Speaker 1: Hello, and welcome to What Goes Up a Bloomberg Weekly
Speaker 1: Markets podcast. I'm Sarah Plantzek, a reporter on the Cross
Speaker 1: Asset team, and I'm Mike Reagan, a senior editor on
Speaker 1: the Markets Team. This week on the show, the beloved
Speaker 1: trade of is being tested or session fears have faded.
Speaker 1: Sentiment has turned incrementally more positive, and that's set in
Speaker 1: Bonn yield higher and it's now pressuring stock investors that
Speaker 1: were before playing defense. Is this the start of something
Speaker 1: new or is it just a false dawn? And as always,
Speaker 1: will end the episode with our tradition the Craziest Thing
Speaker 1: I Saw in Markets this week? Sarah, I presume you're
Speaker 1: prepared for that second. I am prepared, but I have
Speaker 1: a feeling that you have a very special one I got.
Speaker 1: I have a very special edition of the Craziest Thing
Speaker 1: I Saw in Markets this week. But let's get right
Speaker 1: to it. I mean, sort of a crazy week in
Speaker 1: the bond market. We're seen a really notable back up
Speaker 1: in yields, and luckily, by happenstance, we happen to have
Speaker 1: the perfect guest to help us break it down. From
Speaker 1: p G I am, we have Robert Tip, who is
Speaker 1: the chief investment strategist at p G. I am Robert,
Speaker 1: Welcome to the show. Thank you, good to be here.
Speaker 1: And it's good to have a Jersey guy. I would
Speaker 1: say to at least do you work in Jersey and Newark?
Speaker 1: If if my notes are credit, well I'm quite diverse.
Speaker 1: I commute from a Westchester so I drive through you know,
Speaker 1: quite a range of geography that's very regional. Yeah, that's
Speaker 1: a nightmare of a community I imagined. No comment, Well
Speaker 1: it's not, you know, at least it's not the most
Speaker 1: common commonly trodden path. And also joining us this week,
Speaker 1: commuting all the way from Greenwich Village, we have Chris ag,
Speaker 1: the executive editor of Markets at Bloomberg. Chris, welcome back
Speaker 1: to the show. Thanks for having me, Mike, thanks for
Speaker 1: identifying where I live. That's true. Anyone looking for Chris
Speaker 1: you can find pretty big, right. Well, you've got people
Speaker 1: looking for you, Chris, based on some of our Trump stories. Yes,
Speaker 1: so Trump fans and debt collectors can find Chris Navy. Robert,
Speaker 1: I gotta sort of pat you on the back, pat
Speaker 1: your team on the back. So I was looking at
Speaker 1: some of the returns on the funds this year, especially
Speaker 1: the p g i AM Total Return bond Fund up
Speaker 1: ten year to date. Wow. But not only that, it's
Speaker 1: it's uh performance compared to peers is really impressive. A
Speaker 1: one year basis, according to our date, it's in the
Speaker 1: ninety percentile. Five years, it's in the eighty nine percentile.
Speaker 1: What's going right? I mean, obviously we've had this ferocious
Speaker 1: rally and bonds, but what are you guys doing especially
Speaker 1: right to have these really great numbers? Sure, well, thanks,
Speaker 1: you know, we're taking a long term approach, So we're
Speaker 1: looking at the overall backdrop the macro economy, policy, monetary,
Speaker 1: fiscal not just in the US, but globally and so
Speaker 1: much so these days what happens in the bond market
Speaker 1: is really a global phenomena. The balance of borrowing and
Speaker 1: lending is really driven almost more so by the amount
Speaker 1: of savings coming out of foreign countries than what's going
Speaker 1: on here just domestically in the US that would impact
Speaker 1: you know, a general intermediate bond fund. And so when
Speaker 1: we look at the big picture, even just in the US,
Speaker 1: the markets quite sensitive to interest rates, and when they've
Speaker 1: been up well north of two percent, the economy has
Speaker 1: really kind of bogged down a bit, especially the interest
Speaker 1: rate sensitive sector, and give you the message that the
Speaker 1: equilibrium interest rate here is lower than most people think.
