WEBVTT - The Sell-Everything Strategy 0:00:14.120 --> 0:00:17.320 Hello, and welcome to What Goes Up, a Bloomberg Weekly 0:00:17.360 --> 0:00:21.880 market podcast. I'm Sarah Ponzack, reporter on the Crossouset team, 0:00:21.880 --> 0:00:25.160 and I'm Mike Reagan, a senior editor on the Markets team. 0:00:25.160 --> 0:00:27.880 This week on the show, the crazy times continue. Just 0:00:28.000 --> 0:00:33.240 consider the statistic from Bespoke Investment Group. The SMP drop 0:00:33.400 --> 0:00:37.319 is only its seventh since and the quickest by more 0:00:37.360 --> 0:00:41.080 than two weeks. The only two times where that speed 0:00:41.120 --> 0:00:44.760 if the decline was anywhere near at bass. We're in 0:00:45.960 --> 0:00:48.400 so sure. The equity market has been wild and the 0:00:48.479 --> 0:00:51.000 vix jumped to a record high this week, a record, 0:00:51.320 --> 0:00:53.599 But at the heart of the stock markets worries has 0:00:53.600 --> 0:00:56.720 been corporate credit fears, right, and we'll get into that 0:00:56.800 --> 0:00:59.240 with our guest Uh And of course we'll close out 0:00:59.280 --> 0:01:02.960 the episode with the craziest things we saw in markets 0:01:02.960 --> 0:01:05.720 this week. Sarah, I trust there were plenty of crazy 0:01:05.760 --> 0:01:08.760 things you saw in markets this week. So many crazy 0:01:08.840 --> 0:01:11.360 things we saw in markets, but also just in the world. 0:01:11.440 --> 0:01:13.600 We should be very clear if our audio sounds a 0:01:13.640 --> 0:01:16.120 little bit strange, or you hear an ambulance or maybe 0:01:16.640 --> 0:01:18.919 the man who lives on top of me his band 0:01:19.600 --> 0:01:22.760 playing jazz um. We're all coming at it from our 0:01:22.880 --> 0:01:25.160 very own homes for the first time. So bear with 0:01:25.240 --> 0:01:27.959 us and it'll be a lot of fun. You might 0:01:28.000 --> 0:01:30.679 you might hear my dog. And it's a clarify, Sarah. 0:01:30.720 --> 0:01:32.720 The man lives in an apartment above you. He doesn't 0:01:32.800 --> 0:01:35.800 literally live on he literally Yeah, he doesn't literally live 0:01:35.880 --> 0:01:37.520 right on top of my head. He does live in 0:01:37.520 --> 0:01:40.319 the apartment above me the luxury of New York City. 0:01:40.400 --> 0:01:43.319 So I've got a man living in my head. But 0:01:43.360 --> 0:01:46.279 that's a whole that's that's a that's a different issue 0:01:46.360 --> 0:01:50.080 that will deal with Mike. Yeah. But Sarah, as you said, 0:01:50.120 --> 0:01:54.200 I think in uh markets these days, uh, the main 0:01:54.320 --> 0:01:58.040 topic front and center on everyone's mind is the severe 0:01:58.120 --> 0:02:00.920 damage being done to credit mark It's um. So we're 0:02:01.000 --> 0:02:03.840 very happy to welcome to the show for the first time, 0:02:04.040 --> 0:02:08.240 the head of credit strategy at Wells Fargo's Securities. When 0:02:08.280 --> 0:02:09.920 do you, Caesar, what do you welcome to the show? 0:02:10.200 --> 0:02:12.280 Thank you very much for having me. Happy to be here. 0:02:12.840 --> 0:02:16.360 Oh great, um, And I guess the one thing I 0:02:16.360 --> 0:02:19.520 wanted to ask you first. I know, uh, this is 0:02:19.520 --> 0:02:22.720 sort of out of your normal realm of strategy, but 0:02:22.840 --> 0:02:24.919 I feel like the whole world is waiting for some 0:02:25.000 --> 0:02:29.400 kind of government uh plan to shore up the credit markets. 0:02:29.440 --> 0:02:31.280 I mean, we we've got a little bit of a 0:02:31.360 --> 0:02:35.679 start on that from the FED with their commercial paper facility. UM. 0:02:35.720 --> 0:02:38.200 But I'm just curious, have you given much thoughts so 0:02:38.360 --> 0:02:42.200 sort of what kind of government package uh could be 0:02:42.240 --> 0:02:45.320 put together to to really sort of uh stop the 0:02:45.320 --> 0:02:49.000 bleeding and credit markets, especially since obviously the FED is 0:02:49.000 --> 0:02:52.920 not allowed to buy corporate bonds, but maybe that will change. UM. 0:02:54.000 --> 0:02:56.520 How's your thinking around all of that about what we 0:02:56.560 --> 0:02:59.800 can expect from the government when it comes to credit. Yeah, 0:03:00.040 --> 0:03:04.520 you're You're absolutely right. Credit markets have dislocated very severely 0:03:04.760 --> 0:03:09.120 in recent weeks, and for us, on the strategy side 0:03:09.120 --> 0:03:14.840 of things, we have been basically following the FEDS playbook. Um. 0:03:14.880 --> 0:03:21.000 They have a pretty well recognized strategy from the financial crisis. 