1 00:00:00,120 --> 00:00:02,520 Speaker 1: Let's get to Christian Hoffman, our guest for the half hour. 2 00:00:02,640 --> 00:00:08,039 Speaker 1: Christian is portfolio manager also managing director at Thornburg Investment Management, 3 00:00:08,320 --> 00:00:11,480 Speaker 1: on the line from Santa Fe, New Mexico. Christian, thanks 4 00:00:11,480 --> 00:00:13,600 Speaker 1: for being with us. I got to imagine that if 5 00:00:13,640 --> 00:00:16,480 Speaker 1: your job is running money these days in an environment 6 00:00:16,520 --> 00:00:19,600 Speaker 1: where the feed has got no choice but to continue 7 00:00:19,640 --> 00:00:22,000 Speaker 1: to lean in in so far as tightening is concerned, 8 00:00:22,400 --> 00:00:25,520 Speaker 1: we run the risk of recession in the process of that. 9 00:00:25,520 --> 00:00:28,880 Speaker 1: That means that corporate earnings, particularly in the new year, 10 00:00:28,880 --> 00:00:31,240 Speaker 1: are likely to suffer. How do you put money to 11 00:00:31,280 --> 00:00:35,800 Speaker 1: work in this kind of environment? As a fixing hum investor? 12 00:00:36,040 --> 00:00:38,680 Speaker 1: As to say, it's an incredibly interesting and exciting time 13 00:00:38,760 --> 00:00:41,280 Speaker 1: due to be putting money to work. We started the 14 00:00:41,320 --> 00:00:44,279 Speaker 1: year in a very defensive position across our fund um 15 00:00:44,320 --> 00:00:48,040 Speaker 1: and has benefited from that tremendously. That's benefited both in 16 00:00:48,120 --> 00:00:51,960 Speaker 1: terms of performance and in terms of flows um. Right now, 17 00:00:52,040 --> 00:00:55,480 Speaker 1: duration and credit are both very interesting. We prefer duration, 18 00:00:55,560 --> 00:00:58,720 Speaker 1: but there's there's ability to take risk in both m 19 00:00:58,800 --> 00:01:02,000 Speaker 1: and for people with flexibility and drive power to invest, 20 00:01:02,160 --> 00:01:05,280 Speaker 1: it's I think it's a generational opportunity in fixed income 21 00:01:05,360 --> 00:01:10,440 Speaker 1: right now. Yeah, I was seeing the Tuestands curve really 22 00:01:10,480 --> 00:01:13,560 Speaker 1: hitting at forty year low. This does suggest that something 23 00:01:13,800 --> 00:01:16,600 Speaker 1: ugly is coming down the pipe. How are you positioning 24 00:01:16,640 --> 00:01:19,319 Speaker 1: for potential recession? Do you think that is a possibility. 25 00:01:21,400 --> 00:01:23,959 Speaker 1: I think it's a foregone conclusion. I think the bigger 26 00:01:24,040 --> 00:01:26,360 Speaker 1: question is is it a soft recession or is it 27 00:01:26,440 --> 00:01:29,440 Speaker 1: something that that feels a bit more ugly. I think 28 00:01:29,800 --> 00:01:32,960 Speaker 1: a mild recession is actually very much the same outcome 29 00:01:33,080 --> 00:01:36,479 Speaker 1: is no recession at this point. Um something more prolonged 30 00:01:36,480 --> 00:01:40,560 Speaker 1: and ugly I think could ripple through through global markets, 31 00:01:40,600 --> 00:01:44,360 Speaker 1: both fixed income and equity. That said, if that does happen, 32 00:01:44,800 --> 00:01:48,280 Speaker 1: I think you'll see more of historic relationship between fixed 33 00:01:48,320 --> 00:01:52,280 Speaker 1: income and equity, where equities feel pain and fixed income 34 00:01:52,280 --> 00:01:56,200 Speaker 1: it again provides some ballast to portfolios. That relationship was 35 00:01:56,240 --> 00:01:59,000 Speaker 1: tremendously skewed over the past couple of years, but I 36 00:01:59,000 --> 00:02:01,760 Speaker 1: think given this re set, we could see that again 37 00:02:01,800 --> 00:02:04,360 Speaker 1: and it makes tremendous amount of sense for investors to 38 00:02:04,760 --> 00:02:07,960 Speaker 1: have a significant positioning and fixed income. So we're seeing 39 00:02:08,000 --> 00:02:12,880 Speaker 1: some cracks emerging markets for collateralized loan obligations. Also mortgage 40 00:02:12,919 --> 00:02:15,639 Speaker 1: credit are does that concern you? Are they canaries in 41 00:02:15,680 --> 00:02:19,799 Speaker 1: the coal mine. The housing market remains strong, but we're 42 00:02:19,800 --> 00:02:22,400 Speaker 1: not looking for for further gains there. It's really a 43 00:02:22,480 --> 00:02:25,320 Speaker 1: question of, you