Speaker 1: And when we look abroad, the money is pouring across
Speaker 1: the trance and most places have negative rates. People are
Speaker 1: paying to park their money in these countries, or if
Speaker 1: they're buying long dated securities, they might be zero yield
Speaker 1: um long term, zero coupon bonds, you know, that have
Speaker 1: an asymmetric looking risk we term profile. And so the
Speaker 1: money has come over here as well, even if on
Speaker 1: a hedge basis, when they eliminate currency risk, they end
Speaker 1: up with a negative UH yield on a standstill basis,
Speaker 1: but at least over here yields are well north of zero.
Speaker 1: Maybe you have some upside as well as downside, and
Speaker 1: so I think you know, that's driven us to a
Speaker 1: secular view that rates would be declining, and we've positioned
Speaker 1: for that. Is there anything in this so often the
Speaker 1: bond market this week that sort of changes your your
Speaker 1: stance on on all of that. Is is it a
Speaker 1: turning point or is this just sort of a little
Speaker 1: bit of a correction in a very much an overbought
Speaker 1: treasury market. Well, I wish I could give you the answer, UM,
Speaker 1: But you know what, what we've seen over the years
Speaker 1: in the secular bowle market that we've had in bonds
Speaker 1: for forty years, At any given point in time, you
Speaker 1: may have a cyclical upturn and expectations and views of
Speaker 1: economies around the world have become pretty morose, and uh
Speaker 1: so you can get a backup in the bond market
Speaker 1: driven by technical conditions. And I think to a large extent,
Speaker 1: what we've seen so far is kind of an equal
Speaker 1: and opposite reaction to the panic by that we saw
Speaker 1: not too long ago. And we'll have to see if
Speaker 1: the fundamentals follow through, um, but our base case would
Speaker 1: be that the range safe for the tenure treasury is
Speaker 1: maybe one and a half to two and a half,
Speaker 1: but probably more likely something more like one to two,
Speaker 1: and that we're going to see these fundamentals reassert themselves
Speaker 1: and cause rates to stabilize or maybe even fall again.
Speaker 1: So we did see a pretty major backup and yield
Speaker 1: this week, the tenure once again approaching two percent, which
Speaker 1: is a level we hadn't seen in at least a
Speaker 1: couple of months. Because when you think about your lower
Speaker 1: for longer thesis. Much of that does have to do
Speaker 1: with where yields are overseas. Does that just mean that
Speaker 1: there is a cap on where US treasury yield can
Speaker 1: go going forward, because no matter what, as long as
Speaker 1: they're higher than yields overseas, you're always going to have
Speaker 1: some sort of demand. I think creates a friction. And
Speaker 1: so what we've seen in the sell off is the
Speaker 1: treasuries have sold off less than foreign bonds. And in
Speaker 1: these UH that the key global markets j g B s, buons, UH,
Speaker 1: European bonds, Japanese bonds, there has been a sell off
Speaker 1: and UH, you know, there there's a whiff of change
Speaker 1: in the air. And both of these places. In Japan
Speaker 1: they've been trying to steep in their yield curve, push
Speaker 1: up long term yields to lead more on the table
Speaker 1: for insurers, for banks UH and in Europe you have
Speaker 1: a change of of of leadership at the e c B.
Speaker 1: So people you know, questioning will there be this unflinching
Speaker 1: commitment to incredibly low rates and quee going forward. And
Speaker 1: so I think the level of yields is spread being
Speaker 1: at at you know, your nine type percentile of multidecade
Speaker 1: levels relative to much higher than these four yields. That
Speaker 1: creates a cushion, but it doesn't create a lid. I
Speaker 1: wanted to dig in a little bit on the I
Speaker 1: was looking at the p G I am Total Return
Speaker 1: bond Fund. I think it's one of your big gets
Speaker 1: straight about fifty billion in assets, UM. And I was
Speaker 1: looking at sort of the allocations and the holdings. Now,
Speaker 1: this is our data is at the as of the
Speaker 1: end of August, so not necessarily current, but a couple
Speaker 1: of things really caught my eye. Uh, mortgages corporate about
Speaker 1: eighteen percent government. But looking at the individual top holdings,
Speaker 1: there were a few US D euro swaps uh usd
Speaker 1: uh British pounds swap, so walk us through UM and
Speaker 1: I think those were all about like four or five
Speaker 1: of the allocation, so pretty big positions. UM. Now, I'm
Speaker 1: a stock guy, so I don't necessarily know what's going
Speaker 1: on with these, but my guess is these are these
Speaker 1: are basically bets on rate spreads, yield spreads narrowing between
Speaker 1: the US and Europe. Is that is that the safe
Speaker 1: way to describe it. Our risk or principally domestic and
Speaker 1: a currency risk, foreign interest rate risk, is going to
Speaker 1: be very limited, and so uh, notes of of swaps
Speaker 1: that will be used in the fund will be issues
Speaker 1: selection driven. So we may find that a US issue
Speaker 1: are issues and euros maybe at a wider spread than
Speaker 1: in the US. We buy that bond and we hedge
Speaker 1: it back to the US. Now we have had, um,
Speaker 1: you know, at different points in time, uh, you know,
Speaker 1: small positions and for an interest rate risk or even
Speaker 1: fcs on for on the foreign currency side, but those
Speaker 1: tend to be very small, not not as large as
Speaker 1: as that magnitude generally, Right, Chris, come in here and
Speaker 1: give us the equity view, because it's not only yields
Speaker 1: that have been rising this week. I mean stocks have
Speaker 1: been rising and pretty forcefully to it that. Yeah, um,
Speaker 1: I feel like stocks are happy to see yields go up.