0:03:21.040 --> 0:03:23.480 They have the benefit of being able to look back 0:03:23.760 --> 0:03:28.120 and seeing, you know, what worked then, what didn't work, um, 0:03:28.160 --> 0:03:33.720 and trying to project out what will work in this situation. Now. 0:03:33.880 --> 0:03:36.800 I think that the biggest thing that people are are 0:03:36.840 --> 0:03:39.720 really worried about in the short term across the credit 0:03:39.760 --> 0:03:43.920 markets is there's just been this massive rush for liquidity. 0:03:44.000 --> 0:03:47.560 It's been the sell everything strategy in the markets to 0:03:47.680 --> 0:03:51.160 raise cash while issuers on the corporate side of things 0:03:51.240 --> 0:03:55.480 are drawing down revolvers taking out their delayed drawing term 0:03:55.560 --> 0:03:58.880 loans at you know, basically a record case. And so 0:03:58.960 --> 0:04:02.800 the biggest question for corporate credit is there enough liquidity 0:04:02.880 --> 0:04:07.640 in the system to actually back up all these revolver 0:04:07.760 --> 0:04:12.920 drawdowns all of the cash raising by investors. We've spoken 0:04:13.000 --> 0:04:16.760 for I don't know years now since the financial crisis 0:04:16.839 --> 0:04:19.960 just about how much liquidity was pumped into the system 0:04:20.640 --> 0:04:24.320 by the FED and other central banks. And so now 0:04:24.520 --> 0:04:27.960 this is the real critical point where we figure out, 0:04:28.400 --> 0:04:32.640 did all of the regulations put in place on the 0:04:32.680 --> 0:04:37.080 banking system, uh post crisis, are they actually going to 0:04:37.200 --> 0:04:42.480 do what they were designed to do and give borrowers 0:04:42.640 --> 0:04:46.200 the type of liquidity that we really need right now 0:04:46.360 --> 0:04:50.160 when we have no idea about the duration of this 0:04:50.320 --> 0:04:54.760 crisis and the real magnitude of it all. So we 0:04:54.800 --> 0:04:59.680 are following the FED and other central banks very closely 0:04:59.720 --> 0:05:03.080 while also trying to figure out what the fiscal plan 0:05:03.320 --> 0:05:07.960 is from the government. And you know, we've seen a 0:05:08.080 --> 0:05:10.560 number of central banks come in and say that they 0:05:10.560 --> 0:05:15.000 are putting I G. Corporate debt as uh, you know, 0:05:15.080 --> 0:05:18.560 an eligible asset for quantitative easing programs. And I think 0:05:18.600 --> 0:05:21.320 that there is a lot of speculation that the FED, 0:05:21.440 --> 0:05:25.279 in conjunction with Congress and the U. S. Treasury may 0:05:25.440 --> 0:05:28.680 have to ultimately go down that path. What do you 0:05:28.720 --> 0:05:30.920 make of that possibility. I mean, we saw the op 0:05:31.080 --> 0:05:33.679 ed from Janet Yellen and Bernanki and the Financial Times 0:05:33.800 --> 0:05:36.840 raising that that maybe the FED could step in and 0:05:36.839 --> 0:05:39.400 buy corporate bonds. I mean, if that were to actually 0:05:39.440 --> 0:05:42.880 happen one, what might that look like and to how 0:05:42.960 --> 0:05:47.279 might that actually help the system at this point in time. So, 0:05:47.600 --> 0:05:51.200 you know, I think that the mechanics of it are 0:05:52.520 --> 0:05:55.920 are definitely to be seen. We have the playbooks from 0:05:56.080 --> 0:05:59.599 other central banks where you know, it's just open market 0:05:59.600 --> 0:06:01.960 purchase is and they you know, go in and they 0:06:02.160 --> 0:06:05.120 have their list of eligible securities and you oftentimes see 0:06:05.240 --> 0:06:10.120 the basis between those eligible securities and ineligible