1 00:00:05,800 --> 00:00:08,720 Speaker 1: Welcome to the Bloomberg p m L Podcast. I'm pim Fox. 2 00:00:08,760 --> 00:00:11,520 Speaker 1: Along with my co host Lisa Abramowitz. Each day we 3 00:00:11,640 --> 00:00:15,120 Speaker 1: bring you the most important, noteworthy, and useful interviews for 4 00:00:15,200 --> 00:00:17,840 Speaker 1: you and your money, whether you're at the grocery store 5 00:00:17,960 --> 00:00:20,720 Speaker 1: or the trading floor. Find the Bloomberg p m L 6 00:00:20,840 --> 00:00:34,919 Speaker 1: Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. President 7 00:00:34,960 --> 00:00:39,919 Speaker 1: Donald Trump with an executive order blocking Broadcom's bid for Quawcom. 8 00:00:39,920 --> 00:00:41,920 Speaker 1: Here to tell us more about it is Tony Balloon. 9 00:00:42,000 --> 00:00:44,960 Speaker 1: He is the head of the China corporate consulting practice 10 00:00:45,240 --> 00:00:48,600 Speaker 1: at Austin and Bird. And also we have Bloomberg's Department 11 00:00:48,640 --> 00:00:52,519 Speaker 1: of Justice of reporter David McLaughlin. David, maybe you can 12 00:00:52,560 --> 00:00:55,720 Speaker 1: just set the tone for us. This is not necessarily 13 00:00:55,720 --> 00:00:59,960 Speaker 1: that unusual. We've had instances in the past and financial right. 14 00:01:00,160 --> 00:01:04,520 Speaker 1: This is the Chinese financial services company that is owned 15 00:01:04,560 --> 00:01:08,200 Speaker 1: by Ali Baba's co founder Jack ma. They abandoned a 16 00:01:08,280 --> 00:01:11,720 Speaker 1: one point two billion dollar bid for Money Graham. Previously, 17 00:01:11,760 --> 00:01:15,679 Speaker 1: the Trump administration had blocked the acquisition of a Lattice, 18 00:01:15,760 --> 00:01:19,520 Speaker 1: a semiconductor by a private equity group that was controlled 19 00:01:19,560 --> 00:01:24,000 Speaker 1: by Chinese interests. Tell us about how this particular action 20 00:01:24,040 --> 00:01:28,120 Speaker 1: today with Broadcom fits into that. You're right. So there 21 00:01:28,120 --> 00:01:31,240 Speaker 1: have been a lot of um uh, a lot of 22 00:01:31,640 --> 00:01:37,480 Speaker 1: Chinese deals that have fallen apart since Trump came into office. UM. 23 00:01:37,560 --> 00:01:41,160 Speaker 1: And really there's been a long, long running concern about 24 00:01:41,680 --> 00:01:47,800 Speaker 1: China buying American technology even before he came in. UM. 25 00:01:47,840 --> 00:01:50,240 Speaker 1: So you mentioned some of the deals that have fallen apart. 26 00:01:50,480 --> 00:01:55,120 Speaker 1: UM in the Broadcom deal, although Broadcom is not a 27 00:01:55,240 --> 00:01:59,480 Speaker 1: Chinese company, it's it's based in Singapore. UM. What we 28 00:01:59,560 --> 00:02:04,360 Speaker 1: know from letters that the Treasury Department UM, which was 29 00:02:04,440 --> 00:02:08,919 Speaker 1: leading this review wrote is that they had they had 30 00:02:08,919 --> 00:02:11,800 Speaker 1: a fear that China UM would be able to sort 31 00:02:11,840 --> 00:02:15,320 Speaker 1: of move into the space that that Qualcom has right now. 32 00:02:15,960 --> 00:02:20,560 Speaker 1: UM if Broadcom acquired Qualcom, and the fear and the 33 00:02:20,600 --> 00:02:26,440 Speaker 1: government's view was that China and particularly Huawei technologies would 34 00:02:26,480 --> 00:02:29,760 Speaker 1: sort of come to dominate UH wireless to the next 35 00:02:29,760 --> 00:02:32,880 Speaker 1: generation of wireless technology, which is known as as five 36 00:02:33,320 --> 00:02:37,200 Speaker 1: as five G. So even though even though it was 37 00:02:37,280 --> 00:02:40,160 Speaker 1: not a Chinese REQUIRER, China was sort of looming in 38 00:02:40,200 --> 00:02:44,079 Speaker 1: the background this whole time. So Tony, come on in here, 39 00:02:44,200 --> 00:02:47,519 Speaker 1: because some people have been saying, Uh, this doesn't make 40 00:02:47,960 --> 00:02:51,200 Speaker 1: a whole lot of sense with respect to the fact 41 00:02:51,360 --> 00:02:56,200 Speaker 1: that uh Qualcom Broadcom is not necessarily a Chinese company, 42 00:02:56,240 --> 00:02:59,240 Speaker 1: as David is saying, though there is a Chinese influence 43 00:02:59,280 --> 00:03:01,880 Speaker 1: in Singapore, potentially there is. So do you think that 44 00:03:01,960 --> 00:03:06,520 Speaker 1: this makes enough sense from a regulatory standpoint that it 45 00:03:06,560 --> 00:03:10,880 Speaker 1: won't have a dampening effect on other potential deals. Well, 46 00:03:10,919 --> 00:03:14,600 Speaker 1: I do think that there may potentially be a dampening effect. 47 00:03:15,080 --> 00:03:17,920 Speaker 1: It is somewhat extraordinary that that if you look at 48 00:03:17,960 --> 00:03:21,480 Speaker 1: the deals that that the president or Sciphius is either 49 00:03:21,680 --> 00:03:26,200 Speaker 1: blocks or or sought to unwind. Historically, um, they have 50 00:03:26,320 --> 00:03:30,000 Speaker 1: actually almost always had a nexus with with with China 51 00:03:30,200 --> 00:03:34,840 Speaker 1: or another perceived foreign power, whereas here uh you really 52 00:03:34,880 --> 00:03:40,560 Speaker 1: have a much more tangential connection between between China and 53 00:03:40,560 --> 00:03:42,840 Speaker 1: the actual investor. So I think I think it is 54 00:03:42,880 --> 00:03:45,600 Speaker 1: a stretch, but I think it fits within what the 55 00:03:45,600 --> 00:03:50,240 Speaker 1: Trump administration's overall posture has been towards towards China since 56 00:03:50,280 --> 00:03:53,160 Speaker 1: since they've come into power. David, this is not just 57 00:03:53,280 --> 00:03:56,880 Speaker 1: limited to technology companies have mentioned money Grand but also 58 00:03:57,000 --> 00:04:00,680 Speaker 1: energy companies with China. Petrick Chemical explain this may not 59 00:04:00,760 --> 00:04:03,760 Speaker 1: just be focused on what you consider to be national 60 00:04:03,800 --> 00:04:08,640 Speaker 1: security and technology could be national security and other industries. Alright, 61 00:04:08,680 --> 00:04:12,680 Speaker 1: So siphius basically what they're primarily focused on generally are 62 00:04:12,760 --> 00:04:19,440 Speaker 1: sort of critical infrastructure. UM. So that could be UM, 63 00:04:19,480 --> 00:04:25,320 Speaker 1: you know, telecommunications, that could be UM, nuclear power plants, 64 00:04:25,440 --> 00:04:28,000 Speaker 1: you know which which would never get off the