Speaker 1: I mean the big equity perspective on that is that
Speaker 1: something going on with bonds and yields in the curve
Speaker 1: means recessions coming. So anything that kind of undoes that argument.
Speaker 1: Now you're saying that just as big an issue would
Speaker 1: be fields getting too high at this point kind of
Speaker 1: reminds me of a saying we have on the desk,
Speaker 1: which is whatever the hell happens, it's bad, But I
Speaker 1: guess we shouldn't get too comfortable with the relief for
Speaker 1: feeling over seeing a little bit of unwinding in the
Speaker 1: curve and all of these uh, you know, sort of
Speaker 1: unbelievably reliable recession indicators. What is true that you know,
Speaker 1: the the good news that's that's boosting the equity market,
Speaker 1: whether it was less worse than feared earnings or some
Speaker 1: optimism on the trade front, that that's it's bad for
Speaker 1: yields until yields get too hind they begin to choke
Speaker 1: off what's going in the equity market. But so far
Speaker 1: we're in the sweet spot where you have some concerns
Speaker 1: on the right side, but rising risk appetite and not
Speaker 1: economic optimism to outweigh, you know, the rising discount rates.
Speaker 1: So is the last few weeks in markets? How much
Speaker 1: would you attribute it to, uh, the trade optimism and
Speaker 1: how much would you attribute it to the FED apparently
Speaker 1: being on hold but yet still uh, sort of doing
Speaker 1: what it can to keep the repo market, uh, in
Speaker 1: order with with this short term treasury purchases, I mean,
Speaker 1: how big of a deal is to FED at least
Speaker 1: in the rates market right now. Yeah, I mean I
Speaker 1: think those are those are excellent points. I think that
Speaker 1: the risk on makes people wonder, you know, g is
Speaker 1: it really over for bond? Should I have more equities?
Speaker 1: And on the retail side there have been a lot
Speaker 1: of outflows from equities, so there's some of that. I
Speaker 1: think though we have shifted in market environment from one
Speaker 1: where central banks had wound down their quantitative purchases. There
Speaker 1: their quei buys, and that was bad for risk I
Speaker 1: mean what we saw, for example in two thousand nine,
Speaker 1: in these previous instances of aggressive quei is it dampened
Speaker 1: equity volatility, It pushed up stock markets, it pushed down volatility,
Speaker 1: and we had moved away from that. Last year was
Speaker 1: a very volatile year where risk product had a hard
Speaker 1: time going anywhere and there was much less liquidity coming
Speaker 1: into the system. So now we've gone back into bill buying,
Speaker 1: you know, UH and a rising FED balance sheet. The
Speaker 1: e CB is back in buying. Bank of Japan is
Speaker 1: is slowing their purchases, but at a very slow rate,
Speaker 1: and at the same time they are in a way
Speaker 1: remodeling their policy because they feel they will be incredibly
Speaker 1: accommodative for even longer than anticipated. So I think the accommodation,
Speaker 1: the aquidity liquidity injection has tended to bear steep in
Speaker 1: the curve a little bit, and we're seeing some of
Speaker 1: that here. At the same time, you look at the
Speaker 1: data that's come in so far for the fourth quarter
Speaker 1: and kind of distill it down to these UH now
Speaker 1: casts that the FED does. The Atlanta FEDS GDP now model,
Speaker 1: I think is that like zero point nine percent growth
Speaker 1: for the fourth quarter. The New York FEDS one is
Speaker 1: even lower. I think it's like zero point eight. So,
Speaker 1: you know, some of the lowest growth potentially we've seen
Speaker 1: in the cycle. Albeit you know models that tend to
Speaker 1: jump around a lot. There's still a lot of data
Speaker 1: to come in UH for the quarter, but our markets
Speaker 1: getting a little bit ahead of themselves on the optimism
Speaker 1: here this week, well, I think so, I mean, our
Speaker 1: base case of a one to two percent range would
Speaker 1: suggest you're getting near the top of the range. And
Speaker 1: as as you're highlighting this week, the news has not
Speaker 1: been really positive on the fundamental side in terms of
Speaker 1: what really matters for rates markets, which in some um
Speaker 1: some extent is really the real economy. Do people need
Speaker 1: to borrow a lot of money to invest durable goods.