widen when 0:06:10.160 --> 0:06:14.080 you have market volatility. So you know, it's yet to 0:06:14.160 --> 0:06:17.839 be seen what the FEDS playbook would would actually be 0:06:17.920 --> 0:06:23.720 in conjunction with Congress in the treasury um. But you know, historically, 0:06:23.760 --> 0:06:28.560 if we look back at the FED putting MBS on 0:06:28.800 --> 0:06:31.520 its list of securities, that they're going to buy that 0:06:31.640 --> 0:06:35.840 stabilized the market pretty considerably in the financial crisis, and 0:06:35.920 --> 0:06:38.840 you know, this go around NBS is already in the 0:06:39.279 --> 0:06:43.839 newest que program um, and you know, it's not proving 0:06:43.880 --> 0:06:46.880 to be quite as much of a quick fix as 0:06:46.960 --> 0:06:50.320 I think some people might have thought it would be. UM. 0:06:50.640 --> 0:06:56.159 So I think that the biggest issue right now is 0:06:56.200 --> 0:06:59.520 that the front end of the curve is under tremendous 0:06:59.560 --> 0:07:04.120 pressure because everybody just wants cash, and you know, we 0:07:04.120 --> 0:07:08.960 we don't have the solutions in place quite yet to 0:07:09.680 --> 0:07:12.720 normalize that front end of the curve. I think that 0:07:12.800 --> 0:07:16.920 we are definitely creeping toward that point. And you know, 0:07:16.960 --> 0:07:19.120 one of the things that I think you have to 0:07:19.200 --> 0:07:22.200 keep in mind is we are still in Q one 0:07:22.320 --> 0:07:26.280 for corporate borrowers, which means that you know, they want 0:07:26.320 --> 0:07:29.680 to have as much cash on hand for their Q 0:07:29.920 --> 0:07:34.360 one filings so that when they report earnings they can say, 0:07:34.600 --> 0:07:36.920 you know, look at this liquidity that we have on hand. 0:07:37.600 --> 0:07:40.320 So the big question is are we now taking too 0:07:40.400 --> 0:07:43.679 much liquidity out of the system in one fell swoop 0:07:44.240 --> 0:07:46.600 and we're going to go back in six weeks from 0:07:46.600 --> 0:07:50.520 now and say, okay, well, maybe maybe we didn't need 0:07:50.600 --> 0:07:54.160 to all be drawing down our revolvers At the same time, 0:07:54.200 --> 0:07:57.840 it's you know, it's a very interesting kind of game 0:07:57.880 --> 0:08:01.080 theory issue that we have backed ourselves too, you know 0:08:01.080 --> 0:08:04.080 when you I, I know the focus has been on 0:08:04.680 --> 0:08:07.640 when you talk about sectors that obviously the energy sector 0:08:07.880 --> 0:08:11.120 is once again the big concern, and credit uh, travel 0:08:11.200 --> 0:08:16.119 and leisure and hospitality UH clearly is a big source 0:08:16.120 --> 0:08:18.960 of concern. But I feel like there's potential for this 0:08:19.120 --> 0:08:23.800 to just bleed into other sectors. UM. You know, are 0:08:23.800 --> 0:08:27.440 there any sectors you think that have either um uh 0:08:27.600 --> 0:08:31.480 not priced in the risk enough yet or maybe went 0:08:31.520 --> 0:08:34.200 too far? Um. I'm just trying to think where this 0:08:34.240 --> 0:08:37.680 goes next after you know, energy and clearly the travel 0:08:37.679 --> 0:08:41.640 and leisure sectors have been hit pretty hard. Yeah, that 0:08:41.920 --> 0:08:44.480 it's it's a great question. And and when we're grappling 0:08:44.480 --> 0:08:47.240 with on a very regular basis, I personally have been 0:08:47.320 --> 0:08:52.640 very surprised by how well technology has held in in 0:08:52.800 --> 0:08:56.120 both investment grade and high yield. Tech is one of 0:08:56.160 --> 0:09:00.360 the tightest trading sectors despite you know, in my opinion, 0:09:00.400 --> 0:09:08.280 having pretty tremendous exposure to supply chain and then sticklicality issues. UM. 0:09:08.440 --> 0:09:12.160 So that's one of the segments where we've been a 0:09:12.200 --> 0:09:15.080 bit more cautious UM, and it hasn't worked so far. 0:09:15.240 --> 0:09:17.920 So we're we're definitely you know, looking at pressure points 0:09:17.920 --> 0:09:20.720 and maybe if there are positive catalysts that we were 0:09:20.800 --> 0:09:26.680 just overlooking. UM. The media side of things is also interesting. 