ground. Uh, 65 00:04:28,040 --> 00:04:33,799 Speaker 1: but UM any sort of UM like electrical electrical grids 66 00:04:33,800 --> 00:04:36,279 Speaker 1: that would be another thing. UM. It's just that I 67 00:04:36,279 --> 00:04:39,800 Speaker 1: think technology has been in the news because there's just 68 00:04:39,880 --> 00:04:43,720 Speaker 1: been so many deals, and we've seen China has made 69 00:04:43,720 --> 00:04:47,480 Speaker 1: a very concerted effort to build up its UM semiconductor 70 00:04:48,000 --> 00:04:50,440 Speaker 1: no how so that it's no longer sort of uh 71 00:04:50,480 --> 00:04:54,760 Speaker 1: so it's no longer dependent on on outside suppliers, and 72 00:04:55,120 --> 00:04:58,040 Speaker 1: they've effectively I think hit a wall here in the 73 00:04:58,120 --> 00:05:03,680 Speaker 1: United States. UM, there's just a lot of concern both 74 00:05:03,720 --> 00:05:07,479 Speaker 1: in the administration and on Capitol Hill, rightly or wrongly 75 00:05:07,520 --> 00:05:12,760 Speaker 1: about UM, about the risk that China poses. Tony, I 76 00:05:12,760 --> 00:05:14,840 Speaker 1: want to get back to what you were saying about 77 00:05:14,880 --> 00:05:18,680 Speaker 1: the dampening effect on potential deals. This used to be 78 00:05:19,040 --> 00:05:23,039 Speaker 1: considered the deal's administration. I mean President Trump is known 79 00:05:23,120 --> 00:05:26,840 Speaker 1: as Art of the Deal. He's known for business and 80 00:05:27,040 --> 00:05:30,000 Speaker 1: and and sort of trying to stimulate that. I'm just wondering. 81 00:05:30,040 --> 00:05:32,840 Speaker 1: I mean, have you had conversations in the past few 82 00:05:32,880 --> 00:05:36,440 Speaker 1: hours with clients that previously we're considering deals that are 83 00:05:36,480 --> 00:05:38,279 Speaker 1: now saying, you know what, we need to build in 84 00:05:38,320 --> 00:05:40,920 Speaker 1: a much bigger buffer, or perhaps this isn't a good 85 00:05:40,960 --> 00:05:44,919 Speaker 1: time and we misunderstood how aggressive this administration is going 86 00:05:44,960 --> 00:05:48,200 Speaker 1: to be with respect to blocking M and A. Yeah. 87 00:05:48,480 --> 00:05:51,240 Speaker 1: I think certainly we have had discussions with clients in 88 00:05:51,240 --> 00:05:53,359 Speaker 1: the in the last several hours, but even even in 89 00:05:53,440 --> 00:05:56,440 Speaker 1: over the last several months. I think I think today 90 00:05:56,560 --> 00:06:00,320 Speaker 1: is really just uh, their their worst fears coming coming home, 91 00:06:00,400 --> 00:06:03,280 Speaker 1: Which is that that there that if it's a if 92 00:06:03,320 --> 00:06:06,640 Speaker 1: it's a Chinese investor, there are going to be significant 93 00:06:06,640 --> 00:06:11,400 Speaker 1: limitations on the sectors where investments can be made. And 94 00:06:11,680 --> 00:06:15,599 Speaker 1: I think there's just a general sense of trepidation coming 95 00:06:15,600 --> 00:06:18,160 Speaker 1: out of China on that area. Although Tony, you know, 96 00:06:18,240 --> 00:06:20,440 Speaker 1: you have to wonder is it just China or is 97 00:06:20,480 --> 00:06:22,640 Speaker 1: it more broadly too, Because we saw the A T 98 00:06:22,760 --> 00:06:26,640 Speaker 1: and T and Time Warner deal UH that the Department 99 00:06:26,640 --> 00:06:29,560 Speaker 1: of Justice sued to try to stop, there have been 100 00:06:29,680 --> 00:06:33,560 Speaker 1: other potential ripples of interference. I mean, is it just 101 00:06:33,760 --> 00:06:37,720 Speaker 1: isolated to China related deals or is this something broader? 102 00:06:38,880 --> 00:06:42,240 Speaker 1: You know? I think certainly with respect to Syphius, it's 103 00:06:42,320 --> 00:06:47,200 Speaker 1: it's isolated to China. And I think notwithstanding the broader, 104 00:06:47,760 --> 00:06:50,919 Speaker 1: you know, imposition of steel tariffs across a number of 105 00:06:50,960 --> 00:06:53,760 Speaker 1: trading partners, that that was really a warning shot at 106 00:06:54,160 --> 00:06:57,240 Speaker 1: China as well. So I do think there's a conscious 107 00:06:57,279 --> 00:07:01,000 Speaker 1: effort by the administration to try and reset what it 108 00:07:01,080 --> 00:07:05,560 Speaker 1: perceives as an unfair economic playing field and try to 109 00:07:05,560 --> 00:07:09,080 Speaker 1: get us, the US away from what it perceives what 110 00:07:09,400 --> 00:07:13,160 Speaker 1: the Trump administration perceives as at a competitive disadvantage relative 111 00:07:13,200 --> 00:07:16,000 Speaker 1: to China, Tony. Is it also just worth noting that 112 00:07:16,040 --> 00:07:18,920 Speaker 1: this is not necessarily limited to the Trump administration. I 113 00:07:18,920 --> 00:07:25,000 Speaker 1: mean President Obama played a role in blocking China's acquisition 114 00:07:25,040 --> 00:07:30,440 Speaker 1: of the German semiconductor firm uh Extron correct correct, as 115 00:07:30,480 --> 00:07:34,840 Speaker 1: well as a Chinese controlled company called Roles and its 116 00:07:34,880 --> 00:07:40,400 Speaker 1: development of wind farms adjacent to US restricted airspace near 117 00:07:40,520 --> 00:07:44,120 Speaker 1: near near a military installation. Um but you know, i'd say, 118 00:07:44,120 --> 00:07:47,400 Speaker 1: in terms of presidential activity, I mean, there's only been 119 00:07:47,600 --> 00:07:53,680 Speaker 1: five presidential orders since nineteen ordering a divestiture or blocking 120 00:07:54,800 --> 00:07:58,120 Speaker 1: a foreign acquisition, and and it's interesting that, you know, 121 00:07:58,200 --> 00:08:01,040 Speaker 1: President Obama had two in his years and President Trump 122 00:08:01,080 --> 00:08:04,240 Speaker 1: has now had you know too, in his first fourteen 123 00:08:04,280 --> 00:08:08,120 Speaker 1: months of office. Yeah, definitely fascinating. Thank you to both 124 00:08:08,160 --> 00:08:10,320 Speaker 1: of you. Tony Balloon, partner and head of the China 125 00:08:10,360 --> 00:08:13,800 Speaker 1: corporate consulting practice at Alston and Bird based in Atlanta, 126 00:08:13,880 --> 00:08:16,960 Speaker 1: and our own David mclaughland, Department of Justice reporter for 127 00:08:17,200 --> 00:08:21,960 Speaker 1: Bloomberg News, coming to us from our studio in Washington, 128 00:08:22,320 --> 00:08:40,520 Speaker 1: d C. The housing market, mortgages, mortgage servicing of Fannie Mae. 129 00:08:40,640 --> 00:08:43,160 Speaker 1: Freddie Mack. Here to help us understand this industry and 130 00:08:43,240 --> 00:08:46,040 Speaker 1: some of the changes it is undergoing is Willie Walker. 