Speaker 1: Big picture, those numbers are very flat. We had this
Speaker 1: week another poor industrial production figure coming from the European side,
Speaker 1: and so basically, you know, that would suggest that more
Speaker 1: likely than not, there was some exuberance when the rates
Speaker 1: were rallying, and then some people are asking themselves what
Speaker 1: were we doing? Uh? And and a little bit of
Speaker 1: panic selling here, Chris. So it seems as that the
Speaker 1: stock market is maybe getting a bit ahead of itself too.
Speaker 1: I mean, you just look at where we're seeing the
Speaker 1: output formans lately, and energy stocks are really on a
Speaker 1: tear this week. You look at other cyclical areas of
Speaker 1: the market. Is it possible that this is just beta chasing? Um?
Speaker 1: In a in a way, yes, I I feel like
Speaker 1: what's going on in the in the equity market reflects uh,
Speaker 1: this sort of standard word is rotation going on? That
Speaker 1: does a lot of people have been caught short by
Speaker 1: this routy And let's face it, if the if the
Speaker 1: if the markets stopped dead right here basically a year
Speaker 1: to date, no one would be no one would have
Speaker 1: any reason to complain. I'm sure they would complain in fact,
Speaker 1: um yeah, um, but uh, if you're a fund manager
Speaker 1: who's watched this happen and has been wedded to defensive
Speaker 1: shares or bond proxies, and now the bond markets rolling
Speaker 1: or some degree rolling over, and you're stuck with all
Speaker 1: of that stuff and you're watching everything take off. I mean,
Speaker 1: it's a sort of a self fulfilling prophecy. You're gonna
Speaker 1: you're gonna need to dive back in and grab some beta.
Speaker 1: It reminds me of a story your team had out
Speaker 1: this week about the percentage of active equity mutual fund
Speaker 1: managers who are beating they're getting killed. It was getting
Speaker 1: the benchmarker. I mean, they're they're always getting killed, but
Speaker 1: they're getting killed a little worse right now for some
Speaker 1: of these reasons. And it's a bad year I think
Speaker 1: probably to look bad. I mean everyone's gonna I mean,
Speaker 1: to the degree people care about performance, I feel like
Speaker 1: everyone should look at their returns in their foreign k
Speaker 1: and say, man, I made this year. But that's not
Speaker 1: how the professional class will look at it. And this
Speaker 1: is sort of the big sort of melt up thesis
Speaker 1: right now that there's going to be a lot of
Speaker 1: people diving back into the market in the next two
Speaker 1: months try to make those numbers. And it's like, lookout above.
Speaker 1: If that starts to happen, what do you think the
Speaker 1: chances that are. I mean, we're obviously seeing it to
Speaker 1: some degree. Does it continue through the t the end
Speaker 1: of the year. Walking in here, I probably would have
Speaker 1: said pretty good. As I listened to our guests and
Speaker 1: some of the signals coming from the boom market, I
Speaker 1: think that's ultimately the determined if the economy doesn't go anywhere.