0:09:27.000 --> 0:09:30.480 You have some some different gifts and take where with 0:09:30.520 --> 0:09:33.080 more people at home, you'll see more streaming. There will 0:09:33.160 --> 0:09:37.360 be some media winners from that, UM. But you also 0:09:37.559 --> 0:09:41.360 don't have people in movie theaters and how long is 0:09:41.360 --> 0:09:44.200 it going to take for you know, people to really 0:09:44.240 --> 0:09:47.360 be comfortable going to a movie and being in a 0:09:47.520 --> 0:09:51.440 in a crowded space. I don't know, generally public perception 0:09:51.480 --> 0:09:55.720 of these types of issues take a little bit longer 0:09:56.040 --> 0:10:00.400 for people to get comfortable again. UM. Then I think 0:10:00.520 --> 0:10:04.880 some people estimate. And then also you know, the home 0:10:04.880 --> 0:10:09.680 building building products side of things that's been very resilient 0:10:10.160 --> 0:10:14.120 UM in this market UM, and that there's clearly going 0:10:14.160 --> 0:10:17.640 to be a slowdown in home buying if we have 0:10:18.200 --> 0:10:21.640 unemployment just spiking all of a sudden. Now the big 0:10:21.720 --> 0:10:24.240 question is, you know, what are the jobs that we're 0:10:24.240 --> 0:10:28.679 actually losing in the economy. Are those jobs you know, 0:10:29.040 --> 0:10:32.160 going to coincide with people who would be trying to 0:10:32.600 --> 0:10:37.400 buy homes. Um. You know, there there's probably a little 0:10:37.400 --> 0:10:40.160 bit of a glimmour for home construction if we have 0:10:40.920 --> 0:10:44.240 the ability to do a lot of the um you know, 0:10:44.280 --> 0:10:49.640 more uh finance law, the kind of tech higher higher paid, 0:10:49.880 --> 0:10:53.840 higher wage jobs, rather than the hospitality industry where you know, 0:10:54.040 --> 0:10:59.640 it's still not the most well paid industry. UM. So 0:11:00.000 --> 0:11:02.960 I'm definitely looking, you know, pretty closely at what's going 0:11:02.960 --> 0:11:06.199 on in the housing market as well. Timing here is 0:11:06.200 --> 0:11:08.560 is such a big question. Really, no one has any 0:11:08.559 --> 0:11:11.120 way of knowing how long this is going on for. 0:11:11.240 --> 0:11:14.160 And I mean you talk about stimulus, what fiscal can do, 0:11:14.480 --> 0:11:17.280 what they can do on the monetary side, and you 0:11:17.320 --> 0:11:20.360 hope that to an extent that does help. But I'm 0:11:20.400 --> 0:11:22.960 kind of just curious. I mean, how long can the 0:11:23.040 --> 0:11:26.880 U S economy as it's built now actually sustained being 0:11:27.000 --> 0:11:30.000 shut Like, even if you do have liquidity being pumped 0:11:30.040 --> 0:11:31.640 into the system and you have a way of getting 0:11:31.920 --> 0:11:34.720 cash to companies to help build themselves back up, I mean, 0:11:35.280 --> 0:11:37.960 at what point does it potentially just become too much. 0:11:39.640 --> 0:11:41.640 I wish, I wish I really knew the answer to that. 0:11:41.679 --> 0:11:45.040 Because I feel like I could probably make some very 0:11:45.040 --> 0:11:47.400 good bets if I did. You know, when I when 0:11:47.400 --> 0:11:51.840 I talked to my my econ experts about you know, 0:11:51.920 --> 0:11:55.920 how severe this can be for g d P. You know, 0:11:55.960 --> 0:12:00.120 most of them like to refer me back to the 0:12:00.160 --> 0:12:03.520 early nineteen eighties and we had a pretty severe downdraft 0:12:03.720 --> 0:12:07.720 in economic growth, but it was very short lived. And 0:12:07.920 --> 0:12:12.600 you know, I think that long term, as a corporate 0:12:12.600 --> 0:12:17.559 credit investor, I continue to believe in the viability of capitalism. 