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Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene Jay Lee.

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Speaker 1: We bring you insight from the best in economics, finance, investment,

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Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud,

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Speaker 1: Bloomberg dot Com, and of course on the Bloomberg. A

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Speaker 1: good colleague of mine once told me there's one thing

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Speaker 1: investors want tomorrow's prices. Well, today I think most people

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Speaker 1: would settle for one thing, an advance read of the

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Speaker 1: non manufacturing I s M. That data point comes out

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Speaker 1: in a round about three hours time here in New York.

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Speaker 1: That is where the focus is. Christian Mamanti joining us

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Speaker 1: on the phone. Now, I'm pleased to say investco Vice

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Speaker 1: Chairman of Investments Krishna, Great to have you with us.

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Speaker 1: Let's just start with that data point. How important will

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Speaker 1: that read be at ten am for this market? Well,

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Speaker 1: so we know the mintle fact during economy in the

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Speaker 1: US is in a recession or if not a recession,

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Speaker 1: very close to a recession. So if there is salvation,

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Speaker 1: the past to salvation lies through the service economy doing

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Speaker 1: meaningfully better UH and employment going up because of that

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Speaker 1: service economy. So it is by far the most important

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Speaker 1: data point. I expected to show reasonable strength, you know,

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Speaker 1: not not strength strength, but not the sort of disaster

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Speaker 1: we have seen in manufacturing christeners at one data point

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Speaker 1: to spark a load of jitis in this market. Does

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Speaker 1: it take more than one data point to settle things

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Speaker 1: down again? Well, so the slowdown is real, and I

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Speaker 1: think coming into October we were seeing stabilization and in

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Speaker 1: the middle of all the other things that is going on,

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Speaker 1: a weak data point clearly spooked the market. I don't

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Speaker 1: think we need a series of data points, but I

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Speaker 1: do think we need some semblance of normalcy that means

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Speaker 1: things coming up, coming up at close to expectations on

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Speaker 1: the data front. You know, Christiana, what Global Wall Street

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Speaker 1: is looking at right now, it's correlations. I was just

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Speaker 1: talking to our head of phone exchange analysis here and

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Speaker 1: he made real clear the level on Yenne is key.

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Speaker 1: We've seen a two year yield stun and come ever

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Speaker 1: lower this morning. Folks. It's not yet to where it

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Speaker 1: was early September, But boy, Christna, have we gotten there quickly?

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Speaker 1: When do we see other indicators correlate with that abrupt move? Well,

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Speaker 1: so I think, you know, the two year yield and

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Speaker 1: Yenne are highly correlated. They basically are the uh, the

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Speaker 1: safe assets, if you will. If people are worried about things,

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Speaker 1: that's what they gravitate towards. Having said that, I think

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Speaker 1: the two years being driven today more by expectations that

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Speaker 1: the FED will probably end up cutting in our poor

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Speaker 1: which in my judgment, they should do because the manufacturing

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Speaker 1: part of the economy is in trouble and they need

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Speaker 1: to help it. And rate cuts the transmit that signal

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Speaker 1: to the markets and the economy. I mean for me, John,

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Speaker 1: and we'll do more data checks here today is John

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Speaker 1: mentioned a little bit of an equity bounce off better

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Speaker 1: prices earlier. John, For me, it was just simple. I

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Speaker 1: I made a massive transfer yesterday to the Investco for

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Speaker 1: a pol cash fund. Oh did you YEA? That's from

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Speaker 1: triple no no no, I went from triple leverage cash

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Speaker 1: out of the Investco. Performance has been at the front

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Speaker 1: end of the yield curve quite clearly, as we take

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Speaker 1: a few more baby steps towards potentially maybe another rate cup.

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Speaker 1: What's been interesting for me Kristner, it's just how stubborn

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Speaker 1: actually the longer end of the yield curve has been

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Speaker 1: the tenure Treasury yield came in three basis points on

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Speaker 1: a day the equity market was down one point eight percent. Christian,

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Speaker 1: what kind of signal do you take from that? I

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Speaker 1: would have expected if you told me the market was

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Speaker 1: going to be down almost two percentage points, I would

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Speaker 1: have expected a bigger bit at the long end of

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Speaker 1: the bond market. Well, so I think that sort of

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Speaker 1: tells you think that is there is a out of

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Speaker 1: uh kind of bad news expectation already built into the

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Speaker 1: bond market. So the likelihood that the level of ten

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Speaker 1: year rates are going to drive meaningfully just with softness.

