WEBVTT - BOJ Allows Japan To Keep QE In Place For Another Three Years 0:00:05.800 --> 0:00:08.720 Welcome to the Bloomberg P and L Podcast. I'm Pim Fox. 0:00:08.760 --> 0:00:11.520 Along with my co host Lisa Abramowitz. Each day we 0:00:11.640 --> 0:00:15.120 bring you the most important, noteworthy, and useful interviews for 0:00:15.200 --> 0:00:17.840 you and your money, whether you're at the grocery store 0:00:17.960 --> 0:00:20.720 or the trading floor. Find the Bloomberg P and L 0:00:20.840 --> 0:00:32.880 Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. Bank 0:00:32.920 --> 0:00:37.040 of Japan Governor Haruhiko Kuroda said that he's going to 0:00:37.159 --> 0:00:39.720 let a key interest rate increase by a tenth of 0:00:39.720 --> 0:00:43.680 a percentage point, but otherwise he's sticking to the bank's 0:00:43.760 --> 0:00:48.559 ultra easy monetary policy that seems to defy a global 0:00:48.600 --> 0:00:51.080 trend toward tightening. Here to tell us about this is 0:00:51.159 --> 0:00:54.320 Jeff Usher. He has had of research for Japan Insider. 0:00:54.320 --> 0:00:58.480 They're based in Jeffersonville, New York. Jeff Usher, thanks very 0:00:58.560 --> 0:01:01.640 much for being with us. Tell us about this move 0:01:01.880 --> 0:01:04.080 or non move by the Bank of Japan. What does 0:01:04.120 --> 0:01:07.280 it mean? Well, I think what it really means is 0:01:07.600 --> 0:01:11.800 we're going to have what they call quantitative and qualitative 0:01:11.800 --> 0:01:17.440 easing forever um. The key point that was in today's 0:01:17.480 --> 0:01:20.560 meeting was that the Bank of Japan is going to 0:01:20.640 --> 0:01:24.640 be unable to meet its two percent inflation target at 0:01:24.760 --> 0:01:28.840 least until the end of March of and probably even 0:01:28.920 --> 0:01:33.559 further so. Because we've had such easy money for so long, 0:01:33.959 --> 0:01:37.440 it's putting pressure on Japanese banks and it's also affecting 0:01:37.520 --> 0:01:41.840 the Japanese government bond market. And so what they did 0:01:41.920 --> 0:01:45.240 today is essentially apply a few tweaks to allow them 0:01:45.280 --> 0:01:49.320 to keep q QUO E in place for at least 0:01:49.320 --> 0:01:52.440 another three years. Jeff, I'd love to talk about the 0:01:52.520 --> 0:01:55.480 Japanese economy because by a lot of measures, it's doing 0:01:55.800 --> 0:01:57.680 really well. I mean, the job market is the best 0:01:57.720 --> 0:02:01.440 in this nineteen four There do appear to be some 0:02:01.760 --> 0:02:04.400 very small shoots of inflation. So what's the Bank of 0:02:04.440 --> 0:02:08.360 Japan waiting for here? Well, um, I think they're just 0:02:08.480 --> 0:02:12.160 waiting for, um, you know, the overall inflation to to 0:02:12.200 --> 0:02:14.839 get up towards two percent. I mean, my personal view 0:02:14.880 --> 0:02:19.320 is that two percent is actually unrealistic target. Uh that 0:02:19.440 --> 0:02:21.440 you know, if you look at a chart of inflation 0:02:21.520 --> 0:02:24.440 going back thirty years, the only time they've hit that 0:02:24.800 --> 0:02:28.160 is when you've had a consumption tax increase, and that's 0:02:28.200 --> 0:02:31.680 not really the kind of inflation that you want. So uh, 0:02:31.720 --> 0:02:34.000 you know, the job market is great. We're getting a 0:02:34.080 --> 0:02:37.799 lot of older workers, post retirement workers, a lot more 0:02:37.840 --> 0:02:42.359 women entering the workforce, but wages are not rising as 0:02:42.400 --> 0:02:45.359 quickly as you'd expect because most of the new people 0:02:45.400 --> 0:02:48.480 coming into the workforce actually get paid less than the 0:02:48.520 --> 0:02:52.720 full time workers. Jeff, you were the first non Japanese 0:02:52.760 --> 0:02:55.680 individual to work on the floor of the Tokyo Stock 0:02:55.720 --> 0:03:00.840 Exchange back in correct, Yes, when you had a floor. Okay, 0:03:00.919 --> 0:03:07.000 can you explain to people how the Japanese economy is 0:03:07.440 --> 0:03:11.400 different then let's say the economy in the United States 0:03:11.480 --> 0:03:17.960 