0:12:17.720 --> 0:12:20.560 I don't think that this is going to be, you know, 0:12:20.920 --> 0:12:25.600 the the end of times for American capitalism as we 0:12:25.679 --> 0:12:29.320 know it and globalism. You know, I think that we're 0:12:29.320 --> 0:12:33.920 going to eventually right ourselves. I think the economy as 0:12:34.240 --> 0:12:36.880 shut down as it is, I think means that the 0:12:36.920 --> 0:12:41.199 recovery is less likely to be v shaped because it 0:12:41.520 --> 0:12:45.439 takes time to turn things back on and get people 0:12:45.480 --> 0:12:50.719 back in seats, get people back flying for business purposes. Um. 0:12:50.840 --> 0:12:54.400 So it will be interesting to see how this plays 0:12:54.440 --> 0:12:59.920 out from you know, a liquidity standpoint. The longer this last, 0:13:00.120 --> 0:13:03.720 clearly the worst it is for the very highly leveraged issuers. 0:13:03.800 --> 0:13:06.920 And that's the big concern is what happens in the 0:13:07.040 --> 0:13:10.320 leverage loan market. What happens in the fringes of high 0:13:10.360 --> 0:13:13.040 ye old and single bees and triple c s. You know, 0:13:13.160 --> 0:13:17.640 these issuers generally don't have twelve or twenty four months 0:13:17.679 --> 0:13:22.840 of liquidity. Similarly, you know, small businesses across the US 0:13:23.720 --> 0:13:27.400 generally don't have all that much extra liquidity just sitting 0:13:27.440 --> 0:13:30.920 on hand to kind of manage through these issues. Um. 0:13:30.960 --> 0:13:33.480 And I think that that's where the federal government has 0:13:33.520 --> 0:13:36.400 to come in with fiscal stimulus and they basically have 0:13:36.559 --> 0:13:40.720 to you know, tell us how much time they think 0:13:40.880 --> 0:13:44.080 this is going to take to remedy and then also 0:13:44.800 --> 0:13:50.240 provide that stop gap liquidity to get things moving back 0:13:50.320 --> 0:14:09.200 in the right direction again. You know when you obviously 0:14:09.280 --> 0:14:13.920 the big elephant in the room during the global financial 0:14:13.960 --> 0:14:18.520 crisis a decade ago was the credit the fault swap market. Um. 0:14:18.559 --> 0:14:22.520 You know, it's simply just grown way too big, bigger 0:14:22.560 --> 0:14:27.080 than the amount of debt that it was actually ensuring. Um. 0:14:27.280 --> 0:14:30.840 Once again we're hearing the words CDs and credit the 0:14:30.880 --> 0:14:34.000 fault swaps again. It's kind of kind of a a 0:14:34.040 --> 0:14:36.040 sense of shiver up your spine to some degree. But 0:14:36.080 --> 0:14:39.120 my sense is that, um, it's not quite the elephant 0:14:39.240 --> 0:14:41.200 in the room. It was at one point that all 0:14:41.240 --> 0:14:45.160 the reforms uh that have been done uh in the 0:14:45.200 --> 0:14:47.760 inner interim have have made them less of a sort 0:14:47.760 --> 0:14:51.200 of a uh systematic risk. I'm curious, you know, is 0:14:51.280 --> 0:14:55.400 that is that the right take on that? And if so, 0:14:55.440 --> 0:14:58.800 are there other sort of pockets of the credit markets 0:14:58.960 --> 0:15:03.320 that we should be worrying about, Like you mentioned leverage loans, uh, uh, 0:15:03.480 --> 0:15:06.680 that sort of thing. Obviously that is a very weekly 0:15:06.720 --> 0:15:10.520 performing sector at the momentum. But I'm just curious, what 0:15:11.040 --> 0:15:13.920 do you think of, you know, the sort of CDs 0:15:14.000 --> 0:15:17.440 market as it stands now in compared to back then, 0:15:17.680 --> 0:15:22.160 and you know, tan generally, are there other sectors in 0:15:22.200 --> 0:15:24.760 the credit markets that could kind of sneak up on 0:15:24.840 --> 0:15:26.560 us and and be that elephant in the room the 0:15:26.560 --> 0:15:29.280 way credit the fault swaps were a decade ago. Sure, 0:15:29.320 --> 0:15:31.080 I mean there there are a few. So when it 0:15:31.080 --> 0:15:36.800 comes to CDs specifically, that market has been very much transformed. 