a piece of 0:12:43.360 --> 0:12:46.440 data here on an emerging market with some inflation there. 0:12:46.440 --> 0:12:49.440 But we knew that global growth are really ebbing in 0:12:49.520 --> 0:12:52.360 here in a lot of talk yesterday, John on food 0:12:52.400 --> 0:12:56.920 prices in China is a real domestic constraint within their debate. 0:12:57.000 --> 0:13:00.679 It's out well in access of two standard deviation on 0:13:00.840 --> 0:13:04.160 pork prices as well with j O. H. C. I'm 0:13:04.200 --> 0:13:09.000 Funds the head of their credit there. Don't butcher this, okay, 0:13:09.000 --> 0:13:10.840 then you please go on. You've got to have a 0:13:10.840 --> 0:13:18.080 gun lyle Cho, did I do? Okay? Charlie to there 0:13:18.080 --> 0:13:23.760 we go. You set me up for this. You're in 0:13:23.840 --> 0:13:28.680 on this too, I'm not. Do you know the great 0:13:28.720 --> 0:13:32.040 Mark Crumpton. Mark Crumpton's in the News Hall of Fame 0:13:32.120 --> 0:13:34.760 in Washington. He keeps a list in his desk of 0:13:34.800 --> 0:13:37.560 all the names I miss pronounced. So you're on an 0:13:37.559 --> 0:13:41.280 August list right now. Trying to bring in our Stinard 0:13:41.320 --> 0:13:44.400 guests this morning. To Lalie, to Charlie, He's going to 0:13:44.480 --> 0:13:46.200 get it right at some point, Larlie, I've promised you. 0:13:46.240 --> 0:13:48.560 It's great to see you, Thank you. Let's talk about 0:13:48.559 --> 0:13:51.440 this market. Last week it was recession on, recession off. 0:13:51.559 --> 0:13:55.000 This week's trade deal on, trade deal off. He must 0:13:55.040 --> 0:13:58.760 be really really frustrated at the moment as someone staring 0:13:58.760 --> 0:14:00.679 at this market, looking at how it's whip sword by 0:14:00.679 --> 0:14:02.320 one headlight to the next. What are your thoughts at 0:14:02.320 --> 0:14:05.800 the moment? You know, I wouldn't say it frustrated. Um, 0:14:05.840 --> 0:14:09.200 I think I sometimes just put the blinders on. It's 0:14:09.240 --> 0:14:12.280 the same story that just repeats and repeats and repeats 0:14:12.280 --> 0:14:16.080 and repeats, and there's no need to do knee jerk reactions. 0:14:16.120 --> 0:14:18.920 If you sort of scratch the surface in the market, 0:14:19.440 --> 0:14:22.760 it's the same story. Defensives are expensive, both on the 0:14:22.800 --> 0:14:26.240 equity and the credit side. Um. And the credit overall 0:14:26.360 --> 0:14:28.760 just seems really expensive. It's actually one time and you 0:14:28.760 --> 0:14:33.520 know how opinionated I am, and pretty much everything, I 0:14:33.600 --> 0:14:36.640 really just lack conviction. I don't know where we're gonna 0:14:36.640 --> 0:14:38.640 go from here. We haven't broken out of some key 0:14:38.760 --> 0:14:41.560 ranges in credit and high yield. For instance, for how 0:14:41.600 --> 0:14:44.840 you've spread really the range of twenty nineteen, the tights 0:14:44.880 --> 0:14:47.880 in and around through inchin a fifty basis points the 0:14:47.960 --> 0:14:50.040 wide through much of the year in and around four 0:14:50.400 --> 0:14:52.480 and fifty basis points. And right now where are we 0:14:52.680 --> 0:14:56.360 somewhere slap bang in the middle thirty five forties something 0:14:56.400 --> 0:14:58.960 around that the upper end. But here's the thing though, 0:14:59.000 --> 0:15:01.080 So this is where the top down in the bottoms 0:15:01.080 --> 0:15:03.920 of really differs. If you look at it from top down, 0:15:03.960 --> 0:15:05.760 you will see moth to date, we're about color it, 0:15:05.840 --> 0:15:10.840 let's say forty BIPs wider. What's really fascinating is you know, 0:15:10.880 --> 0:15:13.160 if you look at the sector's energy, do you know 0:15:13.240 --> 0:15:15.840 year to date energy returns are actually negative one percent? 