WEBVTT - WTF WTI: An Oil ETF Goes Wild 0:00:05.920 --> 0:00:12.719 Welcome to trillions. I'm Joel Webber and I'm Eric Beltrn. Eric. 0:00:12.720 --> 0:00:15.239 What is it Week six? From work at home? How 0:00:15.320 --> 0:00:19.800 you holding up good? Um? I shaved my beard. Um. 0:00:19.840 --> 0:00:22.640 I think I'm meeting me too. Actually, yeah, I can 0:00:22.680 --> 0:00:25.360 see that you look good. How long did it take? 0:00:25.360 --> 0:00:27.120 You took me like forty five minutes to get that 0:00:27.160 --> 0:00:30.280 thing off. Yeah. I had to cut it down first, 0:00:30.880 --> 0:00:33.839 you know, like hack hack it away, and then come 0:00:33.880 --> 0:00:36.240 in with the razor blande. Yeah, it was like weed 0:00:36.240 --> 0:00:39.479 whacking one of those like industrial parks. Back back when 0:00:39.520 --> 0:00:41.600 I landscaped, I'd have to just take the weed whacker 0:00:41.600 --> 0:00:44.680 out sometimes and just mow down a bunch of like 0:00:44.800 --> 0:00:47.320 large weeds. It was similar to that, except a razor. 0:00:48.240 --> 0:00:50.800 The haircut is the thing I can't wait for. Uh, 0:00:51.440 --> 0:00:54.640 truly will like basking the best haircut of my life 0:00:54.640 --> 0:00:57.440 when I once I get out of my house, it's 0:00:57.440 --> 0:00:59.400 gonna feel good. I think barbers are going to get 0:01:00.160 --> 0:01:03.600 really good tips. Uh. It's like a one year It's 0:01:03.600 --> 0:01:07.400 a one year subscription. I'm going every two weeks. Uh. 0:01:07.560 --> 0:01:12.760 Put enough about haircuts, Eric, last week saw some crazy stuff, 0:01:13.160 --> 0:01:17.440 specifically in the oil market. Speaking of haircuts, Yeah, speaking 0:01:17.480 --> 0:01:19.679 of haircuts and e t f s were all wrapped 0:01:19.720 --> 0:01:22.520 up in it. What happened, Uh, just the real brief 0:01:22.520 --> 0:01:27.880 story is with the lockdown, nobody's moving, and when nobody moves, 0:01:27.959 --> 0:01:32.080 nobody demands oil. So oil the whole oil sector has 0:01:32.160 --> 0:01:36.040 major problems. Right, there's a supply glut, and at one 0:01:36.080 --> 0:01:43.080 point the May contract went negative. I think these negative right, 0:01:43.160 --> 0:01:47.720 so negative oil became a big, big talking point. This 0:01:47.760 --> 0:01:50.200 is about a week ago and an e t F. 0:01:50.520 --> 0:01:53.400 USO has been really in the center of this whole 0:01:53.440 --> 0:01:57.200 oil debacle and USO for a long time track the 0:01:57.240 --> 0:02:01.920 front month oil future. But it rolls out of it, uh, 0:02:01.960 --> 0:02:04.000 a couple of weeks before it expires, so it was 0:02:04.040 --> 0:02:06.800 already out of the May contract during that week. However, 0:02:07.880 --> 0:02:10.359 it then turned to June and there was a huge 0:02:10.440 --> 0:02:13.400 question on whether June would go negative because again nobody 0:02:13.440 --> 0:02:15.440 wants oil. People are almost willing to pay you to 0:02:15.440 --> 0:02:21.919 take it. And then USO abandoned its basically it's philosophy 0:02:22.000 --> 0:02:23.679 or its rules of what it was going to track, 0:02:24.080 --> 0:02:25.919 and it started moving down the curve said we're not 0:02:25.960 --> 0:02:27.400 going to be all in June. Now, we're gonna move 0:02:27.440 --> 0:02:29.160 to July a little oh, no, no no, we're gonna move 0:02:29.200 --> 0:02:33.520 to August two, now September, now October, and then at 0:02:33.560 --> 0:02:37.079 the last time I checked, it's actually holding June contract, 0:02:37.440 --> 0:02:40.600 so it's done everything to get away from the sort 0:02:40.639 --> 0:02:44.160 of front month contract that is going through hell right now. 0:02:44.240 --> 0:02:47.760 So this was something we want to debate with with 0:02:47.960 --> 0:02:51.640 our guests. Who is Peter Schure. He's the head of 0:02:51.680 --> 0:02:55.400 macro strategy at Academy Securities, which is a broker dealer. 