131 00:08:46,280 --> 00:08:49,040 Speaker 1: He is the founder and the owner of Walker and 132 00:08:49,160 --> 00:08:50,719 Speaker 1: dun Lapo. He's one of the owners. He's got a 133 00:08:50,760 --> 00:08:53,640 Speaker 1: lot of shareholders. They're based in Bethesda, Maryland, but he 134 00:08:53,720 --> 00:08:56,520 Speaker 1: joins us here in our eleven three oh studios. Well, 135 00:08:56,559 --> 00:08:58,360 Speaker 1: he thank you so much for being here. Just how 136 00:08:58,480 --> 00:09:01,120 Speaker 1: people a little bit about Walk and that they may 137 00:09:01,160 --> 00:09:04,720 Speaker 1: not know about it if they're not in the DC area. 138 00:09:05,600 --> 00:09:08,480 Speaker 1: Good morning. Pim UH Public traded under the ticker of 139 00:09:08,600 --> 00:09:12,400 Speaker 1: w D on the New York Stock Exchange. Billions six 140 00:09:12,480 --> 00:09:17,320 Speaker 1: market cap. UH we are primarily focused in the multi 141 00:09:17,320 --> 00:09:23,280 Speaker 1: family lending space. We did UM twenty eight billion dollars 142 00:09:23,280 --> 00:09:26,920 Speaker 1: of total transaction volume in two thousand and seventeen, and 143 00:09:27,040 --> 00:09:30,840 Speaker 1: of that billion was loans on commercial real estate. And 144 00:09:30,880 --> 00:09:33,240 Speaker 1: of that twenty five billion of loans on commercial real estate, 145 00:09:33,280 --> 00:09:36,920 Speaker 1: twenty billion was on apartment buildings. So we are very 146 00:09:37,000 --> 00:09:39,800 Speaker 1: large in the apartment lending space. As you said in 147 00:09:39,840 --> 00:09:42,439 Speaker 1: the in the lead in UH, we are a very 148 00:09:42,440 --> 00:09:45,680 Speaker 1: big partner to Fannie Mae, Freddie, MAC and HUD because 149 00:09:45,679 --> 00:09:48,640 Speaker 1: they are the three sources, the dominant sources of capital 150 00:09:48,679 --> 00:09:53,000 Speaker 1: to the apartment industry. Before we take into some of 151 00:09:53,000 --> 00:09:56,120 Speaker 1: the changes in in Fannie and Freddy and HUD that 152 00:09:56,240 --> 00:09:59,680 Speaker 1: have been happening, I want to talk about just where 153 00:09:59,679 --> 00:10:02,439 Speaker 1: we are in the credit cycle and the housing cycle. 154 00:10:02,960 --> 00:10:04,880 Speaker 1: Just should point out that your shares were up more 155 00:10:04,920 --> 00:10:07,880 Speaker 1: than fifty last year, up more than ten percent this year. 156 00:10:07,920 --> 00:10:10,400 Speaker 1: It's been an amazingly good time for real estate, and 157 00:10:10,440 --> 00:10:14,520 Speaker 1: particularly your company has done particularly well. I'm just wondering 158 00:10:14,679 --> 00:10:16,959 Speaker 1: how long can this last? Now that we're seeing mortgage 159 00:10:17,040 --> 00:10:19,800 Speaker 1: rates rise to the the highest levels since two thousand 160 00:10:19,840 --> 00:10:24,680 Speaker 1: and eleven, and you're seeing interest rates rise just generally So, Lisa, 161 00:10:24,760 --> 00:10:27,160 Speaker 1: it's a great question. One of the things that W 162 00:10:27,280 --> 00:10:29,240 Speaker 1: and D has been able to do is is is 163 00:10:29,240 --> 00:10:32,600 Speaker 1: grows significantly faster than the market. So the overall commercial 164 00:10:32,720 --> 00:10:35,160 Speaker 1: lending market was up three percent last year, and we 165 00:10:35,200 --> 00:10:39,120 Speaker 1: grew in our overall lending, and the multi family market 166 00:10:39,120 --> 00:10:40,920 Speaker 1: was up five percent last year and we grew forty 167 00:10:41,000 --> 00:10:43,120 Speaker 1: three percent year on year. So W and D has 168 00:10:43,120 --> 00:10:45,199 Speaker 1: been able to grow much quicker than the market. With 169 00:10:45,280 --> 00:10:47,839 Speaker 1: that said, to your question about what are the fundamentals 170 00:10:48,000 --> 00:10:51,439 Speaker 1: from an underwriting standpoint, um, we did sixteen billion dollars 171 00:10:51,440 --> 00:10:53,720 Speaker 1: of lending last year with Fannie and Freddie Mack and 172 00:10:53,840 --> 00:10:56,720 Speaker 1: of that sixteen billion dollars of loans, the average loan 173 00:10:56,800 --> 00:11:00,560 Speaker 1: to value was sixty eight percent and the average debt 174 00:11:00,600 --> 00:11:02,840 Speaker 1: service cover so how much cash flow there is to 175 00:11:02,880 --> 00:11:05,360 Speaker 1: cover the cost of the debt was one point four 176 00:11:05,559 --> 00:11:11,000 Speaker 1: three times. Those are extremely healthy underwriting standards at this 177 00:11:11,040 --> 00:11:13,280 Speaker 1: time in a cycle. So you typically would think at 178 00:11:13,280 --> 00:11:16,000 Speaker 1: the end of a cycle, people stretch, they need more 179 00:11:16,040 --> 00:11:18,760 Speaker 1: debt and they have less cash flow to cover the debt. 180 00:11:19,000 --> 00:11:22,400 Speaker 1: We are not seeing that in our lending whatsoever. All right, now, 181 00:11:22,440 --> 00:11:27,280 Speaker 1: let's turn our attention to mortgage credit risk and first 182 00:11:27,280 --> 00:11:29,720 Speaker 1: of all define it for us, but then tell us 183 00:11:29,760 --> 00:11:33,880 Speaker 1: about how the g s c s Fannie and Freddie 184 00:11:33,880 --> 00:11:37,640 Speaker 1: participate in this currently, so PIM two sides of that. 185 00:11:37,720 --> 00:11:40,240 Speaker 1: One would be the multi family sector, where we are 186 00:11:40,360 --> 00:11:42,480 Speaker 1: very large and a big partner of THEIRS. The other 187 00:11:42,559 --> 00:11:45,480 Speaker 1: is the single family side of the house. On the 188 00:11:45,520 --> 00:11:47,320 Speaker 1: multi family side, as I just gave you the credit 189 00:11:47,400 --> 00:11:51,000 Speaker 1: statistics that was with Fannie and Freddie at and one 190 00:11:51,040 --> 00:11:53,840 Speaker 1: point for three times debt service cover on sixteen billion 191 00:11:53,880 --> 00:11:56,400 Speaker 1: dollars of lending. So Fannie and Freddy on the multi 192 00:11:56,400 --> 00:11:59,800 Speaker 1: family side have not changed their credit box whatsoever and 193 00:11:59,840 --> 00:12:02,800 Speaker 1: have held standards very tight. Because there's such a dominant 194 00:12:03,040 --> 00:12:06,160 Speaker 1: force in the market on the single family side, we 195 00:12:06,240 --> 00:12:09,480 Speaker 1: don't do any single family lending with Fannie and Freddie. Um, 196 00:12:09,520 --> 00:12:11,959 Speaker 1: I would say only this is a general comment. Fanny 197 00:12:11,960 --> 00:12:14,400 Speaker 1: and Freddie got into trouble in the early two thousands 198 00:12:14,760 --> 00:12:17,920 Speaker 1: by going after alt A loans in the single family side. 199 00:12:18,200 --> 00:12:20,720 Speaker 1: That was due to the pressure from the single family 200 00:12:21,360 --> 00:12:24,680 Speaker 1: r MBS market, the residential mortgage back securities market. That 201 00:12:24,840 --> 00:12:27,600 Speaker 1: market hasn't come back, and as a result of that, 202 00:12:27,640 --> 00:12:29,679 Speaker 1: Fanny and Freddie are not being pushed on the single 203 00:12:29,679 --> 00:12:32,440 Speaker 1: family side from an underwriting standpoint, and therefore able to 204 00:12:32,480 --> 00:12:35,520 Speaker 1: hold their credit standards much better now than they were previously. 205 00:12:35,760 --> 00:12:37,160 Speaker 1: I want to push back on that a little bit 206 00:12:37,160 --> 00:12:39,720 Speaker 1: because we had a Bloomberg View columnist on our show 207 00:12:39,760 --> 00:12:42,240 Speaker 1: in the past few weeks who was saying, uh that 208 00:12:42,320 --> 00:12:45,840 Speaker 1: there have been an increasing number of non bank lenders 209 00:12:45,880 --> 00:12:50,040 Speaker 1: who have been originating the single family loans that are 210 00:12:50,080 --> 00:12:54,280 Speaker 1: being ensured by Fanny and Freddy and f H And 211 00:12:54,679 --> 00:12:56,440 Speaker 1: it raises a question if they don't have to have 212 00:12:56,520 --> 00:13:00,760 Speaker 1: skin in the game, if they are basic lead packaging 213 00:13:00,840 --> 00:13:04,000 Speaker 1: and originating to sell, and if Fanny, Freddy and f 214 00:13:04,120 --> 00:13:06,920 Speaker 1: h A are not necessarily checking on the risks there, 215 00:13:07,679 --> 00:13:10,800 Speaker 1: could we be setting ourselves up for a big problem, 216 00:13:10,920 --> 00:13:14,240 Speaker 1: perhaps one to be borne by the taxpayer. So exactly 217 00:13:14,280 --> 00:13:16,920 Speaker 1: where you went with that, Lisa. Because the originator of 218 00:13:16,920 --> 00:13:20,400 Speaker 1: the mortgage holds no risk, it makes no difference whether 219 00:13:20,400 --> 00:13:23,559 Speaker 1: they're an extremely well capitalized bank or Quicken, who is 220 00:13:23,600 --> 00:13:26,079 Speaker 1: not a bank but is the largest single family home 221 00:13:26,080 --> 00:13:28,800 Speaker 1: originator in the country. Because there is no counterparty risk, 222 00:13:29,160 --> 00:13:31,400 Speaker 1: we as taxpayers on the single family side, take a 223 00:13:31,760 --> 00:13:34,160 Speaker 1: percent of the risk on the multi family business. With 224 00:13:34,160 --> 00:13:37,000 Speaker 1: Fannie and Freddie. Companies like Walker and Dunlop take the 225 00:13:37,040 --> 00:13:39,920 Speaker 1: first lost position. So there's a big difference between the 226 00:13:39,960 --> 00:13:42,800 Speaker 1: securitization markets on the single family side and on the 227 00:13:42,840 --> 00:13:46,680 Speaker 1: multi family side and so on. Commercial private companies take 228 00:13:46,920 --> 00:13:49,960 Speaker 1: the first lost position in the single family side. The 229 00:13:50,040 --> 00:13:53,280 Speaker 1: government has not gone and required that the originators of 230 00:13:53,280 --> 00:13:56,160 Speaker 1: the mortgages hold that risk. And of all the things 231 00:13:56,160 --> 00:13:57,599 Speaker 1: they need to reform as it relates to the g 232 00:13:57,800 --> 00:13:59,600 Speaker 1: c s, they don't need to throw away Fanny and Freddy. 233 00:13:59,679 --> 00:14:02,000 Speaker 1: They us need to put private capital in front of 234 00:14:02,040 --> 00:14:05,240 Speaker 1: government capital in the single family business and they will 235 00:14:05,280 --> 00:14:07,000 Speaker 1: get the same type of business they have on the 236 00:14:07,080 --> 00:14:09,840 Speaker 1: multi family side, which works really well and has really 237 00:14:09,880 --> 00:14:12,360 Speaker 1: really good credit performance. All right, tell us about the 238 00:14:12,400 --> 00:14:16,480 Speaker 1: pilot program that that Freddie, uh and Fani are rolling 239 00:14:16,520 --> 00:14:20,800 Speaker 1: out on s FR so on single family rental, which 240 00:14:20,840 --> 00:14:23,680 Speaker 1: is a market we really like because I think that 241 00:14:23,720 --> 00:14:26,440 Speaker 1: at the end of the day, people want to still 242 00:14:26,520 --> 00:14:29,680 Speaker 1: live and attach single family home, but the economic reality 243 00:14:29,720 --> 00:14:31,440 Speaker 1: is that fewer and few of them can afford to 244 00:14:31,440 --> 00:14:34,000 Speaker 1: do it. So I think that single family rental is 245 00:14:34,040 --> 00:14:36,560 Speaker 1: a great market. The f h f A, which is 246 00:14:36,560 --> 00:14:39,120 Speaker 1: the regulator Fannie and Freddy, has given both of them 247 00:14:39,160 --> 00:14:41,920 Speaker 1: one point to billion dollars of if you will, lending 248 00:14:42,080 --> 00:14:44,960 Speaker 1: capacity this year to go do a pilot in single 249 00:14:45,000 --> 00:14:48,680 Speaker 1: family rental securitization. And so Fanny and Freddie are entering 250 00:14:48,720 --> 00:14:51,520 Speaker 1: the market and we and other lenders will go out 251 00:14:51,640 --> 00:14:53,680 Speaker 1: and work with people who are most One of the 252 00:14:53,800 --> 00:14:56,760 Speaker 1: key issues here, PIM, is that they have required Fannie 253 00:14:56,760 --> 00:15:00,240 Speaker 1: and Freddie to focus on affordable single family Willie Walker 254 00:15:00,520 --> 00:15:02,400 Speaker 1: unfortunately have to leave it there. We look forward to 255 00:15:02,440 --> 00:15:05,120 Speaker 1: speaking with you again. Willie Walker, founder and owner of 256 00:15:05,280 --> 00:15:09,120 Speaker 1: Walker and Dunlop, which is based in Bethesda, Maryland and 257 00:15:09,280 --> 00:15:27,280 Speaker 1: focuses on commercial real estate multi family homes. What is 258 00:15:27,400 --> 00:15:31,080 Speaker 1: a bearish bull market? Well, here to help us understand 259 00:15:31,120 --> 00:15:33,960 Speaker 1: this is James Paulson. Jim Paulson is the chief investment 260 00:15:33,960 --> 00:15:37,240 Speaker 1: strategist for the Loothold Group. He helps to manage nearly 261 00:15:37,280 --> 00:15:41,840 Speaker 1: one and a half billion dollars based in Minneapolis. Jim 262 00:15:41,880 --> 00:15:45,400 Speaker 1: always a pleasure. So what is a bearish bull market? 