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Speaker 1: That is, we have to see a real recession for

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Speaker 1: ten year yield to go down meaningfully, and I don't

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Speaker 1: think that's in the cards. So any bit of good

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Speaker 1: news ten year backs up rather than rallies meaningfully. Yeah,

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Speaker 1: but do we have a real yield anywhere? I mean, Christoper,

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Speaker 1: come on, I mean you've got decades of experience of

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Speaker 1: a normative yield market. You say we want to get

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Speaker 1: back to normal. Where's the real yield? And it's just

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Speaker 1: a does it disappear on a European like basis? Well,

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Speaker 1: so real yield has already disappeared, So any measure of

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Speaker 1: inflation probably gets you to the calculation that really yields

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Speaker 1: in the US even ten years are negative, so that

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Speaker 1: that is a matter of profound concern. I think it's

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Speaker 1: part of it is the US economic weakness, but a

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Speaker 1: lot of it is what is going on rest of

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Speaker 1: the world. What that is telling you, I guess is

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Speaker 1: you know, if you're looking for income, government bond market

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Speaker 1: is probably not the place where you where you're gonna

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Speaker 1: find it. Christna, we've had a couple of growth scares.

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Speaker 1: We've talked about this all week and all through last

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Speaker 1: week as well. We're in the depths of another growth scare.

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Speaker 1: It's the first third growth scare of this whole cycle.

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Speaker 1: You said stick with it fifteen sixteen, you said stick

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Speaker 1: with it, eighteen nineteen. He's still saying stick with it.

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Speaker 1: I think it is still stick with it. That is,

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Speaker 1: if the trademark clearly is a big issue for the market,

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Speaker 1: but there's enough momentum in the service and consumer part

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Speaker 1: of the economy for us to kind of see this

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Speaker 1: thing through. If that doesn't work out, then we'll have

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Speaker 1: a problem. But I don't think it is we are

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Speaker 1: at that point just yet. The economy is going to grow,

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Speaker 1: but it's going to grow at a much of a

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Speaker 1: reduced space, probably close to one a half percent or

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Speaker 1: one somewhere between one a half and two percent, and

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Speaker 1: that's probably how it is going to be in twenty

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Speaker 1: as well. Christia, what would it take for you to capitulate?

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Speaker 1: I think what it will take is basically the service

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Speaker 1: economy stowing showing significant weakness, not this weakness significant weakness,

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Speaker 1: because the way the US has been isolated from the

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Speaker 1: rest of the world is on the back of that

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Speaker 1: that part of the economy. If there's weakness there, then

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Speaker 1: we are like everyone else. Christian, this is so important again, folks,

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Speaker 1: Christian Marmony with this a vice chairman of Investco, you

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Speaker 1: have maybe more than anyone we speak to, hands on

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Speaker 1: international investment work over many decades. One of our themes

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Speaker 1: John and I have had is what is the timing

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Speaker 1: to get back into international stocks versus the one way

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Speaker 1: call to own US blue chips, which is clearly where

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Speaker 1: we've been. Do you see any indication you and your

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Speaker 1: team have the courage to load up on international stocks

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Speaker 1: waiting better news. Well, so, if you are going to

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Speaker 1: load up on international stocks, I would look at the

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Speaker 1: emerging markets, because again, the stabilization there is is more

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Speaker 1: apparent than let's say, the part so Europe. Having said that,

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Speaker 1: for you to load up on international starts, you have

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Speaker 1: to have an expectation that the Trump administration at some

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Speaker 1: point this year will reach some sort of a trade deal. Uh.

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Speaker 1: You know, it doesn't have to be an all encompassing deal,

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Speaker 1: but a deal that at least removes the dark cloud

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Speaker 1: of trade issues on the market. Christian, let's get to

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Speaker 1: that question anyway. Let's run things out there. You're called

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Speaker 1: to stick with it. How much of that hinges on

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Speaker 1: this trade dispute settling down, Well, a lot of it

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Speaker 1: is contingent on the trade dispute not getting worse. I'm

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Speaker 1: not looking for a resolution. I'm just looking for stability

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Speaker 1: on the trade front. That is, all the all the

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Speaker 1: tariffs that have been announced probably get implemented, and but

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Speaker 1: we don't get into kind of non tariff issues like

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Speaker 1: capital controls and stuff like that. If we get in there,

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Speaker 1: then it's all over. Christian, I expect that not to

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Speaker 1: be the kid. We've got to leave it there. It's

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Speaker 1: always grab a catch out with you appreciate it's this

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Speaker 1: morning in Vesco Vice Chairman of Investments, Mark Margie probably

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Speaker 1: wants to weigh in it. Let's go to Margie. You

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Speaker 1: think Town wants to weigh in one joints us now

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Speaker 1: Wills Capital Management site a portfolio manager. I will offer

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Speaker 1: you the chance, Markie, do you want to weigh in on? Uh? No,

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Speaker 1: I'd rather not the weigh in on that, thank you.