0:02:55.520 --> 0:02:58.160 He invests in stocks and et fs on behalf of 0:02:58.240 --> 0:03:01.000 individuals and companies. So we're gonna kind of dive into 0:03:01.040 --> 0:03:02.839 this topic a little bit with him and just try 0:03:02.880 --> 0:03:05.720 to make some sense of it because it is obviously 0:03:05.919 --> 0:03:08.920 highly technical. It's a commodity, which is a thing that 0:03:08.919 --> 0:03:11.640 we've talked about before on Trillions, and a lot of 0:03:11.639 --> 0:03:14.160 people are just left scratching their heads about like what 0:03:14.440 --> 0:03:18.360 just happened and could it maybe happen again? Even I 0:03:18.480 --> 0:03:22.280 like to look at news mentions and Twitter, you know, 0:03:22.480 --> 0:03:27.840 uh a sentiment and USO was tweeted about more last 0:03:27.840 --> 0:03:30.120 week than x I V was when it imploded. So 0:03:30.160 --> 0:03:33.399 this has become a huge issue, and I think part 0:03:33.400 --> 0:03:37.040 of it is is the u s O has attracted 0:03:37.040 --> 0:03:41.480 some retail investors, and some people argue, and I agree 0:03:41.560 --> 0:03:44.520 to the to the to an extent, that it's kind 0:03:44.560 --> 0:03:47.240 of a wolf in sheep's clothing. It's way more complex 0:03:47.680 --> 0:03:49.800 than than retails should be messing with. And should you 0:03:49.840 --> 0:03:53.680 have democratized oil futures is a whole another debate that 0:03:53.760 --> 0:03:55.680 could have been going on for the last fourteen years, 0:03:55.720 --> 0:03:58.000 but it's brought it to light now because of what's 0:03:58.040 --> 0:04:07.320 happened this time. I'm trillion, w T F w T I, Peter, 0:04:07.400 --> 0:04:10.680 Welcome to trillions. Thanks. I love that. WTF about w 0:04:10.800 --> 0:04:14.840 T I. I have to say that I'm very jealous 0:04:14.920 --> 0:04:18.760 of you not needing a haircut. I've actually been doing 0:04:18.800 --> 0:04:20.920 my own haircut. I invested in one of those wall 0:04:21.240 --> 0:04:24.000 things a long time ago, so usually only use it 0:04:24.000 --> 0:04:28.359 in emergencies, and it's been an emergency even by my standards. 0:04:28.400 --> 0:04:30.960 So you did not take a haircut on this USO 0:04:31.120 --> 0:04:33.279 business because you are really just not a fan of 0:04:33.279 --> 0:04:35.719 this instrument, are you. No, I've had a lot of 0:04:35.720 --> 0:04:39.080 difficulty with it over the past, you know, recent times. 0:04:39.760 --> 0:04:41.680 You go back and I think, as Eric talked about, 0:04:42.000 --> 0:04:44.960 we talked about vix ets being able to blow up 0:04:44.960 --> 0:04:46.479 and they've done a lot of work on that, and 0:04:46.520 --> 0:04:49.320 they ultimately did blow up. And I think there was 0:04:49.360 --> 0:04:52.120 some similar flaws on the vix et F that are 0:04:52.160 --> 0:04:54.760 maybe in some USO. It didn't get to track the 0:04:54.800 --> 0:04:57.760 attention because I think vix was such a fast money 0:04:57.800 --> 0:05:00.599 trading vehicle. Plus Vix no one really care about fixed. 0:05:01.000 --> 0:05:03.599 Now these problems have moved into the oil and everyone 0:05:03.640 --> 0:05:06.680 cares about oil. Everyone looks at oil um. So one 0:05:06.680 --> 0:05:08.440 of the big problems that I think is just starting 0:05:08.440 --> 0:05:12.240 to be addressed is this product has done phenomenally well. 0:05:12.279 --> 0:05:14.520 So I from about a billion and a half of 0:05:14.560 --> 0:05:16.680 a u M for most of the past year to 0:05:16.800 --> 0:05:19.640 skyrocking over four billion, so all of a sudden, it 0:05:19.680 --> 0:05:21.800 has a much bigger impact on the market than it 0:05:21.880 --> 0:05:24.520 used to. And that's also when oil was down around 0:05:24.560 --> 0:05:27.600 fifteen to twenty instead of thirty five to forty five, 0:05:28.080 --> 0:05:31.960 So it wound up holding anywhere from t to more 0:05:32.040 --> 0:05:36.719 of individual futures contracts. And if you think about commodities trading, 0:05:36.760 --> 0:05:39.640 any trading on stock side, right if you own more 0:05:39.680 --> 0:05:42.400 than five percent, you have to make disclosures. I think 0:05:42.440 --> 0:05:45.200 the Hunt Brothers got shut down for cornering a commodity 0:05:45.279 --> 0:05:51.400 at so they became to a large degree the tail 0:05:51.440 --> 0:05:55.120 wagging the dog in this space, and right now I'm 0:05:55.160 --> 0:05:57.560 not sure what to do with it. Eric, how much 0:05:57.760 --> 0:06:02.279 of the carnage that we witnessed was really because of 0:06:02.520 --> 0:06:06.280 the USO as an as a trading vehicle. Yeah, so 0:06:06.760 --> 0:06:09.040 it's all mixed together. It's hard to piece out how 0:06:09.120 --> 0:06:11.679 much is USO versus how much is people just hating oil. 0:06:12.040 --> 0:06:13.680 I think those two things would be created like a 0:06:13.680 --> 0:06:17.560 downward spiral. This is a once in a lifetime earthquake 0:06:17.920 --> 0:06:21.320 in oil. I mean, the whole economy shut down, right 0:06:21.360 --> 0:06:25.480 the the literal oil that oils our economy is oil, 0:06:26.040 --> 0:06:28.480 and nobody wants it right now because nobody's moving. So 0:06:29.520 --> 0:06:33.440 that's what's going on in you know. Just that's something 0:06:33.480 --> 0:06:35.159 I think on the positive side that I think it's 0:06:35.240 --> 0:06:37.440 lost in a bit of these headlines. As one, USO 0:06:37.600 --> 0:06:39.720 was not in that May contract, so they've already been 0:06:39.760 --> 0:06:42.039 out of it, so that wasn't directly at their function. 0:06:42.720 --> 0:06:46.799 And only about seven thousand contracts traded at a negative price. 0:06:47.279 --> 0:06:49.159 So there's these great headlines of how it went to 0:06:49.160 --> 0:06:52.279 minus thirty seven, But the v whop or the average 0:06:52.279 --> 0:06:54.839 weighted price on that Monday, I think was still ten dollars. 0:06:54.839 --> 0:06:57.839 So there are a lot of weird things going on 0:06:57.920 --> 0:07:01.599 that day that had enough to do with USO. But 0:07:01.720 --> 0:07:03.960 what we're seeing is that it's now translated into everyone 0:07:04.000 --> 0:07:07.360 who speculates an oil traditionally speculated in that front contract, 0:07:07.640 --> 0:07:10.600 and now that's almost a no no. I think another 0:07:10.680 --> 0:07:13.680 issue to understand here is that USO is fourteen years old, 0:07:14.040 --> 0:07:16.040 and I've been tracking it for about the whole time. 0:07:16.080 --> 0:07:17.640 I think I started covering e t f s raight 0:07:17.800 --> 0:07:21.200 on after the time it launched. And every four or 0:07:21.200 --> 0:07:24.040 five years, oil goes so low that it makes like 0:07:24.080 --> 0:07:27.000 the CBS Nightly News, and then people like my dad 0:07:27.040 --> 0:07:30.200 and my you know, college roommate, they email or text 0:07:30.240 --> 0:07:32.320 me and say, hey, I'm thinking of buying this u 0:07:32.400 --> 0:07:34.840 S so I know oil can't go any lower, and 0:07:34.880 --> 0:07:37.240 so it attracts these tourists. We called a tourist trap, 0:07:37.840 --> 0:07:39.720 and that's what X I V was. Also, I think 0:07:39.720 --> 0:07:42.680 there's certain e t f s that, as Joel Unit, 0:07:42.680 --> 0:07:44.200 We've talked about this all time, they are rated R 0:07:44.560 --> 0:07:46.720 where they should be labeled rated R, that they should 0:07:46.720 --> 0:07:49.320 be for hedge funds and traders who do like the 0:07:49.320 --> 0:07:51.800 fact that you can trade oil futures like equities. These 0:07:51.840 --> 0:07:53.880 are what we call the exotic rated R areas where 0:07:54.000 --> 0:07:56.640 two people who know what they're doing it's fine. Uh, 0:07:56.640 --> 0:07:59.520 it's when they attract tourists and become a bigger fish 0:07:59.560 --> 0:08:01.880 