Speaker 1: And what I know about is the economy is earnings,
Speaker 1: and earnings in the fourth quarter look like they're gonna suck,
Speaker 1: so uh, they're The ultimate determinant will be whether or
Speaker 1: not the macro picture is good enough for stocks. And
Speaker 1: you know, the supply demand and chasing beta things are
Speaker 1: a factor for a little while, but they won't they
Speaker 1: won't call the ultimate tune. Much of this reversal has
Speaker 1: been predicated on the idea that we are seeing a
Speaker 1: stabilization and growth. We could see a nice rebound in
Speaker 1: And I did do my homework, Robert. I dug up
Speaker 1: something that you said on Bloomberg Television last week and
Speaker 1: after the employment report, you said, this is a picture
Speaker 1: perfect soft lanning. It's what they're on track for talking
Speaker 1: about the federal reserve. Is that actually what we're seeing
Speaker 1: And if so, wouldn't that bode very well then for
Speaker 1: risk assets? I think so. And I think the comment
Speaker 1: I made was that he Powell has been criticized, you know,
Speaker 1: for how he's handled the press conferences, and I think
Speaker 1: they did a pretty flat footed last hike last year,
Speaker 1: you know, one too many, but I think in a
Speaker 1: way they kind of wanted to stick their finger in
Speaker 1: the eye of the President who had been badgering them,
Speaker 1: and so they managed to do that without doing too
Speaker 1: much damage. They've whipped around, they've cut three times, which
Speaker 1: was you know, going every meeting every six weeks, as
Speaker 1: opposed to when they were hiking, which you know, they
Speaker 1: were only moving once a quarter. So that quickly cut
Speaker 1: and they may be there for the soft landing. And
Speaker 1: so our hypothesis, Frank, for some time is that although
Speaker 1: this is a moribund economic backdrop, it is not as
Speaker 1: much growth as people would want to see. It is
Speaker 1: not a feel good economy for people that in the markets,
Speaker 1: you have a declining equilibrium interest rate, you have a
Speaker 1: very long business cycle. Because these central banks have prevented uh,
Speaker 1: really big financial accesses from building up, and they have
Speaker 1: not jumped in and crushed the economy with rate hikes,
Speaker 1: which is typically what kills it. So I think what's
Speaker 1: what's shocking to people is you are having a very
Speaker 1: extended cycle. They're on track to continue this, and so
Speaker 1: as a result, your eights are likely remain low, your
Speaker 1: period of spread sector outperformance continues, and your equity market
Speaker 1: continues to look quite competitive in terms of earnings, yields,
Speaker 1: and valuations relative to a bond market with yields this low.
Speaker 1: I feel like that there's a point to be made
Speaker 1: here about the stock market being an economic input onto itself.
Speaker 1: That's sort of a lucky break that they get here,
Speaker 1: that the one thing that could not the one that obviously,
Speaker 1: the consumer remains strong. One of the reasons the consumer
Speaker 1: remains storming. You saw this after the fourth quarter of
Speaker 1: last year when market tank some of the uh animal
Speaker 1: spirits kind of get beaten out. But right now a
Speaker 1: lot of people are sitting with a lot of money
Speaker 1: thanks to stock market. That's part of the big Eco
Speaker 1: bowl case. I'm glad you brought the consumer, Chris, that
Speaker 1: that brings me back to looking at the p g
Speaker 1: I total return return bond fund mortgages. Um, is it
Speaker 1: safe to say that you know a lot of what
Speaker 1: we've heard people talk about and seeing ourselves this year
Speaker 1: is Yeah, certain parts of the economy are very week.
Speaker 1: You have you have manufacturings week, the consumers still remain strong. Um,
Speaker 1: what are you looking at in the housing market? Is
Speaker 1: it just blue skies ahead? Uh? In the housing market,
Speaker 1: is there you know and is there still yield there?
Speaker 1: Considering Uh, you know some people are still looking at
Speaker 1: that market with a jaundiced eye after the financial crisis. Well,
Speaker 1: I think that in terms of the agency passed through market,
Speaker 1: we're seeing a little bit of value there after the
Speaker 1: FED has been rolling off and people have been scared
Speaker 1: out of that market a little bit. We're we're stabilizing
Speaker 1: at at attractive levels and and so we have you know,
Speaker 1: some intermittent exposure there. But most of what you're seeing
Speaker 1: in the mortgage categories is structured product that is actually
Speaker 1: away from residential. So you're gonna be looking at a
Speaker 1: good amount of commercial mortgage backed where those asset prices
Speaker 1: have been firmer, but also where we tend to be Uh,
Speaker 1: in the top position in the capital structure or in
Speaker 1: one of at any rate, one of the very highly
Speaker 1: rated ones unless uh, you know, in some exceptional cases
Speaker 1: there could be a single asset type situation that's that's
Speaker 1: mid rated, but there's much less of that, so predominantly
Speaker 1: high quality commercial and then a fair amount of collateralized
Speaker 1: loan obligation clos and uh, this is a sector where
Speaker 1: you are collateralized by below investment grade loans. So uh,
Speaker 1: an area that is not one of the best looking
Speaker 1: areas right here. That's an area that was technically very
Speaker 1: well supported because they're floating rate assets during the period
Speaker 1: of FED rate hikes, and now the FED is on
Speaker 1: hold and so retail money is going out of those funds.