and its relationship to let's say you are Japanese government debt. Okay, 0:03:18.480 --> 0:03:22.040 people are very worried about Japanese government debt, and I 0:03:22.080 --> 0:03:25.000 think that, um, you know, one of the issues here 0:03:25.600 --> 0:03:29.760 is that, unlike the US, most Japanese government debt is 0:03:29.800 --> 0:03:33.760 owned owned, excuse me, by Japanese and so you don't 0:03:33.760 --> 0:03:38.840 really have to worry about capital flight. Uh. The in fact, 0:03:39.040 --> 0:03:42.800 there's a real shortage of long term debt right now 0:03:43.160 --> 0:03:46.360 because again the Japanese economy has been very wealthy for 0:03:46.400 --> 0:03:51.000 a very long time. And UH, insurance companies, UH, the 0:03:51.080 --> 0:03:53.600 g p i F, which is the government pension fund, 0:03:54.240 --> 0:03:57.200 all of these big investors really don't have a lot 0:03:57.240 --> 0:04:01.880 of places to put yen to work in the domestic market, 0:04:02.440 --> 0:04:04.720 so um, you know, I think as far as the 0:04:04.760 --> 0:04:09.920 economy goes, it's a very diversified economy, much different say 0:04:10.680 --> 0:04:15.080 the Chinese market or other emerging markets, and in many 0:04:15.120 --> 0:04:18.360 ways people might be surprised to hear that it's similar 0:04:18.400 --> 0:04:22.799 to the US, and that Japan's dependence on exports is 0:04:23.320 --> 0:04:25.960 about the same as the United States. It's only about 0:04:26.560 --> 0:04:30.000 seventeen or eighteen vent of GDP where it's ay a 0:04:30.000 --> 0:04:33.960 country like Germany relies on about on exports for about 0:04:33.720 --> 0:04:37.320 forty of their GDP. The reason why people have been 0:04:37.320 --> 0:04:40.839 watching Japan so closely recently, I mean not not to 0:04:40.880 --> 0:04:43.200 mention that it's one of the major economies of the world, 0:04:43.480 --> 0:04:46.359 but also because it was clear that the Bank of 0:04:46.440 --> 0:04:51.400 Japan's moves are having a pretty significant impact on global 0:04:51.440 --> 0:04:54.240 bond yields. I mean, even the sort of suspicion that 0:04:54.279 --> 0:04:56.920 they might make some sort of policy tweak. Last night, 0:04:57.320 --> 0:05:00.240 UH sent longer term yields in the US U in 0:05:00.279 --> 0:05:03.680 Germany higher. That has obviously reversed as they show that 0:05:03.720 --> 0:05:06.520 they were not willing to make those tweaks. Um, the 0:05:06.560 --> 0:05:10.440 idea that you're saying q E forever to me indicates 0:05:10.720 --> 0:05:15.000 that will be a consistent and ongoing pressure on yields globally. 0:05:15.520 --> 0:05:18.960 Uh do you see it that way? Yeah? Absolutely, There's 0:05:19.120 --> 0:05:23.960 there's no doubt about. Um. Japanese investors are being forced 0:05:24.000 --> 0:05:27.240 to put more of their money overseas, and in a sense, 0:05:27.560 --> 0:05:30.920 it makes it a very easy trade because, uh, if 0:05:30.960 --> 0:05:32.520 you know that the b o J is going to 0:05:32.600 --> 0:05:35.400 be keeping interest rates pretty much where they are for 0:05:35.440 --> 0:05:39.000 at least the next three years, but let's say yields 0:05:39.000 --> 0:05:43.200 in the US or Germany are rising, Um, you know, 0:05:43.279 --> 0:05:47.080 you're just gonna get wider spreads between Japan and uh, 0:05:47.160 --> 0:05:49.200 you know, the US and Europe, and that's going to 0:05:49.279 --> 0:05:55.000 attract more Japanese outflows to these markets. And Uh again, 0:05:55.000 --> 0:05:58.839 as those spreads widen, it becomes much more profitable for 0:05:58.920 --> 0:06:03.000 Japanese investors hedge their currency as well, So that makes 0:06:03.000 --> 0:06:05.280 it even easier for them to to put more money 0:06:05.320 --> 0:06:08.839 let's say into ten your treasury, Jeff, does this based 0:06:08.839 --> 0:06:11.400 on your analysis, do you see the Japanese end weakening 0:06:11.480 --> 0:06:16.320 against the U. S. Dollar? Um? Just marginally. I actually 0:06:16.360 --> 0:06:18.880 think the dollar again is pretty much stuck in a 0:06:18.960 --> 0:06:22.320 trading