in a small upon which they swim in and we 0:08:02.000 --> 0:08:05.280 really get these problems. And USO is per case in 0:08:05.360 --> 0:08:08.480 point of that. So again, I've always called for this 0:08:08.600 --> 0:08:11.120 movie like rating system, which probably could have kept some 0:08:11.120 --> 0:08:13.200 of these people out of USO if they knew, oh, 0:08:13.200 --> 0:08:15.440 it's rated R, it's got a red light. I also 0:08:15.520 --> 0:08:18.640 think that there was multiple leveraged oil et s that 0:08:18.720 --> 0:08:20.880 shut down about a month ago in the first round 0:08:20.880 --> 0:08:24.120 of this crisis, and they they're gone, right, So a 0:08:24.120 --> 0:08:26.920 lot of the adrenaline junkies and hardcore types have probably 0:08:27.160 --> 0:08:30.440 moved over to u s O too, So USO probably, 0:08:30.680 --> 0:08:33.880 if I'm guessing the people who run it are probably like, look, 0:08:33.920 --> 0:08:35.959 we we wanted to get big, but not this big. 0:08:36.920 --> 0:08:38.600 That makes a ton of sense. I like your idea. 0:08:38.760 --> 0:08:40.319 I think we've talked in the past having that sort 0:08:40.360 --> 0:08:43.680 of you know, warning label on some et f where 0:08:43.679 --> 0:08:45.880 people realize it. And I think the other thing was that, 0:08:46.040 --> 0:08:48.959 you know, we've always been more probably concerned about leveraged 0:08:49.040 --> 0:08:52.959 ETFs and when something can go negative and all of 0:08:53.000 --> 0:08:54.920 a sudden becomes leverage, and that's something I don't think 0:08:54.960 --> 0:08:58.640 anyone was expecting on something like these futures contracts where 0:08:59.600 --> 0:09:01.560 if you the stock the worst I can go to zero. 0:09:01.640 --> 0:09:04.559 The ETFs protected because it has one to one and 0:09:04.760 --> 0:09:06.640 unlike those leverage ETFs, all of a sudden, if you 0:09:06.679 --> 0:09:08.840 can go negative, you're not protected here. So I think 0:09:08.920 --> 0:09:11.520 that's a reshift in how we can think about these 0:09:11.520 --> 0:09:15.400 commodity based or sorry, these futures based ETFs. And Peter, 0:09:15.720 --> 0:09:18.079 can I ask you one question. So we've debated that. 0:09:18.160 --> 0:09:20.839 Peter ibs me a lot on ETF issues, and we 0:09:20.920 --> 0:09:23.719 have a we have nice debates. The most recent one 0:09:23.840 --> 0:09:27.000 was he was like, this thing doesn't really track what 0:09:27.040 --> 0:09:29.120 it's supposed to track anymore. It's supposed to track the 0:09:29.160 --> 0:09:31.679 front month oil futures. Right that way, when oil goes up, 0:09:31.760 --> 0:09:34.079 it has a good, a good pop to it. It's 0:09:34.160 --> 0:09:37.079 very correlated to spot. But now that it's tracking like 0:09:37.200 --> 0:09:39.719 all these months down the curve, it's less correlated. So 0:09:39.840 --> 0:09:42.880 it's become like almost like a water down Front Month 0:09:42.920 --> 0:09:45.400 Oil Future e t F. But I I guess I 0:09:45.440 --> 0:09:48.360 would ask you, Peter Um, what should have happened? Because 0:09:48.400 --> 0:09:51.720 if it just held June, it was being told by 0:09:51.760 --> 0:09:53.800 people that this could go negative and you could end 0:09:53.880 --> 0:09:56.559 up owing money and the investors in the fund could 0:09:56.600 --> 0:09:59.040 owe money. It could be a real train wreck. Do 0:09:59.160 --> 0:10:01.559 you don't you think they took the lesser of two 0:10:01.640 --> 0:10:04.319 evils road? And what would you have done? You know, 0:10:04.520 --> 0:10:08.000 I think that's a really really hard question because silly 0:10:08.040 --> 0:10:11.120 in hindsight. Now, had they just stayed in June, June rebounded, 0:10:12.280 --> 0:10:14.000 they look like they would have been fine. Had they 0:10:14.040 --> 0:10:16.200 stayed in June, we don't know what would have happened. Again, 0:10:16.280 --> 0:10:18.360 that's to me, that's the one issue. I do think 0:10:18.360 --> 0:10:22.080 we're supposed to look at finding ways to curb how 0:10:22.200 --> 0:10:26.520 big these products can be, because when you're of a position, 0:10:27.200 --> 0:10:30.520 you're unwinding now affects that price, especially in this algo 0:10:30.679 --> 0:10:33.520 driven sort of day where the algos are done nothing. 