know, how much weakness that that market 44 00:02:25,400 --> 00:02:28,480 Speaker 1: can sustain. I think there will absolutely be weakness, but 45 00:02:28,520 --> 00:02:30,919 Speaker 1: it will be very different from the housing downturn that 46 00:02:31,000 --> 00:02:35,720 Speaker 1: we saw from two thousand five to two thousand nine. Um, 47 00:02:35,760 --> 00:02:39,160 Speaker 1: there's actually a lot of opportunities there. In agency agency 48 00:02:39,200 --> 00:02:41,720 Speaker 1: bad notes, we saw spreads gets the levels we haven't 49 00:02:41,760 --> 00:02:45,560 Speaker 1: seen since two thousand eight. A key difference between now 50 00:02:45,600 --> 00:02:49,200 Speaker 1: and then is that at that point in time, people 51 00:02:49,200 --> 00:02:52,120 Speaker 1: were worried about the government actually supporting those those pieces 52 00:02:52,120 --> 00:02:55,600 Speaker 1: of debt um Now it's more a matter of liquidity. Christian, 53 00:02:55,680 --> 00:02:59,000 Speaker 1: you do have a focus on fixed income, but I 54 00:02:59,000 --> 00:03:01,360 Speaker 1: know you keep an eye on the equity space as well, 55 00:03:01,440 --> 00:03:04,839 Speaker 1: and you've got some thoughts on guidance. We just heard 56 00:03:04,840 --> 00:03:07,240 Speaker 1: from a video after the close in the US the 57 00:03:07,280 --> 00:03:11,560 Speaker 1: fourth quarter looking a little bit vague on geopolitical concerns 58 00:03:11,600 --> 00:03:14,480 Speaker 1: between the US and China, But more broadly, what do 59 00:03:14,520 --> 00:03:18,400 Speaker 1: you see coming down the pipe in terms of endings. Yeah, 60 00:03:18,400 --> 00:03:20,280 Speaker 1: this has been a dance that really started in the 61 00:03:20,400 --> 00:03:23,720 Speaker 1: second quarter before second quarter earnings came out. There was 62 00:03:23,760 --> 00:03:25,280 Speaker 1: a lot of trepidation that it was going to be 63 00:03:25,320 --> 00:03:28,520 Speaker 1: a disaster that you know, estimates hadn't been updated. It 64 00:03:28,600 --> 00:03:33,120 Speaker 1: was okay. Third quarters, same thing happened again. UM, that 65 00:03:33,240 --> 00:03:37,400 Speaker 1: was less okay, it was decidedly mixed. UM. But this 66 00:03:37,480 --> 00:03:40,480 Speaker 1: is going to keep happening as we watch the global 67 00:03:40,520 --> 00:03:44,640 Speaker 1: economy deteriorate. Anxiety that will be high into the fourth quarter. 68 00:03:45,040 --> 00:03:47,920 Speaker 1: It'll probably worse than the third quarter. UM, and estimates 69 00:03:47,960 --> 00:03:51,680 Speaker 1: will probably continue to come down. So rates have come down. 70 00:03:51,720 --> 00:03:54,760 Speaker 1: If you think about PE and global equity evaluations, you 71 00:03:54,760 --> 00:03:57,880 Speaker 1: know there's some relief on the on the valuation component. 72 00:03:58,320 --> 00:04:01,520 Speaker 1: The bigger risk right now is on the earning side, UM, 73 00:04:01,560 --> 00:04:03,840 Speaker 1: because I think the ware risk is clearly way to 74 00:04:03,960 --> 00:04:07,520 Speaker 1: the downside. So is there a risk of difficulty and 75 00:04:07,600 --> 00:04:12,800 Speaker 1: servicing credit if you're pertain let's say trouble B or below. Well, 76 00:04:13,360 --> 00:04:17,400 Speaker 1: there's plenty of high high yield that's that's absolutely just fine. UM. 77 00:04:17,520 --> 00:04:20,479 Speaker 1: We're primarily focused on on double B and high quality 78 00:04:20,560 --> 00:04:23,320 Speaker 1: single bs relates to our high yield position. We're doing 79 00:04:23,360 --> 00:04:26,080 Speaker 1: almost nothing in triple C right now. I'd also be 80 00:04:26,320 --> 00:04:29,680 Speaker 1: very wary of of lower quality bank loans M bank 81 00:04:29,720 --> 00:04:33,120 Speaker 1: loans have performed well in in a horrible market. Um, 82 00:04:33,160 --> 00:04:37,880 Speaker 1: it's time to to read those games, re redeploy those investments. Um. 83 00:04:38,200 --> 00:04:40,479 Speaker 1: The easy money has been made, and I think there's 84 00:04:40,480 --> 00:04:43,080 Speaker 1: a lot of risks of the downside. Now, how about 85 00:04:43,080 --> 00:04:47,159 Speaker 1: markets offshore, I'm thinking particularly China inflation They're quite low 86 00:04:47,200 --> 00:04:49,560 Speaker 1: at