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Speaker 1: She wants to move on. Move on to yield and

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Speaker 1: the new the new high yield, which is dividend growth.

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Speaker 1: Let's talk about the bond market, MARKEI I would have

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Speaker 1: expected a bigger move on a ten year on a

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Speaker 1: thirty year yield given the pain we've seen in the

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Speaker 1: equity market. What's the signal you take from that? Oh,

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Speaker 1: I think that the tradery curve is pretty much immune

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Speaker 1: to little short term fluctuations in stocks were at these

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Speaker 1: very low levels. I think we'll stay here, probably in

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Speaker 1: a trading range heading lower from these levels. So we're

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Speaker 1: a little bit of one and a half on the tenure.

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Speaker 1: I think we'll stay around there, go lower. Mark. Last

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Speaker 1: time we caught up, we were talking about income in

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Speaker 1: the equity market. Is that still looking attractive? Well, yes,

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Speaker 1: it is because you have the yield on the standard

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Speaker 1: pores being just about competitive with the yield on the

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Speaker 1: whole treasury curve, which is quite remarkable. The if you

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Speaker 1: look at the standard pores as a pe, and you

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Speaker 1: translate the treasury curve into p s, you look and say,

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Speaker 1: Gene of the treasury yields are training at a pe

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Speaker 1: of fifty with no real opportunity for capital appreciation. So

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Speaker 1: you just come back to saying stocks look very attractive. Margret,

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Speaker 1: what has changed with all the flows? What if corporate

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Speaker 1: officers and particularly CFO is done in the issuance of

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Speaker 1: paper give us some insight there. Well, what they've done

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Speaker 1: since the financial crisis has been so important is they

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Speaker 1: have real look find their balance sheet. They've opportunistically raised

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Speaker 1: money in the debt market, but they've kept most of

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Speaker 1: that cash right on the balance sheet. So they have

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Speaker 1: extreme flexibility that if banks restricted it wouldn't matter to them.

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Speaker 1: Is a blended basis, where is their duration of choice?

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Speaker 1: If they're sitting there, the CEFO and the CEORE have

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Speaker 1: an acquired cup of coffee and they're like, rates are here,

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Speaker 1: maybe they'll go lower, but we've got to act. Now,

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Speaker 1: what duration is the sweet spot for corporate issuance. Well,

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Speaker 1: I think you've seen corporate issuance is fairly long. It's

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Speaker 1: actually longer than the average treasury duration, and I think

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Speaker 1: corporations are feeling the longer the better locking it in. Yeah,

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Speaker 1: I'll give us what's a tenor on that? Is it

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Speaker 1: like treasuries five year, corporate seven years, like municipal bonds,

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Speaker 1: they're going on twenty years. Yes, Because there's a huge

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Speaker 1: appetite for longer maturity, longer duration fixed income papers, they

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Speaker 1: have no difficulty at also the market. To get your

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Speaker 1: comments on what's happening with high yield, we're starting to

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Speaker 1: see some cracks. Looking at the Bloomberg Barclay's High Yield Index,

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Speaker 1: the spread at the moment is north of four hundred

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Speaker 1: basis points over through the last year or so. Through

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Speaker 1: we've had two periods of spread widening that's taken us

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Speaker 1: pretty close to four hundred and fifty. And that's been

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Speaker 1: a buying opportunity before it's been followed up by spread

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Speaker 1: compression again, Markie, is this time different, No, it's the

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Speaker 1: same opportunity. Most of that spread widening. Two reasons One

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Speaker 1: is simply treasury rates have continued to fall. High yield

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Speaker 1: prices are more or less stayed the same over the

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Speaker 1: last twelve months. They've actually had appreciation, so that's a

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Speaker 1: big component of it. And secondly, with slower growth, you're

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Speaker 1: seeing a little more distressed in the triple C and

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Speaker 1: lower sector. So when you look at an average average sperience,

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Speaker 1: those spreads are pulling the spread water. What's the energy

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Speaker 1: dynamic now? Was that all worked out X years ago

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Speaker 1: or is it still a risk of the garbage sector.

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Speaker 1: I think the energy sector will still because basically fundamentals

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Speaker 1: are negatives. The prices of energy look as if they're

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Speaker 1: coming down in spite of crisis. So I think that's

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Speaker 1: the way a vulnerable area work through to our coupon listeners.