range. Um, I think that you know, we're kind 0:06:22.320 --> 0:06:24.600 of trading between one oh seven at the low end 0:06:24.640 --> 0:06:29.160 and one thirteen at the upper end. And uh, honestly, 0:06:29.160 --> 0:06:32.120 if you look at how the Japanese economy operates, if 0:06:32.160 --> 0:06:36.040 the end gets a whole lot weaker than say one fifteen, 0:06:36.520 --> 0:06:39.680 it's actually bad for the domestic economy because don't forget, 0:06:40.000 --> 0:06:43.400 Japan imports all of its food, all of its energy, 0:06:43.880 --> 0:06:47.160 and so um. You know, once once you start raising 0:06:47.200 --> 0:06:51.840 those import prices, you leave less money available for discretionary 0:06:51.880 --> 0:06:56.920 purchases like say, refrigerators, and that keeps the economies, uh 0:06:57.320 --> 0:07:00.320 consumption weak. Jeff Fusher, thank you so much for being 0:07:00.320 --> 0:07:03.719 with us. Jeff Usher, head of research at Japan Insider, 0:07:04.080 --> 0:07:08.080 talking about that b o J decision that we got overnight, 0:07:08.320 --> 0:07:12.040 definitely causing a reversal of some of the yield curve widening. 0:07:12.080 --> 0:07:31.480 Now you're getting flattening once again. Apple reports its results 0:07:31.520 --> 0:07:33.680 after the close of trading today, and here to help 0:07:33.760 --> 0:07:36.640 us understand what to expect is our own John Butler. 0:07:36.680 --> 0:07:41.200 He's our senior telecom services and equipment analysts for Bloomberg Intelligence. 0:07:41.400 --> 0:07:44.640 Please follow John on Twitter as we all do at 0:07:44.760 --> 0:07:50.800 John Underscore Butler twenty five all right, John Underscore Butler 0:07:51.920 --> 0:07:55.280 revenue annual revenue for Apple in the neighborhood of two 0:07:55.320 --> 0:07:59.800 hundred and fifty billion dollars. What are you going to 0:07:59.880 --> 0:08:03.400 be looking for when Apple reports results after the close? 0:08:04.200 --> 0:08:08.000 I am looking at services, which includes the App Store, 0:08:08.200 --> 0:08:11.920 and I'm looking at the other products category which includes 0:08:12.040 --> 0:08:16.920 air pods and HomePod and Apple Watch, and together those 0:08:16.960 --> 0:08:22.360 two divisions are really driving future growth at Apple. Right 0:08:22.400 --> 0:08:24.080 if you look at the current quarter, we're in a 0:08:24.200 --> 0:08:28.040 very good iPhone cycle. Right now, people expect iPhone revenue 0:08:28.080 --> 0:08:31.680 to be up fifteen percent year on year, same with 0:08:31.760 --> 0:08:35.760 the total growth at Apple. We should get top lene 0:08:35.800 --> 0:08:38.840 growth in that same range. But as you look down 0:08:38.880 --> 0:08:41.800 the road, this is a company and transition from a 0:08:41.920 --> 0:08:46.200 hardware centric model to a much more balanced model of 0:08:46.280 --> 0:08:50.280 hardware and software sales services. So that's the important thing 0:08:50.360 --> 0:08:52.480 right now is to show is for Apple to show 0:08:52.520 --> 0:08:57.040 people that it is successfully diverse fating away from the iPhone. Yes, 0:08:57.160 --> 0:09:01.400 because all iPhone sales are close to all iPhone sales 0:09:01.440 --> 0:09:05.000 now are coming from existing users who are upgrading to 0:09:06.000 --> 0:09:10.240 new phones, better phones. So it's driving decent sales. But 0:09:10.360 --> 0:09:13.960 what you really want is to leverage that platform to 0:09:14.120 --> 0:09:18.040 sell services and to sell your other products that work 0:09:18.120 --> 0:09:21.160 well now with the iPhone all right now, you know, 0:09:21.320 --> 0:09:24.720 in the interest of trying to find an expert to 0:09:25.160 --> 0:09:27.400 sort of really put the questions to you, because we 0:09:27.480 --> 0:09:29.760 know that, you know, we are a little older in 0:09:29.800 --> 0:09:33.520 the demographic for the iPhone and the Apple products. We 0:09:33.640 --> 0:09:37.760 have a guest here in the studio, Zeke Abramowitz, who 0:09:38.200 --> 0:09:42.080 is nine years old. And you know, it's always good 0:09:42.080 --> 0:09:46.199 to go right