the moment, but do you see that changing and 87 00:04:49,880 --> 00:04:52,000 Speaker 1: how does that change the fixed in kind of environment 88 00:04:52,040 --> 00:04:56,960 Speaker 1: for you? The China question is hugely important to the 89 00:04:57,000 --> 00:05:01,440 Speaker 1: global market. We've had some relief on economic data points 90 00:05:01,440 --> 00:05:04,279 Speaker 1: as it relates to inflation, but again, what jump started 91 00:05:04,279 --> 00:05:07,880 Speaker 1: this recent rally the twenty basis point beat on a 92 00:05:07,920 --> 00:05:11,200 Speaker 1: still ugly inflation number. Since then, we've had a lot 93 00:05:11,279 --> 00:05:13,880 Speaker 1: of you know, good news on the China front terms 94 00:05:13,880 --> 00:05:18,240 Speaker 1: of potential reopening and seeing that economy get get kick started. Um. 95 00:05:18,560 --> 00:05:20,960 Speaker 1: The downside on the other side of that coin is 96 00:05:21,000 --> 00:05:24,760 Speaker 1: that you know, that can cause inflationary pressures again throughout 97 00:05:24,800 --> 00:05:28,480 Speaker 1: the globe. So it's very much a mixed picture. I 98 00:05:28,560 --> 00:05:31,680 Speaker 1: think the market at this point is pricing in further 99 00:05:31,800 --> 00:05:35,200 Speaker 1: deceleration and the inflation. But look, we get a couple 100 00:05:35,400 --> 00:05:37,400 Speaker 1: couple of bad or you know, bumpy data points and 101 00:05:37,400 --> 00:05:40,360 Speaker 1: it's our base case of volatility continues. So we know 102 00:05:40,560 --> 00:05:44,839 Speaker 1: that Europe is facing a very difficult situation right now. 103 00:05:44,920 --> 00:05:49,760 Speaker 1: And one of our reporters filing a piece earlier indicating 104 00:05:49,760 --> 00:05:52,640 Speaker 1: that the ECB may slow down its tempo of rate hikes, 105 00:05:52,680 --> 00:05:55,680 Speaker 1: maybe only fifty basis points next month, which is kind 106 00:05:55,680 --> 00:05:58,839 Speaker 1: of consistent with what we're hearing about the Fed. Give 107 00:05:58,839 --> 00:06:01,200 Speaker 1: me your view on Europe. Are there opportunities in the 108 00:06:01,200 --> 00:06:03,840 Speaker 1: credit space that you see there or would you avoid Europe? 109 00:06:05,040 --> 00:06:07,880 Speaker 1: You know, we've actually been taking advantage of some opportunities 110 00:06:07,920 --> 00:06:11,440 Speaker 1: in high quality European high yield. You're often able to 111 00:06:11,480 --> 00:06:15,040 Speaker 1: get similar yields relative to the same bonds, the US 112 00:06:15,160 --> 00:06:18,839 Speaker 1: dollar denominated bonds and the same capital structures. If you 113 00:06:18,920 --> 00:06:22,200 Speaker 1: hedge the currency back, you can add another two hundred 114 00:06:22,279 --> 00:06:25,480 Speaker 1: or so basis points um. That's been a very interesting 115 00:06:25,520 --> 00:06:28,279 Speaker 1: trade in liquidity driven. You can't lock it in for 116 00:06:28,320 --> 00:06:31,360 Speaker 1: the duration of the bond um, but you can create 117 00:06:31,400 --> 00:06:33,680 Speaker 1: you know, pretty interesting total return in the market right now, 118 00:06:33,680 --> 00:06:36,239 Speaker 1: and that's something that we've been doing. We've got about 119 00:06:36,400 --> 00:06:39,040 Speaker 1: twenty seconds left, Christian, what's your biggest risk out there 120 00:06:39,040 --> 00:06:43,120 Speaker 1: at the moment? What's keeping you awake? I think The 121 00:06:43,160 --> 00:06:46,920 Speaker 1: biggest risk is you know that we see unwinding in 122 00:06:47,240 --> 00:06:50,880 Speaker 1: private markets that you know certainly in the crypto market, 123 00:06:51,160 --> 00:06:54,200 Speaker 1: it's not just one cockroach. I I'm not sure if 124 00:06:54,240 --> 00:06:57,400 Speaker 1: that continues to unfold into other unprecedented ways, but very 125 00:06:57,440 --> 00:07:00,080 Speaker 1: much as we're still on a global financial crisis, sometimes 126 00:07:00,120 --> 00:07:03,920 Speaker 1: these things can escalate and hurt people you never expected. Alright, 127 00:07:03,960 --> 00:07:08,600 Speaker 1: Christian Hoffman, portfolio manager and managing director at Thornberg Investment Management, 128 00:07:08,600 --> 00:07:09,840 Speaker 1: thanks so much for joining us.