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Speaker 1: How you rationalize dividend growth? How does Margie Patel approach

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Speaker 1: a company and you want to say, I'm going to

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Speaker 1: take the dividend growth out X number of years? How

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Speaker 1: do you do that? Well, I'd say, first of all,

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Speaker 1: many companies pay a dividend deal that is equal to

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Speaker 1: maybe a little less than treasury, So right off the bat,

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Speaker 1: you have the same correct and and if you look

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Speaker 1: at the company's cash flow, the difference between what they

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Speaker 1: pay out in a dividend and the cash that they

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Speaker 1: bring in the door after all their expenses, they still

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Speaker 1: have room to raise the dividend. So it's pretty easy

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Speaker 1: to see how you could have appreciation in the dividend

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Speaker 1: plus the stock moving up as a dividend moves up. Mark,

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Speaker 1: I want to wrap things up by talking about a

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Speaker 1: single name, and I do hope that you can just

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Speaker 1: weigh in. You don't have to talk about this single name,

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Speaker 1: but just talk more broadly if you well, we Work

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Speaker 1: the yield on the we Work bond, note that security

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Speaker 1: has gone from in and around seven percent to north

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Speaker 1: of eleven point six and Margie, yes, there are some

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Speaker 1: very very idiosyncratic reasons for what has happened with we Work,

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Speaker 1: But more broadly, we can pick up example after example

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Speaker 1: where the credit market just has not led the story

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Speaker 1: that it's waited for the information elsewhere, particularly from the

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Speaker 1: equity side. Margie, that's not a world we're used to.

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Speaker 1: Were used to credit leading equity. And if I talk

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Speaker 1: about this more broadly, back in and going into Q

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Speaker 1: four once again, credit didn't leave equity. Arguably, it followed

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Speaker 1: as something changed marketing, just the way the credit market

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Speaker 1: used to lead, and now it doesn't seem to anymore. Well,

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Speaker 1: I think part of there is just the scarcity of

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Speaker 1: high your paper. A lot of high yield issuance has

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Speaker 1: been sucked off into the loan market, so it isn't

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Speaker 1: in the high yord market, so there's a real hunger

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Speaker 1: for paper. Here is a new name to the marketplace,

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Speaker 1: a big coupon. So many investors spotted because they're yield

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Speaker 1: starved market. Thank you so much, market, Patel Wells Capital.

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Speaker 1: You need a new name to read. She is Shuly

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Speaker 1: Ran r E and Shuley Ran writing for Bloomberg Opinion

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Speaker 1: out of the Chicago Economics combine with years on Wall Street.

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Speaker 1: And here's what's wonderful about Shuley run Rn. She's got

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Speaker 1: a fabulous quant foundation, which means she brings mathematics into

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Speaker 1: every dynamic when she writes, whether it's on We Work

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Speaker 1: and Mr Diamond or the Tobacco of Thomas Cook, and

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Speaker 1: of course with a focus on Asia as well from

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Speaker 1: Hong Kong. Shuly Ran this morning, surely the uproar of

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Speaker 1: the Bloomberg News article of limiting investment to China, How

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Speaker 1: would operationally that even occur? How do you limit investment. Well,

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Speaker 1: thanks for having me, Tom. Actually we don't really know, right,

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Speaker 1: Like the Blueberg News article that the report itself UH

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Speaker 1: talked about sweeping array of things that the White House

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Speaker 1: was considering, from basically banning the Chinese company the A

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Speaker 1: d R s from UH from listing in New York

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Speaker 1: to to UH dis allowing pension funds to buy into

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Speaker 1: Chinese publicly listed companies. It's really unclear how how it works. Like,

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Speaker 1: first of all, what's considered US money? If if my

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Speaker 1: fund is a Cayman registered but I have some U

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Speaker 1: S investors, is that US money or not? Right? And

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Speaker 1: then what is considered China money? I mean Ali baba

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Speaker 1: that that the the A B a UH sicker itself

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Speaker 1: is Cayman registered show companies. Well we're going to shut

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Speaker 1: down the Cayman Islands as well. Yeah, you know, I

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Speaker 1: look surely at this and and to me, the struggle

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Speaker 1: here with the heritage of what you and I grew

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Speaker 1: up with, no wing that Hong Kong started in the

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Speaker 1: colonial era of eighteen forty and migrated out and developed

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Speaker 1: after World War two and the juggernaut it is. Is

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Speaker 1: this a president that wants to go back to the

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Speaker 1: nineteenth century or is he going back to Cape Bland,

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Speaker 1: Chett and Elizabeth the first in the Tudor England. I