0:10:33.559 --> 0:10:34.800 But you know, I hate to use the word train 0:10:34.880 --> 0:10:37.000 but that's really what the algos are. There is someone 0:10:37.040 --> 0:10:39.240 continues to sell no matter how much I lower my bid, 0:10:39.600 --> 0:10:42.720 and someone considers to buy, so they pushed the markets 0:10:42.720 --> 0:10:45.800 against themselves. So I think a lot of this would 0:10:45.800 --> 0:10:47.440 have gone away or not been as much of an 0:10:47.480 --> 0:10:50.679 issue had they remained smaller. I understand why they got bigger. 0:10:50.679 --> 0:10:53.199 I understand the appeal, and now you look at it, 0:10:53.360 --> 0:10:56.480 I like oil here, I'm not sure the best way 0:10:56.520 --> 0:10:58.360 to play it. I look at the energy stocks. The 0:10:58.480 --> 0:11:01.240 energy stocks didn't fall as much. So how do you 0:11:01.360 --> 0:11:05.079 play this? I don't know the right answer. Peter. When 0:11:05.120 --> 0:11:07.439 you think about us SO, and we talked about the 0:11:07.840 --> 0:11:10.400 VIX and the XIV stuff earlier, do you think there's 0:11:10.480 --> 0:11:14.319 other problems lurking that investors might not be aware of 0:11:14.720 --> 0:11:17.520 in some other products that could rear their ugly heads 0:11:17.600 --> 0:11:21.600 some day. You know. One area that bothers me from 0:11:21.679 --> 0:11:24.240 time to time is I see a lot of r 0:11:24.440 --> 0:11:28.040 A s. They do a portfolio analysis and figure out 0:11:28.080 --> 0:11:30.679 where they want to be, and that's based on certain 0:11:30.720 --> 0:11:32.559 indices or something, and then they go and pick the 0:11:32.640 --> 0:11:34.480 e t F that seems to match that with the 0:11:34.559 --> 0:11:36.680 closest and near and new year to my heart, tends 0:11:36.679 --> 0:11:39.000 to be the high yield market where you see a 0:11:39.040 --> 0:11:42.240 lot of analysis done, and yet the e t F 0:11:42.360 --> 0:11:45.240 s are very much based on the liquid part of 0:11:45.280 --> 0:11:47.880 the high yield component, and yet a lot of the 0:11:47.920 --> 0:11:51.000 index turns tend to be driven by that less liquid component. 0:11:51.400 --> 0:11:53.839 There also tends to be in the bond market, much 0:11:53.920 --> 0:11:58.559 more efficiency around managed product and a huge part of 0:11:58.640 --> 0:12:01.160 that is the new issue game, and to some extent 0:12:01.240 --> 0:12:03.720 it is a new game is a game because new issues, 0:12:03.800 --> 0:12:05.760 just like in the equity markets, tend to do very 0:12:05.840 --> 0:12:09.680 well when they price and trade. But unlike the equity markets, 0:12:09.720 --> 0:12:12.160 there's one or two new issues every single day, so 0:12:12.320 --> 0:12:15.679 managers can manage their portfolios very well. So I think 0:12:15.760 --> 0:12:18.079 that's one area that's people should revisit. I think there's 0:12:18.360 --> 0:12:19.680 a lot of good to be said on the fixed 0:12:19.679 --> 0:12:22.640 income ETFs. I think we had some crazy discounts to 0:12:22.760 --> 0:12:24.559 nav but I think people do have to take a 0:12:24.600 --> 0:12:26.559 little bit of care, particularly the high yield, and say 0:12:27.080 --> 0:12:30.000 what am I really getting? And maybe it's as overall, 0:12:30.120 --> 0:12:32.760 coming back Deeric's point about maybe additional warning signs like 0:12:33.320 --> 0:12:36.199 the stated costs might not be the only cost that 0:12:36.240 --> 0:12:38.200 you have to look at, and I think that's something 0:12:38.320 --> 0:12:41.480 maybe um I think ETFs have done a great job 0:12:41.559 --> 0:12:44.600 fitting into people's portfolils and maybe that's the next step 0:12:44.640 --> 0:12:47.079 of the evolution is being slightly smarter of when the 0:12:47.160 --> 0:12:49.520 E t F really fits or when you're kind of, 0:12:49.640 --> 0:12:58.360 you know, forcing it. So the two things that jump 0:12:58.440 --> 0:12:59.920 out to me and what you just said. First of all, 0:13:00.640 --> 0:13:03.720 HyG tracking the most liquid component of the high yield market. 