263 00:15:46,000 --> 00:15:49,480 Speaker 1: Good morning, pim. Um. Well, you know, I think the 264 00:15:49,480 --> 00:15:52,440 Speaker 1: thing that's gonna stick with me about this bull forever 265 00:15:52,840 --> 00:15:58,760 Speaker 1: is is how it's primary characteristic was climbing a perpetual 266 00:15:58,800 --> 00:16:03,440 Speaker 1: wall of worry, and this was reflecting a lot of 267 00:16:03,480 --> 00:16:08,520 Speaker 1: the bull market to the first six years of this bowl, 268 00:16:08,560 --> 00:16:11,520 Speaker 1: it was led by some of the most defensive sectors 269 00:16:11,600 --> 00:16:14,680 Speaker 1: or defensive stocks, that the stuff that you'd buy if 270 00:16:14,720 --> 00:16:20,080 Speaker 1: you expected the market to fall apart um. The dividend aristocrats, 271 00:16:20,360 --> 00:16:24,840 Speaker 1: you know, the high quality, defensive dividend payers, were among 272 00:16:25,320 --> 00:16:27,560 Speaker 1: the leadership of the market for the first six or 273 00:16:27,600 --> 00:16:31,040 Speaker 1: seven years. If you look at low val the SNP 274 00:16:31,240 --> 00:16:35,400 Speaker 1: five Low Volatility Index, again something you'd buy if you 275 00:16:35,600 --> 00:16:39,440 Speaker 1: feared there was downside risk. Between the start of two 276 00:16:39,480 --> 00:16:44,240 Speaker 1: thousand and ten and November of two thousand seventeen, almost 277 00:16:44,280 --> 00:16:47,840 Speaker 1: eight years that that completely matched the advance in the 278 00:16:47,880 --> 00:16:51,560 Speaker 1: overall SMP five in an index. So in many ways, 279 00:16:51,560 --> 00:16:54,960 Speaker 1: a big chunk of this bowl until just recently was 280 00:16:55,080 --> 00:17:00,240 Speaker 1: led by bears, and it has now started to shift ups. 281 00:17:00,520 --> 00:17:05,159 Speaker 1: The sentiment towards a more bullish tint is starting to 282 00:17:05,160 --> 00:17:07,919 Speaker 1: shift right now. What's not starting to shift just yet 283 00:17:08,080 --> 00:17:11,280 Speaker 1: is moving out of the Goldilocks economic backdrop. At least 284 00:17:11,280 --> 00:17:13,280 Speaker 1: that was according to the US inflation numbers that we 285 00:17:13,359 --> 00:17:19,280 Speaker 1: got today, with the consumer price index, which excludes food 286 00:17:19,280 --> 00:17:21,560 Speaker 1: and energy, rising at zero point two percent from January 287 00:17:21,640 --> 00:17:24,879 Speaker 1: inline with expectations, but not the blockbuster that some people 288 00:17:25,040 --> 00:17:29,960 Speaker 1: were hoping for. Is there anything to make you change 289 00:17:30,040 --> 00:17:34,200 Speaker 1: your allocations or actually, uh, you know, sell things by 290 00:17:34,320 --> 00:17:38,560 Speaker 1: things based on the economic data that we've been receiving recently. Yeah, 291 00:17:39,440 --> 00:17:42,080 Speaker 1: you know, I think the Goldilocks has changed. I mean, 292 00:17:42,119 --> 00:17:46,840 Speaker 1: if you think about a year, the last twelve eighteen months, UM, 293 00:17:46,960 --> 00:17:49,399 Speaker 1: we've definitely had a pick up an inflation, not just 294 00:17:49,560 --> 00:17:52,240 Speaker 1: wage inflation, which even the three month moving average at 295 00:17:52,280 --> 00:17:55,159 Speaker 1: to seven is the highest year on your rate and 296 00:17:55,200 --> 00:17:59,840 Speaker 1: wage inflation right now of the recovery. Um, but we've 297 00:17:59,840 --> 00:18:01,760 Speaker 1: all also had to pick up. You know, CPI has 298 00:18:01,800 --> 00:18:05,160 Speaker 1: gone from zero to two point two percent since two 299 00:18:05,240 --> 00:18:08,200 Speaker 1: thousand fifteen pp I and went from minus four to 300 00:18:08,440 --> 00:18:12,200 Speaker 1: almost plus four. Uh. You've had a rise in the 301 00:18:12,359 --> 00:18:15,359 Speaker 1: SMP Goldman Sacks Commodity Price Index in the last two years. 302 00:18:15,840 --> 00:18:19,520 Speaker 1: Inflation expectations and better than tips are have just gone 303 00:18:19,560 --> 00:18:22,560 Speaker 1: to three year highs Uh. So there's quite a bit 304 00:18:22,600 --> 00:18:26,000 Speaker 1: of information just beyond any one number that you know, 305 00:18:26,119 --> 00:18:29,080 Speaker 1: we've got a change of foot there, and certainly we've 306 00:18:29,119 --> 00:18:32,120 Speaker 1: had yields now going up, not only the fedlifting rates 307 00:18:32,200 --> 00:18:35,560 Speaker 1: but ten year bond yields closing in on three uh 308 00:18:35,920 --> 00:18:38,720 Speaker 1: and we that that's starting as we saw earlier in January, 309 00:18:38,840 --> 00:18:42,920 Speaker 1: to challenge the stock market. We also have declining financial liquidity, 310 00:18:43,200 --> 00:18:45,760 Speaker 1: you know, a FED that's now contracting their balance sheet. 311 00:18:45,800 --> 00:18:48,879 Speaker 1: A lot of the things of goldilocks have changed. So 312 00:18:48,960 --> 00:18:51,440 Speaker 1: I do think it's different what I What I think 313 00:18:51,520 --> 00:18:54,119 Speaker 1: is we're gonna have a flattish year for the stock market, 314 00:18:54,760 --> 00:18:57,120 Speaker 1: um and I think we might have some more selloffs 315 00:18:57,160 --> 00:19:01,080 Speaker 1: along the way also with rallies. And I certainly would 316 00:19:01,320 --> 00:19:04,080 Speaker 1: would maybe move more defensive as we moved back up 317 00:19:04,119 --> 00:19:06,960 Speaker 1: towards those January highs and look at some of the 318 00:19:07,040 --> 00:19:11,360 Speaker 1: traditional out of favorite defensive sectors like utilities and consumer staples, 319 00:19:11,840 --> 00:19:14,920 Speaker 1: and I would get more aggressive back towards capital goods 320 00:19:15,000 --> 00:19:17,560 Speaker 1: sectors if we go back to challenge those lows that 321 00:19:17,640 --> 00:19:20,200 Speaker 1: we we hit in February. Yeah. But Jim, if you 322 00:19:20,680 --> 00:19:22,879 Speaker 1: as you said earlier, if people have already invested in 323 00:19:22,960 --> 00:19:25,800 Speaker 1: these defensive stocks, that that is what has led the 324 00:19:25,880 --> 00:19:30,920 Speaker 1: market higher, why would you be doing adding to those holdings? Well, 325 00:19:31,359 --> 00:19:35,159 Speaker 1: Because in the last twelve d eighteen