to the to the customer when when 0:09:47.640 --> 0:09:51.120 the yeah, well yeah, mother pays the bills, parents pay 0:09:51.200 --> 0:09:53.120 the bills. But Zeke, I know you have a question 0:09:53.160 --> 0:09:55.800 for John Butler because you are an Apple efficient now 0:09:55.840 --> 0:09:58.280 to go ahead and ask John a question why are 0:09:58.360 --> 0:10:03.640 so many people buying? But you know it, it's what 0:10:03.760 --> 0:10:06.120 I was just talking about a moment ago, which is 0:10:06.240 --> 0:10:10.880 the software and the services matter most now. And so 0:10:11.000 --> 0:10:13.920 people love playing games on their phones. So if you 0:10:13.960 --> 0:10:16.600 take a look around the train at night, everyone has 0:10:16.640 --> 0:10:19.800 a game up on their phone and that's paying for 0:10:19.840 --> 0:10:25.000 those games. And do an Apple do Apple customers pay 0:10:25.080 --> 0:10:30.360 for games versus Android users. I'm not a gamer, so 0:10:30.720 --> 0:10:33.160 I'm gonna say apps in general. I mean, because I 0:10:33.200 --> 0:10:36.840 think there's that note that Apple users they're more willing 0:10:36.880 --> 0:10:41.360 to actually spend money. Yes, so, so people are spending 0:10:41.440 --> 0:10:44.840 up and a third of App store sales are games, 0:10:45.559 --> 0:10:48.680 believe it or not. And the App store is growing 0:10:48.840 --> 0:10:51.720 over thirty percent a year, or it seems so, because 0:10:51.760 --> 0:10:54.680 if you look at services as a whole, it's growing 0:10:54.760 --> 0:11:00.280 well over thirty. So. Um. Back to the question Sun, 0:11:00.480 --> 0:11:03.560 why do people are people buying games on the iPhone? 0:11:03.600 --> 0:11:07.160 The answer is yes, and it really is driving growth 0:11:07.160 --> 0:11:10.720 at Apple. I guess you know, it's sort of interesting. 0:11:11.200 --> 0:11:13.679 I was reading a story and frankly, this was something 0:11:13.720 --> 0:11:16.160 that Zeke and I were talking about this morning, that 0:11:16.200 --> 0:11:19.480 there were some reports that Fortnite that the popularity has 0:11:19.520 --> 0:11:23.880 actually helped Apple. And the question is, when you have 0:11:24.040 --> 0:11:28.160 a free game like that, how does it translate to 0:11:28.280 --> 0:11:31.200 money for Apple? How does Apple profit from these games? 0:11:31.800 --> 0:11:34.920 That's a great question. I'm not quite sure, except to 0:11:34.960 --> 0:11:38.760 say you make in game purchases of sort of added 0:11:38.840 --> 0:11:41.760 items for your character in the game, So Fortnite is 0:11:41.840 --> 0:11:46.240 actually generating a lot of revenue as people buy these 0:11:46.280 --> 0:11:49.840 sort of ancillary shields and swords and all this stuff. 0:11:50.400 --> 0:11:54.199 And I have to believe. Given Apple's model of charging 0:11:55.440 --> 0:12:00.920 roughly for all app store sales app sales, they're probably 0:12:00.960 --> 0:12:03.880 making a portion of that, so that may help them. 0:12:04.000 --> 0:12:06.520 What's the breakdown right now? What are you looking for 0:12:06.600 --> 0:12:10.360 in terms of services versus iPhone sales with respect to 0:12:10.440 --> 0:12:14.199 the sheriff revenue for Apple? So I I'll go back 0:12:14.240 --> 0:12:17.320 to that thought of I look at services and other 0:12:17.360 --> 0:12:20.400 products together because the other products are all the new 0:12:20.480 --> 0:12:24.160 products including air pods and home pod and so forth, 0:12:24.720 --> 0:12:28.920 and together with services, they're over of revenue where they 0:12:28.920 --> 0:12:33.560 were last quarter, they were close to total sales, that's 0:12:33.679 --> 0:12:38.760 versus the iPhone at over sixty of sales. But over 0:12:38.840 --> 0:12:42.040 time you'll see that mixed shift. And that's very important 0:12:42.120 --> 0:12:46.600 because those services and other products are more profitable than 0:12:46.679 --> 0:12:49.800 the iPhone and so it will boost not only the 0:12:49.840 --> 0:12:52.560 top line and help to boid growth on the top line, 0:12:52.600 --> 0:12:55.360 but it's