0:13:04.240 --> 0:13:06.559 I think that's ultimately part of the reason it never 0:13:07.160 --> 0:13:09.599 you know, freezes. It just seems to move on and 0:13:09.800 --> 0:13:13.079 survive these crisis That's good, And I've had some really 0:13:13.120 --> 0:13:15.360 smart people on Twitter say the problem with h y 0:13:15.440 --> 0:13:17.559 G isn't it's going to blow up, it's it's so 0:13:17.640 --> 0:13:20.959 easy to beat. If you're active, you can just h 0:13:21.120 --> 0:13:23.319 y G. I think of active managers beat h y 0:13:23.400 --> 0:13:25.720 G who are in the high yield space. Now, Peter, 0:13:25.800 --> 0:13:28.760 I will turn this around because AGG is also easy 0:13:28.800 --> 0:13:32.679 to beat, and I think like six of managers beat 0:13:32.720 --> 0:13:34.959 the egg way more than the equity side. But in 0:13:35.040 --> 0:13:39.679 the crisis, those numbers went completely backwards because you are 0:13:39.920 --> 0:13:42.079 in the maybe the less liquid bonds, the junk of 0:13:42.120 --> 0:13:45.079 your stuff, the higher credit risk. The FED came in 0:13:45.200 --> 0:13:48.559 and obviously bailed out the whole situation. But um, what 0:13:48.679 --> 0:13:50.400 do you think of that notion where there is a 0:13:50.480 --> 0:13:53.520 downside to going away from h y G or away 0:13:53.559 --> 0:13:56.319 from the agg in more risky areas, UM can that 0:13:56.480 --> 0:13:59.360 blow up if there were no FED. So to me, 0:14:00.200 --> 0:14:01.719 I view the e t F at least in the 0:14:01.800 --> 0:14:04.319 fixed income I tend to focus on l q D. 0:14:04.480 --> 0:14:06.280 On the investment grade, I tend to think about it 0:14:06.360 --> 0:14:08.200 with a rate hedge. I look at a lot at 0:14:08.360 --> 0:14:10.679 h Y G G N K, I look a lot 0:14:10.760 --> 0:14:12.600 at b K l N. I don't look at aggs 0:14:12.600 --> 0:14:14.839 so much because that's kind of a boring product. But 0:14:14.880 --> 0:14:16.959 I think when you step those away, I really view 0:14:17.360 --> 0:14:20.120 the e t F and fixed income is great trading vehicles. 0:14:20.440 --> 0:14:22.320 So if you want to capture short term move or 0:14:22.360 --> 0:14:24.560 you're nervous, they are a great way to express that. 0:14:25.240 --> 0:14:26.960 So I think you have to be very careful. And 0:14:27.120 --> 0:14:29.840 so when if I'm thinking about my portfolio and say 0:14:29.880 --> 0:14:31.600 I want to move from high yield, say a ten 0:14:31.640 --> 0:14:35.280 percent allocation to fIF but I think it's temporary, I 0:14:35.400 --> 0:14:37.600 probably want to put that additional exposure into an e 0:14:37.680 --> 0:14:40.160 t F where I can control it. Whereas if I 0:14:40.240 --> 0:14:42.520 really think, okay, for the next fifteen years, this is 0:14:42.560 --> 0:14:44.160 where I want to be, you can give it to 0:14:44.200 --> 0:14:47.120 our asset managers. So to me, I really think about 0:14:47.840 --> 0:14:50.000 both in conjunction and how to play one off the 0:14:50.120 --> 0:14:52.960 other because the liquidity is there in high yield um 0:14:53.120 --> 0:14:54.640 on the e t F s. And I think one 0:14:54.680 --> 0:14:56.760 thing that we saw this time around, which is actually 0:14:56.760 --> 0:15:00.280 a problem for mutual funds was I was looking at 0:15:00.320 --> 0:15:02.280 some of the shorter dated ones, so SP S B 0:15:02.480 --> 0:15:05.040 which is a one to three year