Speaker 1: Loan prices are under pressure, and their concerns on asset.
Speaker 1: The underwriting was most aggressive there. But for diligent investors,
Speaker 1: I think, who can you know forge through the different
Speaker 1: managers what exactly is in these deals and then go
Speaker 1: right to the top of the capital structure, not in
Speaker 1: the middle, not at the bottom, that they are spreads
Speaker 1: available that are very competitive with intermediate and long term
Speaker 1: corporate bonds that are much lower rated than a triple
Speaker 1: a c L o U and have very competitive spreads
Speaker 1: the c L so I think it's a fair amount
Speaker 1: of that, uh where we're looking to get some some
Speaker 1: lower risk, lower beta spread at this point in the cycle.
Speaker 1: Do you see any product offerings out there that do
Speaker 1: make cause for concern for those who maybe aren't doing
Speaker 1: their due diligence we work, Yeah, Well, I think the
Speaker 1: loan area is one where you've had some uh you
Speaker 1: know changes. I mean there's almost a terminology misplacement at
Speaker 1: this point where a lot of those deals they don't
Speaker 1: go through banks at all. So at one point that
Speaker 1: market in its genesis, if you had an LBO, or
Speaker 1: you had a lower rated company, they may have a
Speaker 1: range of different financing options. They may go to the
Speaker 1: high yield market, they may borrow collateralized in the bank
Speaker 1: loan market and then that would be syndicated out, but
Speaker 1: that paper would be going through a major bank that
Speaker 1: would have a certain kind of underwriting process. Now, with
Speaker 1: the really large private equity pools out there and a
Speaker 1: lot of capital looking for deals, a lot of the
Speaker 1: loans are not going through a bank intermediary at all.
Speaker 1: There are a lot of very small deals, uh, and
Speaker 1: um um much wider range of credit quality. And so
Speaker 1: you know, as the economy is moderated a little bit,
Speaker 1: and you alluded to the stats on the economic side,
Speaker 1: you are seeing rising um UH a number of companies
Speaker 1: that are missing their earnings forecast and seeing their bonds
Speaker 1: drop ten points UH. And that's more so on the
Speaker 1: loan side, for sure, than than in the high yield area.
Speaker 1: I'm curious to know to get back to that one
Speaker 1: percent to two percent range on the tenure yield that
Speaker 1: you see. UH. Is there an expiration date on that
Speaker 1: if say we wake up next week and that Phase
Speaker 1: one trade deal is signed, um, or is it you
Speaker 1: think we'll stay in that range regardless of what happens
Speaker 1: with trade. You can never say for sure. And we're investors,
Speaker 1: were not forecasters. So if that situation changes, I have
Speaker 1: to change. I have to get on the right side
Speaker 1: of it. Um. But my a priori is that the
Speaker 1: world has changed in a massive way after the financial crisis,
Speaker 1: and it is in some respects just begun that the
Speaker 1: workforces in China uh, and in Europe we're growing until
Speaker 1: you got to the financial crisis, and now they have
Speaker 1: rolled over it. They're actually shrinking, And so you're left
Speaker 1: in a world where debt is not rising at an
Speaker 1: astronomical rate fueling growth, fueling profit growth, fueling spending, fueling investment. Uh,
Speaker 1: and where you have a growing population that needs a
Speaker 1: growing stock of goods, cars, housing, and so on. You
Speaker 1: on the far side of that. And even in in China,
Speaker 1: your car sales have rolled over your retail square footage
Speaker 1: being put in place. This is a global phenomena where
Speaker 1: your growth rates are you gonna be much more modest.
Speaker 1: You're borrowing again for the real economy, much more modest.