going to fuel bottom line growth. So that 0:12:55.520 --> 0:12:59.800 is a key factor. And I noticed the street is 0:13:00.000 --> 0:13:02.360 focused on it more and more every quarter. You can 0:13:02.400 --> 0:13:04.760 just hear it in the Q and a Zeke has 0:13:04.800 --> 0:13:09.240 another question, John, are money people buying the Apple Watch. Yes, 0:13:09.320 --> 0:13:11.800 the Apple Watch is doing quite well. I don't have 0:13:11.840 --> 0:13:14.040 the numbers in front of me. But I think it's 0:13:14.080 --> 0:13:16.400 fair to say that has been a real hit product 0:13:16.440 --> 0:13:19.200 for them, and it's here to stay for a while. 0:13:19.520 --> 0:13:21.600 It's hurt a lot of the watch companies, hasn't it. 0:13:22.480 --> 0:13:25.000 I'm not sure on that. It's in a different category. 0:13:25.040 --> 0:13:27.560 It probably has hurt Fitbit and some of the sport 0:13:27.640 --> 0:13:33.600 and fitness watches. Um do you think, yes, Okay, that 0:13:34.080 --> 0:13:37.559 a given. But just to connect that with the facial 0:13:38.280 --> 0:13:41.160 I D recognition that is coming with all of the 0:13:41.200 --> 0:13:45.559 new Apple iPhones, combine that with the watch, can we 0:13:45.720 --> 0:13:51.960 see personalized medical information coming to a digital assistant near us? 0:13:52.120 --> 0:13:55.120 I actually would love to see that. And health and 0:13:55.200 --> 0:13:59.480 fitness is a big silo that Apple is is very 0:13:59.559 --> 0:14:03.120 focused stun they haven't made as much headway as as 0:14:03.160 --> 0:14:05.280 you would think. I mean, I look at the world 0:14:05.280 --> 0:14:10.200 of healthcare and how you could really leverage that iPhone 0:14:10.200 --> 0:14:13.000 and watch combination to take advantage of that and grow 0:14:13.080 --> 0:14:16.120 your business there. So stay tuned. I think there's more 0:14:16.160 --> 0:14:18.319 to come on that front. Well. It should be interesting 0:14:18.320 --> 0:14:20.480 to see whether Apple can give people a sense of 0:14:20.560 --> 0:14:23.160 confidence that big tech in the US is here to stay, 0:14:23.160 --> 0:14:26.720 because certainly people worry about that, So this is going 0:14:26.760 --> 0:14:29.480 to be the moment of truth upon us at four 0:14:29.520 --> 0:14:32.160 thirty pm Eastern time today. I think the stuff that 0:14:32.200 --> 0:14:36.520 ailed Facebook and Google is not in Apple's wheelhouse, so 0:14:36.560 --> 0:14:39.680 they may be safe there. But we'll see, we will see. 0:14:39.880 --> 0:14:42.080 John Butler, thank you so much as always for being 0:14:42.120 --> 0:14:44.920 with us. John Butler, Senior Telecom Service as an equipment 0:14:44.960 --> 0:15:05.920 analyst for Bloomberg Intelligence. The leverage loan market is the 0:15:06.040 --> 0:15:09.320 sister asset class to the US junk bond market, but 0:15:09.360 --> 0:15:12.640 it has grown so quickly that it is now eclipsed 0:15:12.920 --> 0:15:15.920 the bond market, and a lot of people are wondering 0:15:16.040 --> 0:15:18.720 has it gone too far too fast? Here to talk 0:15:18.760 --> 0:15:21.480 about that. Jim Schafer Co. Had a public fixed income 0:15:21.480 --> 0:15:25.160 and deputy chief investment officer at a gun USA asset 0:15:25.240 --> 0:15:29.200 management in managing over a hundred billion dollars. He comes 0:15:29.200 --> 0:15:33.120 to us from Chicago. Jim, A lot of focus is 0:15:33.240 --> 0:15:37.320 on the collateralized loan obligation part of this world. Just 0:15:37.400 --> 0:15:40.760 before we get into talking about about this issue, what 0:15:41.000 --> 0:15:45.000 is a collateralized loan obligation? Well, it's a structured vehicle. 