and v C 0:15:05.360 --> 0:15:07.720 s H which is a one to five year. They 0:15:07.840 --> 0:15:10.720 both traded I believe at four to five discounts and 0:15:10.800 --> 0:15:13.400 NAV which was unheard of. Let's go into that. It's 0:15:13.440 --> 0:15:15.880 an issue which we talked with Katie. Eric was just 0:15:16.000 --> 0:15:19.600 like waiting for this. Sorry, so he's been he's been 0:15:19.640 --> 0:15:21.240 waking up in the middle of the night just being like, 0:15:21.320 --> 0:15:25.400 can we talk about this on trillions again again? Can 0:15:25.440 --> 0:15:29.240 we talk about NAV calculations? It just gets me going, yeah, perfect, 0:15:29.440 --> 0:15:34.680 So these discounts right, how I mean, we've seen that 0:15:34.960 --> 0:15:38.360 the N A V s are possibly wrong. Um, you know, 0:15:38.400 --> 0:15:40.120 whether you're looking at the NAV that the e t 0:15:40.320 --> 0:15:42.440 F is using or the mutual fund navs that were 0:15:42.480 --> 0:15:44.880 put out. We just saw another case in India where 0:15:46.200 --> 0:15:49.000 a debt fund in India had a NAV between twelve 0:15:49.040 --> 0:15:52.120 and eleven during the whole crisis and then boom, it's 0:15:52.160 --> 0:15:54.960 got to close up shop because it cannot sell the buns. 0:15:55.200 --> 0:15:57.600 You're telling me you're you're that all liquid and your 0:15:57.680 --> 0:16:01.360 NAV barely budgets because they're using Dale prices. So how 0:16:01.440 --> 0:16:03.520 much of the E t F discount, in your opinion, 0:16:04.280 --> 0:16:08.840 is uh just the uh fake? How much is the 0:16:08.880 --> 0:16:11.400 e t F telling the truth versus the NAV line? 0:16:12.960 --> 0:16:14.840 So I tend to go a lot more with the 0:16:14.920 --> 0:16:17.160 e t F So when I look at things. I 0:16:17.240 --> 0:16:19.040 talked to a lot of people about mark to market 0:16:19.120 --> 0:16:21.440 and of how they're trying to model something and how 0:16:21.520 --> 0:16:24.080 they're trying to calculate NAV. I tell people, if you 0:16:24.200 --> 0:16:26.760 run your model and you can predict the closing price 0:16:26.840 --> 0:16:29.200 of the E t F, that's probably a better thing 0:16:29.280 --> 0:16:31.920 than trying to actually tie out to people's NAV, because 0:16:31.920 --> 0:16:34.760 I think there's more rational thought into where that E 0:16:34.880 --> 0:16:38.200 t F traded. So when we see these four percent discounts, 0:16:38.800 --> 0:16:43.240 I would assume at least that is going to be 0:16:44.440 --> 0:16:47.000 fake where that NAV is miss marked. And what that 0:16:47.120 --> 0:16:50.760 became a real problem for is I think this is 0:16:50.920 --> 0:16:52.960 very strange. We're gonna have to deal with this is 0:16:53.000 --> 0:16:55.920 if you are a mutual fund manager, and you allow 0:16:56.000 --> 0:16:58.040 people to get out at n a V and that 0:16:58.240 --> 0:17:01.000 n a V is two to three pc wrong. All 0:17:01.040 --> 0:17:03.920 you're doing is hurting the remaining holders by effectively giving 0:17:04.000 --> 0:17:07.760 that person a windfall. And the quote unquote smart trade. 0:17:07.960 --> 0:17:09.800 It sounds awful, but the smart trade was if you 0:17:09.880 --> 0:17:14.560 owned a one to five year et F sorry mutual fund, 0:17:14.800 --> 0:17:17.040 you sell that at NAV and then you buy a 0:17:17.200 --> 0:17:19.440 similar product in the ETF space at a four percent 0:17:19.520 --> 0:17:22.959 discount and NAV. So I think this has to attract 0:17:23.000 --> 0:17:25.800 attention to how are we calculating NAV on these fixed 0:17:25.840 --> 0:17:28.879 income funds, in particular, what is the right one? What 0:17:28.960 --> 0:17:32.080 are mutual funds supposed to do? And it's a huge, 0:17:32.240 --> 0:17:34.720 glaring problem. I think it first came up with Third 0:17:34.760 --> 0:17:37.240 Avenue a few years ago. I don't know that. I 0:17:37.320 --> 0:17:38.840 had nothing to do with