0:15:36.960 --> 0:15:40.920 You know, we don't have the risk of these pervasive 0:15:41.320 --> 0:15:46.840 bilateral CDs contracts where you're also exposed to know, massive 0:15:46.880 --> 0:15:52.440 counter party risk. There's been a pretty robust um clearing 0:15:52.480 --> 0:15:55.920 facility put in place and I know from a number 0:15:55.920 --> 0:15:58.440 of the investors that I speak with in the US, 0:15:58.600 --> 0:16:01.760 you know, they prefer to use the cleared CDs. So 0:16:01.840 --> 0:16:05.520 that market is a much more regulated, functioning market than 0:16:05.800 --> 0:16:08.080 it used to be, and it also is a lot 0:16:08.120 --> 0:16:11.520 smaller um than it used to be. So you know, 0:16:11.560 --> 0:16:17.240 I don't I don't worry at night about the CDs market. Now. 0:16:17.240 --> 0:16:21.400 Where I do worry is leverage loans and then the 0:16:21.440 --> 0:16:24.960 growth of what people refer to as the private credit market, 0:16:25.120 --> 0:16:30.120 where because of regulation on banks and because of just 0:16:30.240 --> 0:16:33.720 an absolute lack of yield in the system for much 0:16:33.840 --> 0:16:37.680 of the post crisis period, we've seen a lot of 0:16:37.800 --> 0:16:42.240 growth in these you know, smaller kind of clubby or 0:16:42.480 --> 0:16:47.520 direct lending deals UM that traditionally would have been the 0:16:47.560 --> 0:16:51.320 purview of the big banks and now have that risk 0:16:51.400 --> 0:16:55.240 has been moved somewhere else UM. And you know a 0:16:55.280 --> 0:16:58.680 lot of it is pension funds that are now involved 0:16:58.760 --> 0:17:02.120 in private credits. Oh, you know, it's it's the end 0:17:02.200 --> 0:17:09.040 investor who is exposed to potential severe default rates and 0:17:09.359 --> 0:17:13.840 pretty dramatic losses on you know, capital that is locked 0:17:13.880 --> 0:17:17.160 up in this private credit markets. On the leverage loan 0:17:17.200 --> 0:17:20.560 side of things, there has been tremendous growth in the 0:17:20.640 --> 0:17:24.320 in the broadly syndicated loan markets um it now stands 0:17:24.320 --> 0:17:28.640 at about the same size as the US high yield markets. 0:17:29.280 --> 0:17:35.040 And there's also been a lot of degradation and fundamentals, 0:17:35.080 --> 0:17:39.640 So you saw a lot of loan only capital structures, 0:17:39.640 --> 0:17:43.320 which means that there is no unsecured debt. So if 0:17:43.400 --> 0:17:46.600 if you have a first lean loan in a loan 0:17:46.680 --> 0:17:51.480 only capital structure, it really makes you wonder about recovery 0:17:51.480 --> 0:17:56.360 assumptions because there's there's no cushion for the blow there 0:17:56.400 --> 0:17:59.800 when when things go really bad. So, you know, loan 0:18:00.040 --> 0:18:02.520 in private credit are two of the things that I 0:18:02.560 --> 0:18:07.280 am thinking about within this context because I think that 0:18:07.440 --> 0:18:12.280 ultimately what happens is government intervention is going to be 0:18:13.320 --> 0:18:19.440 um kind of barbelled where the biggest corporations, the airlines, 0:18:20.280 --> 0:18:24.520 the um, the real you know name brands that are 0:18:24.520 --> 0:18:28.840 getting very hit in this economic slowdown. I think that 0:18:28.920 --> 0:18:31.960 they're ultimately going to come through at the other end 0:18:32.040 --> 0:18:35.480 because the government is going to provide support. And then 0:18:35.520 --> 0:18:39.480 also I think that there's a tremendous focus on main 0:18:39.560 --> 0:18:42.320 street now and these smaller businesses and trying to figure 0:18:42.320 --> 0:18:45.639 out how do we you know, have have them, have 0:18:46.040 --> 0:18:49.280 provided them enough liquidity to to manage through this. But 0:18:49.359 --> 0:18:54.040 then there's this kind of middle ground of the economy 0:18:54.200 --> 0:18:57.960 where you're not necessarily big enough to um get the 0:18:58.000 --> 0:19:03.200 government's attention, but you're you're probably too big to benefit 0:19:03.280 --> 0:19:07.520 from kind of the smaller you know, micro loan um 0:19:07.720 --> 0:19:13.560 type packages that may ultimately come to fruition. Yeah, it 0:19:13.840 --> 0:19:16.640 almost seems like wall streets easier to bail out than 0:19:16.840 --> 0:19:18.879 main street. You know, in the in the financial crisis, 0:19:18.960 --> 0:19:21.560 you knew where to point the fire hose at the 0:19:21.560 --> 0:19:24.919 big banks. Uh, in this situation, it just seems like 0:19:24.920 --> 0:19:26.879 