0:15:45.000 --> 0:15:47.240 At first off, thanks for having me. It's a structured 0:15:47.360 --> 0:15:49.880 vehicle where the collateral is loans, and you have a 0:15:49.920 --> 0:15:54.240 capital structure that's tronched and the investors in vast where 0:15:54.240 --> 0:15:55.720 they wanted on the triple A is the double A 0:15:55.760 --> 0:15:57.240 all the way down to the equity component of the 0:15:57.240 --> 0:16:00.920 capital structure. It's just the tronched vehicle where the loans 0:16:00.920 --> 0:16:03.200 are the collateral and there's a series of investors and 0:16:03.320 --> 0:16:06.000 you as a manager by loans and they as the investors, 0:16:06.000 --> 0:16:07.840 get to return profile depending where they are in the 0:16:07.840 --> 0:16:13.400 capital structure. And as far as the actual loans are concerned, 0:16:13.520 --> 0:16:19.520 how did they differ significantly from bonds, shorter life, shorter maturities. Yeah, 0:16:19.560 --> 0:16:21.880 I mean they're number when they're not securities first off, 0:16:21.920 --> 0:16:24.280 so their their governance provisions are a little bit different. 0:16:24.280 --> 0:16:26.800 But generally speaking, they don't have call protection and they're 0:16:26.800 --> 0:16:30.040 generally floating rate obligations so they reacht on libor and 0:16:30.040 --> 0:16:31.960 then they can be refinanced at any time. And those 0:16:32.000 --> 0:16:36.680 are the two fundamental key aspect that the markets focuses on. Okay, 0:16:36.760 --> 0:16:40.400 so sort of fast forwarding to today, we've seen record 0:16:40.520 --> 0:16:43.720 issue ince in recent years in the leveraged loans space, 0:16:43.760 --> 0:16:47.720 with the market uh surpassing a trillion dollars and a 0:16:47.760 --> 0:16:50.560 lot of it's been driven by these clos that basically 0:16:50.600 --> 0:16:57.240 packaged loans into bonds. Is this market getting frauthy right now? Well, 0:16:57.360 --> 0:16:59.320 let's let's step back for a minute. I mean, the 0:16:59.320 --> 0:17:02.000 demand makes ends because you've got a floating rate obligation 0:17:02.040 --> 0:17:04.200 and you've got a potential for a rising rate environment, 0:17:04.200 --> 0:17:06.440 and you have a strong fundamentals and so the strong 0:17:06.440 --> 0:17:09.720 fundamental picture makes the fault environment remain low, and that 0:17:09.800 --> 0:17:12.840 gets Barrow comfortable that they're gonna invest in lower quality 0:17:12.880 --> 0:17:15.040 credits like high heel bonds or leverage loans. And you've 0:17:15.040 --> 0:17:17.160 got a floating rate component that can protect you against 0:17:17.200 --> 0:17:20.160 writing rates. So the demand makes sense. Is the market 0:17:20.240 --> 0:17:22.520 getting sloppy? Well, what you see as you move later 0:17:22.520 --> 0:17:25.679 on any business cycle and you see a supply demand 0:17:25.680 --> 0:17:27.320 and bounce. So we see a lot of demand for 0:17:27.359 --> 0:17:30.040 this sloating right asset class and that because of that, 0:17:30.119 --> 0:17:32.640 Barrows can take advantage of that, they can take advantage 0:17:32.640 --> 0:17:35.639 of because they can get better pricing, better covenants and 0:17:35.640 --> 0:17:37.600 really push the envelope if you will, on that those 0:17:37.600 --> 0:17:40.600 two elements. And so does it get sloppy, Well, it 0:17:40.600 --> 0:17:44.360 gets more aggressive and you lose covenant protections you loose, 0:17:44.440 --> 0:17:47.040 you get a lot of really you know, really aggressive pricing, 0:17:47.119 --> 0:17:50.200 so you're the riff to the downsid becomes slightly higher. 0:17:50.240 --> 0:17:51.919 And if you do see a market turn, and we 0:17:51.960 --> 0:17:54.680 don't look at we're comfortable with fundamentals. We don't think 0:17:54.680 --> 0:17:56.760 the market's gonna We don't see defaults taking up in 0:17:56.800 --> 0:17:59.680 the near term. But when it does, the types of 0:17:59.720 --> 0:18:02.040 trans fashions get that get done later in a cycle 0:18:02.119 --> 0:18:04.199 in more of an aggressive form are the ones that 0:18:04.240 --> 0:18:06.760 caused some concerns. So you could see you could be 0:18:06.760 --> 0:18:10.080 sowing the seeds of a more more of the next 0:18:10.080 --> 0:18:12.239 wave of default in the market. Ten tends to get 0:18:12.240 --> 0:18:15.560 a little bit sloppy as it gets later in the cycle. So, Jim, 0:18:15.680 --> 0:18:19.199 there was an article on the Bloomberg yesterday talking about 0:18:19.320 --> 0:18:23.200 how there does seem to be an increasing amount of caution. 