e T s at the time. 0:17:38.920 --> 0:17:40.840 It was a very distressed fund that kind of got 0:17:40.880 --> 0:17:44.720 in trouble. Um. My understanding is mutual funds have some 0:17:44.840 --> 0:17:46.840 ability not to let people out at NAV, but I 0:17:46.880 --> 0:17:50.520 think traditionally they do, so I would I'm kind of 0:17:50.560 --> 0:17:53.760 with you, especially on fixed income. That difference to NAV 0:17:53.920 --> 0:17:57.000 is not all garbage. A part of that is the 0:17:57.119 --> 0:18:01.040 garbage of NAV calculation, right, And the SEC just announced 0:18:01.119 --> 0:18:06.119 last week they're gonna propose a rule two help to 0:18:07.200 --> 0:18:09.600 make for better calculations. So it caught their radar as well. 0:18:10.040 --> 0:18:12.159 And you know, I think it caught the Treasury Department 0:18:12.200 --> 0:18:14.840 and Fed's radar because if you go back to the 0:18:14.960 --> 0:18:19.040 secondary market corporate credit facility that was launched, they specifically 0:18:19.080 --> 0:18:22.240 allow the asset managers gonna be black Rock to buy 0:18:22.359 --> 0:18:24.720 e t F s. I'm willing to bet a big 0:18:24.800 --> 0:18:26.920 part of that as they want to control that discount 0:18:26.960 --> 0:18:30.359 to NAV because it created so many problems. Is that 0:18:30.800 --> 0:18:34.040 fishes through the system. Um, So I think there's a 0:18:34.160 --> 0:18:36.920 lot going on with that. And people understand a the 0:18:37.000 --> 0:18:40.359 NAV calculation is bad, but having E t F treated 0:18:40.359 --> 0:18:44.040 a significant discount to NAV creates its own set of problems. 0:18:44.119 --> 0:18:46.240 And this is a stop gap solution until we can 0:18:46.280 --> 0:18:49.840 figure out better ones. And so, Peter, you know, we 0:18:50.000 --> 0:18:52.800 have this debate on our team of whether the FED 0:18:52.880 --> 0:18:55.240 even needed to say they were going to buy e 0:18:55.359 --> 0:18:57.679 t F s because if the Fed's gonna go out 0:18:57.720 --> 0:19:00.440 and buy all these bonds, that makes arbitrage easier, and 0:19:00.480 --> 0:19:03.119 you would think that that discount would collapse naturally because 0:19:03.600 --> 0:19:06.680 somebody could then um sell the bonds by the E 0:19:06.800 --> 0:19:09.560 t F and pocket the difference. What's your take on 0:19:10.240 --> 0:19:12.800 on that, like, were the e t F s really necessary? 0:19:12.880 --> 0:19:15.040 And then the second thing is, I guess did the 0:19:15.119 --> 0:19:17.240 FED go too far in your opinion or did they 0:19:17.320 --> 0:19:19.800 do just the right amount of uh you know, uh 0:19:20.280 --> 0:19:24.880 kitchen sinking. So for me, depending on how they ultimately 0:19:25.000 --> 0:19:26.600 use the E t F s, I like it a 0:19:26.680 --> 0:19:28.920 lot because it actually takes time to build up a 0:19:28.960 --> 0:19:32.920 diversified bond portfolio. So if you're gonna invest two fifty 0:19:33.000 --> 0:19:36.560 billion into the corporate market, um, you need to figure 0:19:36.560 --> 0:19:38.000 out how to do that. And I think E t 0:19:38.160 --> 0:19:39.560 f s are a good starting point. You get a 0:19:39.640 --> 0:19:43.240 nice diversified portfolio and it can let you move around that. 0:19:43.600 --> 0:19:47.480 I think it lets them more quickly move to fix things. 0:19:48.040 --> 0:19:50.280 And again, they really talked about on the bond side 0:19:50.359 --> 0:19:52.800 only buying one to five year bonds and the E 0:19:52.920 --> 0:19:55.680 t F side is much more expanded. Did they go 0:19:55.840 --> 0:20:00.159 too far? You know? Possibly? I would have liked see 0:20:00.280 --> 0:20:03.320 them focus on fixing the front end of the corporate market, 0:20:03.400 --> 0:20:05.840 so one to three years, the money market, commercial paper, 0:20:06.040 --> 0:20:09.960 because that really is the lifeblood of corporations and it 0:20:10.040 --> 0:20:12.760