Speaker 1: And so that one and a half percent central tendency
Speaker 1: basically does not have a shelf life. I would think
Speaker 1: it's going to be there until we see some major
Speaker 1: change on the horizon that's going to take us too
Speaker 1: much faster or slower plane of growth. Regardless of the
Speaker 1: supply of treasuries coming into the market. I mean, we're
Speaker 1: looking at what trillion dollars. That's another good point I
Speaker 1: should differentiate too. So when I look at the curve, now,
Speaker 1: I will look at treasuries, but I really need to
Speaker 1: look at o I S. SO o I S or
Speaker 1: overnight index swaps are based on the Fed funds rate,
Speaker 1: that is the rate that the Fed is controlling. The
Speaker 1: treasuries are really trading at big spreads relative to O
Speaker 1: I S because of the massive issuance. I don't think
Speaker 1: it's necessarily credit concerns, although at this pace the US
Speaker 1: over time will click down in ratings as debt to
Speaker 1: GDP rises and so on. When you look at the
Speaker 1: the O I S curve, it's perfectly flat and about
Speaker 1: the effective Fed funds rate right now. Uh. And but
Speaker 1: your treasury yields make you know very around that depending
Speaker 1: on what what happens with the deficit. Chris, last question before
Speaker 1: we get to the craziest things that we will all share.
Speaker 1: How much do you think it's possible that this resumption
Speaker 1: is such a risk on fuel has to do with timing,
Speaker 1: that we're getting closer to we're less than a year
Speaker 1: away from the election, and that President Trump and the
Speaker 1: administration just can't screw up this US China deal. Well, yeah,
Speaker 1: if you take part of his motive as being the
Speaker 1: beginning of that kind of a campaign, then yes, timing
Speaker 1: could be part of it. Of Course, the election itself
Speaker 1: hold all ends of volatility potential that we shouldn't under undercount.
Speaker 1: It's not like that's just unanimously good tidings coming down
Speaker 1: over the horizon. But um, there's that there's a general
Speaker 1: tendency for stocks to go up at the end of
Speaker 1: the year for all kinds of sort of window dressing
Speaker 1: as reasons, and you know, uh, just the end. If
Speaker 1: this thing has been going on for so long, and
Speaker 1: if you know there's some if there's ever really there
Speaker 1: really isn't reason to believe that it's permanently settled at
Speaker 1: any level. We shouldn't kid ourselves. But to the degree that, uh,
Speaker 1: it's it's getting weight as far as what when Trump
Speaker 1: can roll it back and sort of sort of get
Speaker 1: the economy, get the stock market, the economy and these
Speaker 1: sort of sentiment proxies and under control timing could be
Speaker 1: a factor for sure. Speaking of timing, it's that time, Sarah,
Speaker 1: what is the craziest thing you saw in markets this week?
Speaker 1: So I'm going to go back to I believe something
Speaker 1: we've spoken about before on the show, which is the
Speaker 1: Popeye's Chicken sandwich because it's pair an owner which is
Speaker 1: Restaurant Brands International Canadian company. They also Aarned Burger King.
Speaker 1: They also owned Tim Horton's. There's been a lot of
Speaker 1: hype over this Popeye's chicken sandwich. Um, and they're trying
Speaker 1: to kind of gain competition and gain traction from Chick
Speaker 1: fil A. Well, what happened was when they first came
Speaker 1: out with the sandwich, they did not have the manpower
Speaker 1: for it, so they had to hire more people at Popeyes,
Speaker 1: and Popeyes actually just had an unbelievable quarter in sales. Um.
Speaker 1: But what's crazy? And it's pretty unbelievable and also a
Speaker 1: little bit sad, I must say. Um, there was so
Speaker 1: much demand this one Popeye's location that a fight broke
Speaker 1: out over a chicken sandwich in line and it actually
Speaker 1: ended in a fatality, which is yeah, um, unbelievable that
Speaker 1: you get to that point. But it just shows you
Speaker 1: what they're trying to do to gain competition gain traction
Speaker 1: is leading to other issues for the company. Um. In
Speaker 1: the long hall, Robert, did they tell you about our
Speaker 1: gimmick here? The craziest thing in markets that we've seen?
Speaker 1: You know, I did hear about it, but I don't
Speaker 1: have any content for you, Okay, that's all right, that's
Speaker 1: all right, I mean for me every day, wake up.
Speaker 1: Look at the markets. I'm totally shocked and have to
Speaker 1: figure it out from there. Would you say seventeen basis
Speaker 1: points swing in ten years on Thursday was pretty crazy.