the fire could be all around you, which just it 0:19:26.920 --> 0:19:30.000 seems like a very tricky thing, uh, for the government 0:19:30.000 --> 0:19:32.520 to wrap its head around. And I think that that 0:19:32.720 --> 0:19:35.720 is something that we have tried to point out to 0:19:35.840 --> 0:19:39.400 regulators and in our you know, just discussions and we've 0:19:39.400 --> 0:19:43.040 had discussions with investors, is you can never fully eliminate 0:19:43.119 --> 0:19:46.480 risk from the system, no matter how much relators would 0:19:46.560 --> 0:19:50.080 like to try. You can shift risk around, and what's 0:19:50.119 --> 0:19:54.399 ultimately happened is risk is now held on you know, 0:19:54.440 --> 0:19:58.560 the balance sheet of most Americans in terms of you know, 0:19:58.640 --> 0:20:01.280 what's in there for one k a what's in their 0:20:01.320 --> 0:20:06.560 pension plan? Um? Because it's been much more of this 0:20:06.680 --> 0:20:10.919 kind of shadow banking direct lending system that's emerged to 0:20:11.560 --> 0:20:14.480 work around some of the regulatory issues that were put 0:20:14.520 --> 0:20:18.840 in place and constrained the big banks. Absolutely, we are 0:20:18.880 --> 0:20:23.800 really facing surreal times and crazy times, and it's true, 0:20:23.840 --> 0:20:26.240 it's just hard to know where where do you direct 0:20:26.320 --> 0:20:28.800 that fire hose? Where do you direct your efforts if 0:20:28.840 --> 0:20:33.080 so many people across the spectrum are going to be affected? Yeah, Sarah, 0:20:33.160 --> 0:20:36.439 was that a tease? They're the crazy times? Trying to 0:20:36.480 --> 0:20:39.359 set you up a little bit when he did they 0:20:39.359 --> 0:20:41.560 tell you about our gimmick. Here the craziest thing I 0:20:41.560 --> 0:20:44.399 saw in markets? I was giving a little bit of 0:20:44.480 --> 0:20:47.439 advanced warning and I also was doing my diligence and 0:20:47.480 --> 0:20:50.200 listening to a few of the podcasts are there, So 0:20:51.000 --> 0:20:53.760 that did actually radar. So we'll start with you, what's 0:20:53.800 --> 0:20:55.960 the craziest thing you saw in markets this week? I 0:20:56.000 --> 0:20:57.919 know it was a pretty tame week, not much going on, 0:20:58.040 --> 0:21:03.399 but something have many that I can talk about. Um, 0:21:03.680 --> 0:21:06.960 you know, the first one, which is I'm still trying 0:21:07.000 --> 0:21:10.040 to wrap my head around, is in the investment grade 0:21:10.080 --> 0:21:14.000 corporate bond market, Tuesday of this week was the biggest 0:21:14.200 --> 0:21:19.560 new issue volume day this year, so spreads, you know, 0:21:20.400 --> 0:21:23.400 more than more than double what they were earlier this year. 0:21:24.200 --> 0:21:27.280 We were still able to price twenty seven billion of 0:21:27.320 --> 0:21:29.840 i G bonds at an average coupon of three and 0:21:29.880 --> 0:21:33.720 a half percent, which over the long term perspective, is 0:21:33.760 --> 0:21:37.960 still a very attractive cost of capital for most investment 0:21:38.000 --> 0:21:40.600 grade companies. What did I tell you about the help 0:21:40.640 --> 0:21:45.679 of the market, So you know, I keep facilitating between 0:21:45.800 --> 0:21:50.760 believing it's a tremendously engaging sign and a very terrifying sign. 0:21:50.920 --> 0:21:53.560 Because on the one hand, if these deals are clean 0:21:53.800 --> 0:21:58.280 clearing the market still able to borrow at you know, 0:21:58.800 --> 0:22:04.359 very attractive eights, then that is a long term positive 0:22:04.440 --> 0:22:10.480 thing for investors. Now, then I kind of look back 0:22:10.560 --> 0:22:14.040 at at where yields went during the Great Financial Crisis, 0:22:14.200 --> 0:22:17.960 because you know, in in many other markets we've we've 0:22:17.960 --> 0:22:21.560 seen much more of a repricing of you know, cost 0:22:21.640 --> 0:22:24.919 of capital um. And then I begin to wonder, you know, 0:22:24.960 --> 0:22:30.200 are these investors using up their liquidity flower power too quickly? 