months, Phim, defensive 326 00:19:35,640 --> 00:19:40,280 Speaker 1: areas of the stock market have just totally underperformed dramatically 327 00:19:40,840 --> 00:19:43,760 Speaker 1: relative to the cyclical areas. If you look at the 328 00:19:44,640 --> 00:19:48,200 Speaker 1: S and P cyclical sectors to defensive sectors that went 329 00:19:48,280 --> 00:19:51,760 Speaker 1: to an record high for this recovery. It has exploded 330 00:19:52,280 --> 00:19:55,399 Speaker 1: just in the last six to nine months. And so 331 00:19:55,600 --> 00:19:59,680 Speaker 1: defensive stocks if you should call up the listeners to 332 00:19:59,760 --> 00:20:02,399 Speaker 1: call up look at a chart of utility stocks, or 333 00:20:02,480 --> 00:20:07,320 Speaker 1: consumer stables, even healthcare some of the more traditional telecoms, 334 00:20:07,359 --> 00:20:11,240 Speaker 1: you know, the more traditional defensive plays, they have really 335 00:20:11,359 --> 00:20:13,800 Speaker 1: underperformed radically just in the last year. And I do 336 00:20:14,000 --> 00:20:17,439 Speaker 1: think it's a it's been so dramatic over a very 337 00:20:17,480 --> 00:20:19,879 Speaker 1: short period of time that they now represent probably a 338 00:20:19,960 --> 00:20:23,800 Speaker 1: good short term by Jim. What about on the fixed 339 00:20:23,840 --> 00:20:26,200 Speaker 1: income side, Today is a big day not only for 340 00:20:26,600 --> 00:20:29,439 Speaker 1: US Treasury auctions, but also Campbell Soup is selling bonds 341 00:20:29,480 --> 00:20:32,760 Speaker 1: as well as Caterpillar, and over in Europe issuance has 342 00:20:32,760 --> 00:20:35,120 Speaker 1: also been picking up. I mean it's amazing even Valiant 343 00:20:35,160 --> 00:20:37,880 Speaker 1: could sell bonds yesterday which have been left for dead 344 00:20:38,000 --> 00:20:40,680 Speaker 1: not so long ago. Are you buying into these deals? 345 00:20:40,720 --> 00:20:42,680 Speaker 1: I mean, do you see value here? Or is this 346 00:20:42,800 --> 00:20:47,639 Speaker 1: basically companies getting in before the going gets much much harder? 347 00:20:48,280 --> 00:20:52,000 Speaker 1: I I is hard to find value in the bond market. 348 00:20:52,119 --> 00:20:55,840 Speaker 1: For me, I I think that the tenure treasury, I'm 349 00:20:55,960 --> 00:20:59,120 Speaker 1: still suspecting that we've only got half the leg here 350 00:20:59,840 --> 00:21:02,159 Speaker 1: the this year in where we're probably going to go 351 00:21:02,320 --> 00:21:04,960 Speaker 1: up towards three and a half percent year yet before 352 00:21:05,040 --> 00:21:07,880 Speaker 1: the year's out. And so I do think there's more 353 00:21:08,000 --> 00:21:11,240 Speaker 1: carnage to be had in fixed income instruments. You're I 354 00:21:11,320 --> 00:21:15,280 Speaker 1: can see why investors are more inclined towards credit spread, 355 00:21:15,720 --> 00:21:17,679 Speaker 1: you know, because they continue to tighten. And I think 356 00:21:17,720 --> 00:21:21,080 Speaker 1: those spreads will continue tighten, meaning that corporate bonds probably 357 00:21:21,119 --> 00:21:24,760 Speaker 1: outperformed treasuries, but both probably do poorly. As far as 358 00:21:24,800 --> 00:21:28,840 Speaker 1: the issuance it is, it is uh pretty striking. Um 359 00:21:29,119 --> 00:21:32,960 Speaker 1: you're seeing greater issuance uh and and really pretty good 360 00:21:33,040 --> 00:21:35,400 Speaker 1: growth in corporate debt now over the last five six 361 00:21:35,520 --> 00:21:38,000 Speaker 1: years or even in this recovery. And I think it 362 00:21:38,080 --> 00:21:41,359 Speaker 1: reflects Lisa, the latter point you made. I think it 363 00:21:41,480 --> 00:21:45,760 Speaker 1: reflects uh CEOs and treasures going, hey, look we may 364 00:21:45,800 --> 00:21:47,879 Speaker 1: have turned the corner on the secular bond bowl. And 365 00:21:48,000 --> 00:21:51,159 Speaker 1: if if yields are starting to trend higher again, this 366 00:21:51,320 --> 00:21:53,240 Speaker 1: is a heck of a great time to lock in 367 00:21:53,359 --> 00:21:55,600 Speaker 1: some long term financing, and I think that's what we're seeing. 368 00:21:56,480 --> 00:21:59,320 Speaker 1: You talked about inflation. What kind of stocks do well 369 00:21:59,440 --> 00:22:04,000 Speaker 1: if we see acceleration and inflation, Well, I think I 370 00:22:04,440 --> 00:22:07,639 Speaker 1: like the capital good stocks pim over the balance of 371 00:22:07,720 --> 00:22:11,280 Speaker 1: this recovery. Now, I would go away from those at 372 00:22:11,320 --> 00:22:14,639 Speaker 1: times like the current moment towards more defensive disposure, just 373 00:22:14,760 --> 00:22:17,200 Speaker 1: concerned of the overall market. But if the mark keeps 374 00:22:17,200 --> 00:22:18,480 Speaker 1: going up over the next few years, I think it 375 00:22:18,480 --> 00:22:21,040 Speaker 1: will be led by the capital good stocks, and a 376 00:22:21,160 --> 00:22:23,880 Speaker 1: number of those are do really well in inflation. In fact, 377 00:22:23,960 --> 00:22:27,360 Speaker 1: all of them tend to outperform. I put technology in there, 378 00:22:27,720 --> 00:22:31,840 Speaker 1: but I'd also put materials, industrials, and energy, and all 379 00:22:31,920 --> 00:22:34,440 Speaker 1: of the latter three in particular are very tight to 380 00:22:34,480 --> 00:22:39,720 Speaker 1: commodity prices and low stage industrial producer price inflation um 381 00:22:40,200 --> 00:22:43,680 Speaker 1: and I think I I think that they will outperform 382 00:22:43,800 --> 00:22:48,399 Speaker 1: the market if inflation fears continue to intensify. But in 383 00:22:48,480 --> 00:22:51,960 Speaker 1: a down market, they might also go down. So one 384 00:22:52,040 --> 00:22:55,360 Speaker 1: thing that we have been suggesting that investors look at 385 00:22:55,520 --> 00:22:59,479 Speaker 1: is putting a little bit of direct commodities into your 386 00:22:59,520 --> 00:23:03,000 Speaker 1: equity portfolio. You can do this through a diversified E 387 00:23:03,119 --> 00:23:07,119 Speaker 1: T F like the DBC for example. And you know, 388 00:23:07,640 --> 00:23:13,440 Speaker 1: if inflation fears intensify, steal aluminium copper prices will rise, 389 00:23:14,400 --> 00:23:18,280 Speaker 1: and steal aluminium copper stocks may outperform the equity market 390 00:23:18,359 --> 00:23:20,479 Speaker 1: if they may still go down. And so I think 391 00:23:20,560 --> 00:23:23,639 