0:18:23.240 --> 0:18:25.320 I guess you would say on the part of some 0:18:25.400 --> 0:18:29.480 banks certainly releasing reports that note some of the issues 0:18:29.520 --> 0:18:32.000 with the leverage loan market, are you also seeing it 0:18:32.040 --> 0:18:35.919 in terms of their supplying you with credit lines for 0:18:36.359 --> 0:18:39.800 leverage loan investments or warehousing housing loans? What are you 0:18:39.840 --> 0:18:42.280 seeing on that front? Yeah, so what we saw, you know, 0:18:42.359 --> 0:18:46.800 we saw tremendous UH demand for collateralized loans and a 0:18:46.840 --> 0:18:50.720 willingness from providers in the capital structure to be very 0:18:50.720 --> 0:18:53.359 active participants. There's been you know, the CLO demand is 0:18:53.400 --> 0:18:56.200 an extremely strong for what I mentioned slower and apsid 0:18:56.280 --> 0:18:59.919 strong fundamentals. Uh and and so you'd expect that as 0:19:00.040 --> 0:19:02.800 we went to do our next CELLO, we saw in 0:19:02.840 --> 0:19:05.560 the warehouse facilities where you ramp up you buy loans 0:19:05.600 --> 0:19:08.359 to ramp up for the next issuance of a CLO, 0:19:08.480 --> 0:19:10.000 we saw a little bit of a pause from a 0:19:10.000 --> 0:19:11.760 few of the providers. And I don't know if that's 0:19:11.920 --> 0:19:15.000 a function of the aggressiveness of the structures or just 0:19:15.400 --> 0:19:19.199 there's been such a strong amount of issuance in the 0:19:19.240 --> 0:19:21.040 first part of the early for the last year, they're 0:19:21.080 --> 0:19:22.800 just standing back and take a little bit of pause 0:19:22.840 --> 0:19:25.040 to say, okay, let's let's take a look at this market. 0:19:25.119 --> 0:19:27.480 But generally speaking, a little bit of pause is what 0:19:27.520 --> 0:19:30.320 we saw. So you're seeing a little bit more caution 0:19:30.480 --> 0:19:33.520 on behalf of banks that that would have to pay 0:19:33.560 --> 0:19:36.320 more money to hold onto assets that become riskier. In 0:19:36.320 --> 0:19:38.440 other words, UH, there does seem to be a little 0:19:38.480 --> 0:19:41.600 bit more risk aversion or hard. I don't know if 0:19:41.600 --> 0:19:42.800 that's the right I don't know if that's the right 0:19:42.800 --> 0:19:44.520 way to look at it. Actually, I'd say what we 0:19:44.560 --> 0:19:48.240 saw is in those who provide warehouses, so warehouse facilities, 0:19:48.280 --> 0:19:50.680 when you're ramping up the CLO, there's a period of 0:19:50.720 --> 0:19:53.000 time you need to aggregate a number of loans that 0:19:53.040 --> 0:19:54.800 you get the scale you need them to issue the 0:19:54.840 --> 0:19:57.880 CELLO in the warehouse facilities. And there's still demand, there's 0:19:57.880 --> 0:20:00.320 still interest in warehouse it just was not as much 0:20:00.320 --> 0:20:03.040 as we had seen the last twelve months previously. So 0:20:03.760 --> 0:20:05.960 those providers a warehouse this is a light or ramp 0:20:06.040 --> 0:20:08.280 up and put loans that you can then issue to PELO, 0:20:08.800 --> 0:20:10.639 there were just as not as many people interested in 0:20:10.680 --> 0:20:13.240 doing that piece of that piece of the of the puzzle, 0:20:13.400 --> 0:20:17.280 if you will. So these warehouse providers they don't have 0:20:17.480 --> 0:20:21.160 the inventory that they previously had. Is that accurate? Well, 0:20:21.400 --> 0:20:23.359 I wouldn't use the inventory of loans. We're in the 0:20:23.359 --> 0:20:26.160 market as the manager buying the loans and putting them 0:20:26.200 --> 0:20:29.800 in the warehouse facility. They're the ones backstopping, if you will, 0:20:29.800 --> 0:20:32.560 taking the first lost piece or back stopping or providing 0:20:32.560 --> 0:20:35.399 the capital to support the warehouse they're the ones that 0:20:35.480 --> 0:20:36.879 took a little bit of a pause. So that's not 0:20:36.920 --> 0:20:39.760 that there's not you know, actually the supplying the loan 0:20:39.840 --> 0:20:43.040 market picked up a little bit recently and again that 0:20:43.160 --> 0:20:45.240 so that supplied