Speaker 1: I think the swings that that we're seeing and U
Speaker 1: market swings and sentiment on on trade and I'm positioning
Speaker 1: and fixing them, they have been a little shocking. Chris As,
Speaker 1: I think you possibly are our first five time or
Speaker 1: guest here. Yeah, like the Paul Simon you are. Yeah,
Speaker 1: we're gonna get you the smoking jacket. Anything. Have you
Speaker 1: witnessed anything crazy and market? I would say, there's this
Speaker 1: thing that happened this week, so I wrote it up.
Speaker 1: This guy Cliff Fastness, who loves he adores our coverage
Speaker 1: of the start read. He can say enough good things
Speaker 1: about it. You got to get him on sometimes man
Speaker 1: who um. But anyway, he put out a note where
Speaker 1: he said that this he's he runs Qure Capital Management,
Speaker 1: big hitch fund, big hitch fund that runs equity factors,
Speaker 1: which means that they and things like high dividend stocks
Speaker 1: and low valuation stocks, value stocks, and his whole thing
Speaker 1: is to basically program his computers and step back. It's
Speaker 1: kind of like really like advanced calculus passive investing, and
Speaker 1: they're incredibly rich and successful and huge and really is
Speaker 1: one of the smartest guys really on Earth and um.
Speaker 1: But so he came up with a note saying, so
Speaker 1: his big thing is you don't you don't jump in
Speaker 1: and out of markets. You sit and let the computers
Speaker 1: do their work with the factors run. He when I
Speaker 1: when up with a note saying, now might be a
Speaker 1: time value stock cheap stocks have gotten so cheap that
Speaker 1: it might be a time to sort of try to
Speaker 1: market time to take sort of opportunity opportunistic stabs at them,
Speaker 1: which for him, I mean, it's hard to describe. It's
Speaker 1: so outside of his usual worldview and philosophy for him
Speaker 1: to come in and say act like he's not saying,
Speaker 1: act like a day trader. But you could translate that.
Speaker 1: He probably expect us to translate that into one of
Speaker 1: our stories. Um. But given some of the wars he's
Speaker 1: had on Twitter and in public about trying to time
Speaker 1: factors with another guy guy we had on this show,
Speaker 1: Rob are not they've really gotten into up in each
Speaker 1: other's face about it. But now Cliff is saying, you know,
Speaker 1: factor's values so cheap that maybe in this limited instance,
Speaker 1: it's okay. He says, modest overweight might be the same
Speaker 1: as I don't want to Cliff. If you're listening, you
Speaker 1: can call to what goes up hotline and correct whatever
Speaker 1: Chris got wrong in that description, which is nothing. Obviously.
Speaker 1: All right, time for mine. I think I got I
Speaker 1: think I hate to pat myself on the back, but
Speaker 1: I think I think I got the best one here.
Speaker 1: So we've all heard about this price war in the
Speaker 1: retail brokerage industry, Charles Schwab cutting commissions to zero. Well,
Speaker 1: the firm that really got it started Robin Hood a
Speaker 1: few years ago, the first to offer commission free trading.
Speaker 1: Now they're one upping everyone by offering quote unquote infinite offering.
Speaker 1: There is a glitch in the system, in the system,
Speaker 1: and of all places, it came out on Reddit. Someone
Speaker 1: someone basically out of them for this on Yeah, I
Speaker 1: guess I have to read Reddit now. But basically, if
Speaker 1: I get it right, what happens is you you take
Speaker 1: out a marginal loan, you buy a bunch of stock,
Speaker 1: then you sell a bunch of covered calls based on
Speaker 1: that position. The one do you collect from the selling
Speaker 1: the covered calls, you buy more stock. With more leverage,
Speaker 1: you sell calls on them, and on and on it
Speaker 1: goes Robert, if you had infinite leverage, what would you buy?
Speaker 1: Oh my god, I'm listening. You know, after your description
Speaker 1: of of Ascetic, I'm just a bond guy. You know,
Speaker 1: if they didn't have a tap performing fund, I would
Speaker 1: have a complete complex. But we don't go to the
Speaker 1: infinite leverage only Robin Hood. With that said, though, I
Speaker 1: think Mike you you did when it this time. It
Speaker 1: was pretty unbelievable saying that story this week. But Robert Tip,
Speaker 1: Chris nag thank you so much for joining the show
Speaker 1: this week. Thanks, thank you. What goes up? We'll be
Speaker 1: back next week. Until then, you can find us on
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Speaker 1: Twitter follow me at Sara pont Sec, Mike is afre Anonymous,
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