0:22:30.800 --> 0:22:34.119 I certainly hope they're not um, But you know, I'm 0:22:34.160 --> 0:22:36.760 gonna be the optimist and say the glasses half full. 0:22:36.800 --> 0:22:39.399 And if the credit markets are continuing to function and 0:22:39.440 --> 0:22:42.040 the new issue market is open, then that is that 0:22:42.240 --> 0:22:47.040 is an encouraging, you know, glimmer of hope across financial markets. 0:22:47.080 --> 0:22:50.760 The hunt for yield survives another day, yes, indeed. And 0:22:50.800 --> 0:22:53.240 then you know, at the other end of the spectrum, 0:22:53.400 --> 0:22:56.320 still in the investment grade market, there are some issuers 0:22:56.520 --> 0:22:59.520 where the front end of the curve is so severely 0:22:59.520 --> 0:23:04.000 inverted that you can buy an I G bond that 0:23:04.359 --> 0:23:09.679 has a maturity this year for call it. And then 0:23:09.720 --> 0:23:12.280 if we look at the cash on hand from revolver 0:23:12.400 --> 0:23:16.200 drawdowns and cash balances, they are covered in that bond 0:23:16.200 --> 0:23:20.200 with cash on hand, you know, multiples over. So there's 0:23:20.280 --> 0:23:24.760 there's a tremendous dislocation between you know what some parts 0:23:24.800 --> 0:23:26.600 of the market are telling you and then other parts 0:23:26.640 --> 0:23:29.480 of the market, and it's trying to figure out, you know, 0:23:29.920 --> 0:23:34.160 which signals should we believe in, which signals are falced on? Yeah, 0:23:34.320 --> 0:23:36.080 and and so much of that must just be this 0:23:36.280 --> 0:23:40.400 this dollar funding squeeze and the liquidity issues, I would imagine, Yeah, 0:23:40.440 --> 0:23:42.000 a lot of it. It just has to do with 0:23:42.160 --> 0:23:45.399 money markets, dollar funding and the front end of the curve. 0:23:45.840 --> 0:23:48.480 Crazy times Sarah, how about you, what did you see 0:23:48.520 --> 0:23:51.359 this week? I have too, but I'll keep it pretty 0:23:51.359 --> 0:23:55.600 short and simple. One just Monday was absolutely insane. You 0:23:55.600 --> 0:23:58.800 have another circuit pricket trigger and then I mentioned it, 0:23:58.880 --> 0:24:01.560 But the vix ving to the highest level on records, 0:24:01.640 --> 0:24:06.480 so above any single point of the global financial crisis 0:24:06.560 --> 0:24:09.720 back in O eight oh nine. Um, pretty unbelievable. But 0:24:09.800 --> 0:24:13.560 then just another interesting story. I thought, we have the 0:24:13.680 --> 0:24:16.520 US government now talking about the idea of helicopter money, 0:24:16.560 --> 0:24:19.240 but Facebook is moving ahead of the curve. They've already 0:24:19.280 --> 0:24:21.080 said that they're giving each of its employees a one 0:24:21.080 --> 0:24:24.240 thousand dollar bonus to help support them during the outbreak. 0:24:24.320 --> 0:24:27.240 So just an insight to what some companies are already 0:24:27.520 --> 0:24:32.200 trying to do to help alleviate any pain from their employees. Alright, 0:24:32.320 --> 0:24:36.360 very good, very good. Well in the spirit of de regulation, Sarah, 0:24:36.400 --> 0:24:38.920 I'm gonna I'm gonna bend the rules a little bit 0:24:39.000 --> 0:24:44.119 on this. You've been the rulest like five weeks. But 0:24:45.000 --> 0:24:49.160 because are trying times, go ahead, they're trying times. Obviously, 0:24:49.200 --> 0:24:52.719 the virus is the most important thing UH markets are 0:24:52.760 --> 0:24:55.240 dealing with right now. So I'm I'm found some very 0:24:55.320 --> 0:25:00.240 crazy virus related stories, not necessarily market related stories. But 0:25:00.600 --> 0:25:04.080 if you have a terminal, I highly recommend you run 0:25:04.080 --> 0:25:06.960 the function and I odd. It just finds all the 0:25:07.000 --> 0:25:10.280 odd stories from the Internet and compiles it into one place. 0:25:10.320 --> 0:25:13.359 It's it's really worth the subscription price alone. So let 0:25:13.359 --> 0:25:16.520 me give you some of the craziest coronavirus stories I've 0:25:16.520 --> 0:25:19.960 seen out there. Uh, New York Post is way ahead 0:25:20.000 --> 0:25:22.639