the man in balance we saw for 0:20:45.320 --> 0:20:47.399 the twelve months previously where you had a lot of 0:20:47.440 --> 0:20:50.600 demand from the clo marketplace and really the mutual fund 0:20:50.640 --> 0:20:54.720 marketplace and okay, supply decent supplying the low mark grade 0:20:54.760 --> 0:20:57.199 that's applied to man and bounce the gay borrowers a 0:20:57.200 --> 0:20:59.520 lot of you know, the abilty to really you know, 0:20:59.600 --> 0:21:03.119 drive lower pricing and better covenant protections or more beneficial 0:21:03.119 --> 0:21:06.200 covenant protections to them. That changed a little bit because 0:21:06.560 --> 0:21:09.320 now if the warehouse providers pause a little bit, it 0:21:09.400 --> 0:21:11.720 kind of goes the other way, whether there's slightly less 0:21:11.760 --> 0:21:14.119 of ability to do more cellos and thus that strong 0:21:14.160 --> 0:21:17.520 technical support we've seen in loans slows a little bit, 0:21:17.880 --> 0:21:19.240 and you've had a lot of you know, a lot 0:21:19.240 --> 0:21:21.800 of loans come in at prices that are priced very aggressively. 0:21:22.359 --> 0:21:24.400 If demand falls is a little bit, you can see 0:21:24.440 --> 0:21:26.760 those prey those loans back up a little bit. For 0:21:26.840 --> 0:21:28.479 this the last thing I saved that is from our 0:21:28.600 --> 0:21:31.760 perspective that would be kind of welcome. We wouldn't mind 0:21:31.760 --> 0:21:34.280 seeing loans back up, but we're still pretty comfortable fundamentally 0:21:34.600 --> 0:21:38.280 with the loan market and the underlying borrowers. But pricing 0:21:38.320 --> 0:21:40.480 has gotten you get to aggressively. You see that supply 0:21:40.520 --> 0:21:43.520 demand and balance. So Jim, I'd love to broaden out here. 0:21:43.600 --> 0:21:46.200 I'd sort of put loans in the perspective of the 0:21:46.280 --> 0:21:49.560 fixed income spectrum. What are you seeing that you really 0:21:49.600 --> 0:21:52.200 like right now? And where do you see the least 0:21:52.200 --> 0:21:57.080 attractive investments within fixed income? That's interesting question. I mean, 0:21:57.080 --> 0:21:59.520 I think the fixed income marketplace because where it kind 0:21:59.520 --> 0:22:02.480 of depends in your outlook for rates. Um. You know, 0:22:02.520 --> 0:22:04.400 we actually have become a little more comforted high yel 0:22:04.440 --> 0:22:07.000 bonds right now. We've seen a kind of a you know, 0:22:07.040 --> 0:22:09.280 we are our told of return expectation for high heel 0:22:09.280 --> 0:22:11.439 bonds in the first of this year was you know, 0:22:11.520 --> 0:22:13.600 three quarter five percent. We saw kind of a flat 0:22:13.680 --> 0:22:15.680 first half of the year, a lot of it driven 0:22:15.720 --> 0:22:17.600 to the big the big move in rates, the big 0:22:17.640 --> 0:22:19.520 jump in the ten uere had. It got people a 0:22:19.520 --> 0:22:21.680 little bit concerned about how the velocity of the rate move. 0:22:21.960 --> 0:22:24.240 But as that's leveled out a little bit. We now 0:22:24.440 --> 0:22:26.800 see that the high yiel aft because the faults remain low, 0:22:26.800 --> 0:22:29.320 fundamentals remain strong. We think that could be an interesting 0:22:29.359 --> 0:22:31.480 asset class the back half of the year. We don't 0:22:31.480 --> 0:22:34.760 mind the leverage loan asset class as well. It's it's 0:22:34.800 --> 0:22:37.320 been on a very consistent return had on this year. 0:22:37.320 --> 0:22:38.920 We thought it was going to be a fortified percent 0:22:38.960 --> 0:22:41.679 toldal return year with and it really we saw that 0:22:41.720 --> 0:22:43.119 the first half of the year was up you know, 0:22:43.160 --> 0:22:45.119 two and a half odd percent, and we kind of 0:22:45.160 --> 0:22:47.879 expect that to continue. So we although we really like 0:22:48.000 --> 0:22:49.840 loans to start a little more balanced there, but like 0:22:49.920 --> 0:22:52.480 high yield, we like some of the structured asset classes. 0:22:52.640 --> 0:22:55.040 You know, we were a the egan is a is 0:22:55.080 --> 0:22:57.760