0:15:16.480 --> 0:15:20.200 High yield is up where people are hiding out, like 0:15:20.280 --> 0:15:23.800 in defenses. The cable sector is up sixteen and a 0:15:23.880 --> 0:15:27.200 half percent. So and here's the other stat which I 0:15:27.200 --> 0:15:30.440 think people forget. Two thirds of the high yield index 0:15:30.680 --> 0:15:33.720 trades inside the index and the rest third is like 0:15:33.760 --> 0:15:38.080 cat and cats and dogs. It's really hard to find value. 0:15:38.080 --> 0:15:40.280 And I think this is where you know, I always 0:15:40.280 --> 0:15:44.360 do the advertisement for active management. You you need somebody 0:15:44.440 --> 0:15:48.000 to dig through the rubble to find you the value 0:15:48.000 --> 0:15:50.680 and where do you go because top down numbers can 0:15:50.720 --> 0:15:52.400 be misleading? But what kind of signal do you take 0:15:52.400 --> 0:15:55.200 away from something like triple base, which is the bottom 0:15:55.200 --> 0:15:57.800 of the stack in investment grade and triple sees bottom 0:15:57.840 --> 0:16:00.360 of the stack in high yield. That spread thinks the 0:16:00.400 --> 0:16:02.760 widest in several years. What kind of signal do you 0:16:02.760 --> 0:16:05.320 take away from that, Lilly, The outperformance that you're getting 0:16:05.720 --> 0:16:08.000 in and around the border of investment grit in high 0:16:08.040 --> 0:16:11.960 yield and the underperformance that you're getting right at the bottom. Well, look, 0:16:12.000 --> 0:16:15.880 the triple cs, majority of them struggle. They're either secular 0:16:16.040 --> 0:16:18.840 pressures or cyclical pressures. And some of them just as 0:16:18.840 --> 0:16:22.440 the restructor triple bees. You know, it's it's simple supply 0:16:22.480 --> 0:16:25.600 and demand. Look at the flows and are coming into credit. 0:16:26.160 --> 0:16:29.200 You just you just gotta buy. It's phenomenal flow. There's 0:16:29.200 --> 0:16:32.000 nothing you can do. I want to congratulate you and 0:16:32.640 --> 0:16:36.000 arguely the essay of the month on accounting it is 0:16:36.040 --> 0:16:40.880 a fabulous workout of what's called adjusted eb down. Now 0:16:40.920 --> 0:16:42.560 we're not gonna on a Wednesday. We're not going to 0:16:42.640 --> 0:16:44.720 do this on a Friday. We go into this in detail, 0:16:45.240 --> 0:16:48.440 but the bottom line is something down the income statement 0:16:48.520 --> 0:16:53.440 that has taken as gospel by the street is is suspect. 0:16:53.640 --> 0:16:57.160 Why should I not be addicted to adjusted? But uh, 0:16:57.560 --> 0:17:02.000 like I'm addicted to the VIX because it's nonsense. It's 0:17:02.000 --> 0:17:05.960 made up. It is a calculation of the income statement 0:17:06.119 --> 0:17:10.639 pulling in depreciation from the balance sheet. Right, that is 0:17:10.720 --> 0:17:14.040 made up, no question about that. It is. And I 0:17:14.080 --> 0:17:18.160 think ibida to a degree in certain industries can give 0:17:18.200 --> 0:17:21.800 you a clue. I'm not against ibada. What I'm against 0:17:22.000 --> 0:17:26.240 is adjusted ibada, where we start adding back things which 0:17:26.480 --> 0:17:29.920 internally we call them, you know, managements past, since like 0:17:30.000 --> 0:17:37.000 you open up more stores that you needed a retail um, 0:17:37.160 --> 0:17:41.600 those those should not be given the benefit you you 0:17:41.720 --> 0:17:44.440 messed up. You have we this is critical and I 0:17:44.440 --> 0:17:46.680 don't want to get you in trouble with your general counsel. 0:17:47.119 --> 0:17:50.680 But with we work, we company and community adjusted ib 0:17:51.440 --> 0:17:54.240 are we finally at a point, not that we wander 0:17:54.280 --> 0:17:57.000 back to the romance of Graham, Dad and Coddle, but 0:17:57.240 --> 0:18:00.000 we finally at a point where we get away from 0:18:00.000 --> 0:18:06.040 some of this adjusted foolishness. No, because she answers single 0:18:06.040 --> 0:18:11.480 word questions. She's very very straight about how she answers questions. Um. No, 0:18:12.119 --> 0:18:15.120 because I mean I was glad that there was some 0:18:15.960 --> 0:18:19.160 rationality perhaps was coming back into the market as people 0:18:19.160 --> 0:18:21.760 actually read through the