Speaker 1: that adds an additional level of diversity or equity portfolio 392 00:23:24,080 --> 00:23:26,680 Speaker 1: against inflation risk. Jim Paulson, thank you so much for 393 00:23:26,800 --> 00:23:30,359 Speaker 1: joining us. Always a pleasure. Jim Paulson, chief investment strategist 394 00:23:30,440 --> 00:23:33,080 Speaker 1: at the Loophole Group, which oversees about one and a 395 00:23:33,119 --> 00:23:38,040 Speaker 1: half billion dollars from Minneapolis, Minnesota and the Bullish Bear, 396 00:23:38,680 --> 00:23:53,640 Speaker 1: the Parish bull. Where we are today in the cycle, Well, 397 00:23:53,720 --> 00:23:56,439 Speaker 1: we want to consult over Jersey, chief US interest rate 398 00:23:56,520 --> 00:24:01,040 Speaker 1: Strategies for Bloomberg Intelligence about going of his thoughts about 399 00:24:01,040 --> 00:24:04,879 Speaker 1: the ongoing auctions for US treasuries. Alright, give us an 400 00:24:04,960 --> 00:24:07,960 Speaker 1: update on what's happening. And uh, I note that we're 401 00:24:08,240 --> 00:24:10,600 Speaker 1: a little bit of really sort of inaction. We had 402 00:24:10,640 --> 00:24:12,480 Speaker 1: a little bit of buying at the long end this 403 00:24:12,680 --> 00:24:15,520 Speaker 1: morning and that has faded right now. We're at three 404 00:24:15,560 --> 00:24:18,680 Speaker 1: point one for the thirty year and two point eight 405 00:24:18,800 --> 00:24:21,720 Speaker 1: six percent for the tenure. Yeah, I think some of 406 00:24:21,800 --> 00:24:25,000 Speaker 1: the recent actions. So you had to pop right after 407 00:24:25,119 --> 00:24:27,920 Speaker 1: cp I and the news about about the Secretary of 408 00:24:27,960 --> 00:24:30,320 Speaker 1: State resigning. Um, you know that that brought in a 409 00:24:30,400 --> 00:24:34,080 Speaker 1: little bit of slight to quality clear pop in price, 410 00:24:34,640 --> 00:24:38,760 Speaker 1: decline in yields correct, right, So you so you had uh, um, 411 00:24:38,960 --> 00:24:41,440 Speaker 1: you know, prices rallied, you had thirty year yields that 412 00:24:41,680 --> 00:24:44,800 Speaker 1: went down to about three point one percent. Uh. They 413 00:24:44,880 --> 00:24:46,600 Speaker 1: backed off now and are un changed in the day. 414 00:24:46,680 --> 00:24:48,560 Speaker 1: But I think part of that is is getting ready 415 00:24:48,600 --> 00:24:51,760 Speaker 1: for the auctions because at one o'clock the Treasury Department 416 00:24:51,840 --> 00:24:54,120 Speaker 1: is going to be issuing some thirty year bombs, which 417 00:24:54,240 --> 00:24:57,640 Speaker 1: is the longest maturity debt that that the US issues, 418 00:24:57,840 --> 00:24:59,760 Speaker 1: and you know there is some worry about that. It's 419 00:24:59,800 --> 00:25:02,439 Speaker 1: going to be a billion dollars more issued today than 420 00:25:02,480 --> 00:25:05,680 Speaker 1: there was issued in January. And um, you know that 421 00:25:05,840 --> 00:25:08,960 Speaker 1: there is the worry that that will investors like these 422 00:25:09,080 --> 00:25:11,600 Speaker 1: yields given how much supply there's going to come. But 423 00:25:11,720 --> 00:25:13,879 Speaker 1: so far, when you look at the ten year auction yesterday, 424 00:25:13,920 --> 00:25:16,840 Speaker 1: when you look at what's happened with table auctions, actually 425 00:25:16,920 --> 00:25:20,280 Speaker 1: things have gone just about average. Um, it's it's been 426 00:25:20,520 --> 00:25:23,600 Speaker 1: There hasn't been much change in either demand or in 427 00:25:23,880 --> 00:25:26,480 Speaker 1: um uh in who's buying most of this most of 428 00:25:26,520 --> 00:25:29,360 Speaker 1: these securities? You know, I'm wondering what's the best way 429 00:25:29,400 --> 00:25:32,600 Speaker 1: to frame this week's auctions, is it? Uh? There was 430 00:25:32,720 --> 00:25:36,320 Speaker 1: demand and they went off pretty well considering a lot 431 00:25:36,359 --> 00:25:39,359 Speaker 1: of the jitters around the deepening deficit in the US 432 00:25:39,720 --> 00:25:44,600 Speaker 1: UH or is it these were only average auctions even 433 00:25:44,680 --> 00:25:47,159 Speaker 1: though yields for the highest levels since two thousand and 434 00:25:47,240 --> 00:25:49,399 Speaker 1: eleven and two thousand and eight and two thousand and 435 00:25:49,520 --> 00:25:53,840 Speaker 1: pick your pick your size of stokes. Yeah, well, I think, Lisa, 436 00:25:54,119 --> 00:25:55,800 Speaker 1: you know, a big thing is remember that these are 437 00:25:56,680 --> 00:25:58,399 Speaker 1: the yields of these are being issued at is the 438 00:25:58,480 --> 00:26:02,440 Speaker 1: highest since you known, depending on what which issues you're 439 00:26:02,440 --> 00:26:04,240 Speaker 1: talking about. But that's just a function of where the 440 00:26:04,320 --> 00:26:07,240 Speaker 1: market is. So it's not it's not surprising that they're 441 00:26:07,240 --> 00:26:09,640 Speaker 1: being issued where they are. What's important is that where 442 00:26:09,640 --> 00:26:12,960 Speaker 1: they're being issued compared to what's expected at the time 443 00:26:13,040 --> 00:26:16,040 Speaker 1: that the auction closes. So these auctions have specific closing time. 444 00:26:16,119 --> 00:26:18,479 Speaker 1: So let's say today we're going to close the auction 445 00:26:18,560 --> 00:26:20,920 Speaker 1: at one o'clock. All the bids have to be in. 446 00:26:21,359 --> 00:26:24,520 Speaker 1: If the mart markets expecting yields to be three point 447 00:26:24,600 --> 00:26:28,640 Speaker 1: one four and you get three point two percent, that's bad. 448 00:26:28,800 --> 00:26:30,879 Speaker 1: That means that you had a weak demand. You couldn't 449 00:26:30,960 --> 00:26:33,040 Speaker 1: fill the auctions where the market thought it was going 450 00:26:33,119 --> 00:26:35,920 Speaker 1: to clear. That shows that there's a week auction, but 451 00:26:36,000 --> 00:26:38,399 Speaker 1: you haven't had that. You've had plus or minus a 452 00:26:38,440 --> 00:26:41,159 Speaker 1: basis point, which is, you know, kind of that's just noise. 