prospectives. Perhaps in the first time, 0:18:22.119 --> 0:18:25.720 which which is a good start. Um, But look at 0:18:25.920 --> 0:18:27.320 you know, I'm looking at some of the high yield 0:18:27.320 --> 0:18:30.440 deals that really remind me of my leverage loan days 0:18:30.480 --> 0:18:33.760 back in two thousands six, two thousand six, two thousand seven, 0:18:33.800 --> 0:18:36.639 where we would start with like negative twenty nine a vibida, 0:18:36.760 --> 0:18:38.640 we would add back and it'll be two hundred million 0:18:38.640 --> 0:18:40.600 dollar vibida and that's what the deal is sold. And 0:18:40.640 --> 0:18:43.680 here is the catch. This is where people forget. That's 0:18:43.720 --> 0:18:46.840 what runs That's where your covenants run off from. That's 0:18:46.880 --> 0:18:50.480 what determines how much leverage you put on on business. 0:18:50.600 --> 0:18:53.280 I want to make covenance is that Raiders have lost 0:18:53.440 --> 0:18:56.320 ARC in two thousand six. It's what got us into trouble. 0:18:56.560 --> 0:18:58.320 What do you think the consequences if this will be 0:18:58.359 --> 0:19:00.440 You've written extensively about it, and now you have I've 0:19:00.440 --> 0:19:02.159 read about it. But for the benefit of our listeners, 0:19:02.400 --> 0:19:06.080 like this covenant light era of the last especially the 0:19:06.160 --> 0:19:08.720 last few years, what do you think the consequence of 0:19:08.760 --> 0:19:13.159 that will be? Well, it's gonna be a prolonged default cycle. 0:19:13.280 --> 0:19:16.320 It's going to be substantial lover recoveries. And I think 0:19:16.680 --> 0:19:18.240 you know, I joke and I said, the world is 0:19:18.320 --> 0:19:20.600 upside down, and you're actually seeing it more in the 0:19:20.680 --> 0:19:23.600 leverage lawan market now, where people are supposed to be 0:19:23.680 --> 0:19:26.800 secure and feeling good about it. It is estimated that 0:19:26.880 --> 0:19:29.000 the leverage lawan recovery this cycle is going to be 0:19:29.040 --> 0:19:32.480 around fifty five cents as opposed to seventy five historically, 0:19:32.720 --> 0:19:36.920 and technically you're secured. I think people forget again. This 0:19:37.040 --> 0:19:40.000 is just the top down investing and running with our 0:19:40.080 --> 0:19:43.679 historical knowledge. The world is really upside down. Like you 0:19:43.720 --> 0:19:45.760 don't just talk the talk, you walk the walk. To 0:19:46.200 --> 0:19:48.520 a should congratulate you on the year so far, your 0:19:48.760 --> 0:19:51.280 j O h C M income funders up. I believe 0:19:51.280 --> 0:19:55.600 you at about through so far. So let's talk about 0:19:55.600 --> 0:19:58.320 security selection. What are you doing at the moment? What 0:19:58.359 --> 0:20:03.199 are you focused on? Well, simplistically, trying to avoid the 0:20:03.280 --> 0:20:05.679 losers and and just focus on the winners, which is 0:20:05.720 --> 0:20:07.440 really hard to do. On credit. I mean, I don't 0:20:07.440 --> 0:20:10.520 think we've actually bought a single bond in the last 0:20:10.560 --> 0:20:15.479 three months. Really, there's nothing because of issuance. It's just 0:20:15.520 --> 0:20:17.520 a frenzy now where you just have to step aside. 0:20:18.040 --> 0:20:22.159 It's it's just the pricing does not price for what 0:20:22.200 --> 0:20:24.720 I would consider to be the risk premium. You don't 0:20:24.720 --> 0:20:27.240 get compensated for taking on what I would consider to 0:20:27.240 --> 0:20:29.159 be a less liquid piece of paper. That's just a 0:20:29.240 --> 0:20:31.600 nature of the high yield market. And I think the 0:20:31.640 --> 0:20:36.520 covenants are poor and the leverage is misrepresented. Christ can't 0:20:36.520 --> 0:20:38.320 shup with you. Gotta let you go. We wish we 0:20:38.359 --> 0:20:41.480 had more time with Lano. We should have we account 0:20:41.520 --> 0:20:44.159 to do that tell Childhood J H. C. M. Johnny 0:20:44.160 --> 0:20:48.240 gets right here on bloom Black Surveillance. I want to 0:20:48.240 --> 0:20:51.240