453 00:26:41,280 --> 00:26:44,200 Speaker 1: That's not that, that's not pointing to anything either nefarious 454 00:26:44,320 --> 00:26:47,120 Speaker 1: or particularly good. So, but but I think as these 455 00:26:47,119 --> 00:26:50,440 Speaker 1: auctions continue to go on, we'll get a better understanding 456 00:26:50,480 --> 00:26:53,439 Speaker 1: of you know, what are the demand dynamics here, because 457 00:26:53,960 --> 00:26:56,680 Speaker 1: um as we start issuing more and more bonds, particularly 458 00:26:56,760 --> 00:26:58,720 Speaker 1: in two and three year notes, which is where the 459 00:26:58,800 --> 00:27:03,480 Speaker 1: treasuries increase, you seeing supply the most. That is potentially 460 00:27:03,520 --> 00:27:05,240 Speaker 1: where you can see some chinks in the armor for 461 00:27:05,520 --> 00:27:08,920 Speaker 1: demand for for treasuries. IRA. If you take a look 462 00:27:08,960 --> 00:27:12,080 Speaker 1: at the White House is nineteen budget proposal, it would 463 00:27:12,160 --> 00:27:15,960 Speaker 1: raise the deficit to nearly a trillion, right, that's double 464 00:27:16,040 --> 00:27:19,160 Speaker 1: the projections from last year, and it would total over 465 00:27:19,400 --> 00:27:22,399 Speaker 1: seven trillion dollars over the next decade. That pushes the 466 00:27:22,560 --> 00:27:28,240 Speaker 1: national debt, so I believe almost thirty trillion dollars. Doesn't 467 00:27:28,280 --> 00:27:30,080 Speaker 1: this mean that the Treasury is going to have to 468 00:27:30,200 --> 00:27:32,680 Speaker 1: issue a lot of debt, something like one and a 469 00:27:32,800 --> 00:27:36,160 Speaker 1: quarter trillion a year over the next five years. Who's 470 00:27:36,200 --> 00:27:39,240 Speaker 1: going to buy all that? Yeah, that's a that's an 471 00:27:39,320 --> 00:27:42,719 Speaker 1: excellent question, and um, you know, ultimately there winds up 472 00:27:42,760 --> 00:27:45,000 Speaker 1: probably being a bit of a crowding out. And this 473 00:27:45,240 --> 00:27:48,480 Speaker 1: is where you know, deficits don't always help the economy. 474 00:27:48,520 --> 00:27:52,440 Speaker 1: I mean, the the ideas is that when corporate bond issuers, 475 00:27:52,520 --> 00:27:55,560 Speaker 1: for example, are having a problem issuing bonds, that's when 476 00:27:55,600 --> 00:27:58,919 Speaker 1: the Treasury Department should step in, issue some debt, try 477 00:27:58,960 --> 00:28:03,000 Speaker 1: and stimulate the econom me via fiscal stimulus. But at 478 00:28:03,080 --> 00:28:06,919 Speaker 1: some point, um, there's gonna be so many bonds outstanding 479 00:28:07,000 --> 00:28:10,160 Speaker 1: that that yields in general are likely to go up. Now, 480 00:28:10,640 --> 00:28:12,040 Speaker 1: you know. We say that and then a lot of 481 00:28:12,080 --> 00:28:14,439 Speaker 1: people that point to Japan and say, well, look, Japan 482 00:28:14,560 --> 00:28:17,320 Speaker 1: has debt to GDP that's you know what, far higher 483 00:28:17,400 --> 00:28:19,920 Speaker 1: than the US, and they still have interest rates near zero. 484 00:28:20,400 --> 00:28:22,320 Speaker 1: But one of the ways that they've gotten there is 485 00:28:22,440 --> 00:28:26,840 Speaker 1: from their central bank buying um a significant amount of debt, 486 00:28:27,240 --> 00:28:31,320 Speaker 1: both both both government debt as well as um as 487 00:28:31,359 --> 00:28:33,879 Speaker 1: private sector debt as well. So so the question is 488 00:28:33,960 --> 00:28:36,280 Speaker 1: can we with the Fed not buying all this debt 489 00:28:36,359 --> 00:28:40,280 Speaker 1: and not monetizing the federal government, can can yield stay here? 490 00:28:40,320 --> 00:28:42,440 Speaker 1: The answer is probably not if if it were to 491 00:28:42,520 --> 00:28:46,000 Speaker 1: be that high. Um. But then again there's you know, 492 00:28:46,160 --> 00:28:48,640 Speaker 1: still a lot of demand at the moment. So UM. 493 00:28:48,840 --> 00:28:51,880 Speaker 1: You know it's saying what's gonna happen in one because 494 00:28:51,880 --> 00:28:54,560 Speaker 1: of all these issues is a little bit more difficult. UM. No. 495 00:28:54,720 --> 00:28:56,760 Speaker 1: Near term, it seems that things are okay. Do you 496 00:28:56,840 --> 00:29:00,840 Speaker 1: care at all about the turmoil and President Trump's cabinet? Um? 497 00:29:01,200 --> 00:29:06,040 Speaker 1: Not so much. UM. I think particularly in the international space. UM, 498 00:29:06,520 --> 00:29:08,760 Speaker 1: I think you know, the top of the house is 499 00:29:08,760 --> 00:29:12,040 Speaker 1: obviously running things. So you know, what's the response from 500 00:29:12,280 --> 00:29:15,160 Speaker 1: the likes of of our trading partners and and you know, 501 00:29:15,320 --> 00:29:18,000 Speaker 1: large holders of debt like Japan and China? Do they 502 00:29:18,120 --> 00:29:21,640 Speaker 1: change what they're going to do in in in retaliation 503 00:29:21,760 --> 00:29:25,080 Speaker 1: for things like tariffs? Um? Now, I I think changing 504 00:29:25,360 --> 00:29:27,680 Speaker 1: that the cabinet isn't going to be changing those uh, 505 00:29:28,320 --> 00:29:30,160 Speaker 1: those kind of big questions that we still have to 506 00:29:30,240 --> 00:29:33,480 Speaker 1: ask ourselves just quickly, you know, looking at all these 507 00:29:33,520 --> 00:29:36,360 Speaker 1: auctions that are that are coming up, right, Uh, does 508 00:29:36,480 --> 00:29:39,640 Speaker 1: this mean that they're gonna just what could this overnight 509 00:29:39,760 --> 00:29:41,560 Speaker 1: change in terms of how much the government has to 510 00:29:41,600 --> 00:29:45,280 Speaker 1: pay to get people attracted. Um No, I don't think so, 511 00:29:45,440 --> 00:29:48,120 Speaker 1: not yet anyway. Okay, thank you so much. I Red Jersey. 512 00:29:48,400 --> 00:29:51,200 Speaker 1: Always a pleasure speaking with you, and we'll check back 513 00:29:51,280 --> 00:29:54,800 Speaker 1: in with you regarding these auctions as we go forward 514 00:29:54,840 --> 00:29:58,360 Speaker 1: with respect to US interest rates interest rates. He is 515 00:29:58,440 --> 00:30:02,040 Speaker 1: our chief US interest rate strate just for Bloomberg Intelligence. 516 00:30:06,640 --> 00:30:09,160 Speaker 1: Thanks for listening to the Bloomberg P and L podcast. 517 00:30:09,520 --> 00:30:13,360 Speaker 1: You can subscribe and listen to interviews at Apple Podcasts, SoundCloud, 518 00:30:13,520 --> 00:30:16,960 Speaker 1: or whatever podcast platform you prefer. I'm pim Fox. I'm 519 00:30:17,040 --> 00:30:21,040 Speaker 1: on Twitter at pim Fox. I'm on Twitter at Lisa Abramo. 520 00:30:21,160 --> 00:30:23,720 Speaker 1: It's one before the podcast. You can always catch us 521 00:30:23,800 --> 00:30:25,320 Speaker 1: worldwide on Bloomberg Radio.