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Speaker 1: I suppose the president wants to divorce from the rest

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Speaker 1: of the world. I mean there is trade and then

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Speaker 1: the US is getting uh is starting to see the

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Speaker 1: hit on the I S M numbers this week, right,

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Speaker 1: and then like then there was the defending uh U

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Speaker 1: S technology exports to China. But the but the one

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Speaker 1: issue is that like US investors are are smart, they're

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Speaker 1: looking for investment opportunities. What they see is that China

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Speaker 1: is a big country that has a lot of demands

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Speaker 1: but no supply, right, and US has all the supply

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Speaker 1: of technologies, but they don't want to sell to the

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Speaker 1: demand side anymore. So where do they want to align

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Speaker 1: themselves with. Perhaps with China because it's kind of a

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Speaker 1: new market opening up. Like why we used to get

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Speaker 1: all the supplies from from US chip makers like Mike Kong, Um, Intel,

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Speaker 1: et cetera. Right now they have to find their their

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Speaker 1: local suppliers. And I think that's why the White House

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Speaker 1: does not want to have US capital investing into Chinese

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Speaker 1: companies back because the temptation is there like you know,

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Speaker 1: if your adventure capital funds UH, I can see them

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Speaker 1: into invest in Chinese companies. Right, So perhaps that that

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Speaker 1: that's been consideration. Should we run one final question? We've

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Speaker 1: been transfixed here this week by the pageantry of Beijing

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Speaker 1: and the protest of Hong Kong. How do you gauge

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Speaker 1: this moment in Hong Kong. You are into a late

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Speaker 1: Thursday night in Hong Kong and into an historic weekend.

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Speaker 1: How do you gauge the mood in your Hong Kong.

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Speaker 1: I think there is a lot of acquiet at tension

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Speaker 1: UH in Hong Kong right now. I was just like

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Speaker 1: taking the tram like UH to work UH in the

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Speaker 1: Bloomberg Central office, right and then you see like a

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Speaker 1: NERDA office, like Aleman office areas like there is a

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Speaker 1: lot of good city UM, and there there's a lot

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Speaker 1: of unease. I mean, like Unconscious show showed up their

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Speaker 1: August retail sales state data. It was down twenty three percent.

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Speaker 1: Basically a lot of the retail sector, food food industry,

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Speaker 1: and the hotel industry. A lot of people are basically

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Speaker 1: perhaps half a million people are doing part time now

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Speaker 1: right then. It's just a lot of these uh, for sure.

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Speaker 1: And then there there is a fear of capital fly um.

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Speaker 1: If you if you notice like Lee catching the Fus family,

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Speaker 1: they usually don't come to the bound market too. It's

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Speaker 1: a new bounds. The new bounds vary exactly because yeah,

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Speaker 1: maybe they'll invest in America. Well, we're not investing in China, surely. Round.

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Speaker 1: This has been wonderful. Thank you so much. I can't

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Speaker 1: say enough about the work folks at Bloomberg Opinion is

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Speaker 1: exceptionally informed with her dynamics. Right now on our durable volatility.

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Speaker 1: Dean Current joins us and we're thrilled that he could

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Speaker 1: be with us today. Dean, what is the distinction of

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Speaker 1: how we oscillate right now, how we agitate? What's the

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Speaker 1: distinction right now? Well, we're coming off a pretty low

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Speaker 1: involve period about a month where they realized volatility in

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Speaker 1: the SMP was kind of stuck between six and eight. Uh.

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Speaker 1: These last two days the markets down three in aggregate.

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Speaker 1: We haven't had that happened since the first couple of

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Speaker 1: days of August, which was it was quite a violatle month.

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Speaker 1: So we're in transition. You know, what we tend to

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Speaker 1: observe is that low vall periods cluster, they tend to

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Speaker 1: reinforce themselves. High ball periods do the same, and we're

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Speaker 1: in at least potentially a transition pure where um, of

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Speaker 1: course we know there's this global overhang of uncertainty from

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Speaker 1: trade and um you might even add US political dysfunction there.

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Speaker 1: But as you note that, we're we're looking at a

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Speaker 1: lot of data too. It's very clear, at least at

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Speaker 1: the manufacturing side, the US global economy is decelerating, and

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Speaker 1: the question is is it more broad based than that?

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Speaker 1: What do you see? And this is pretty esoteric, folks.

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Speaker 1: There's the VIX, which is the spot volatility, and then

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Speaker 1: pros like you look at the forward VIX or the volatility,

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Speaker 1: and the volatility is a separate idea. What do you

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Speaker 1: see in those professional things? Right? It's interesting of obviously

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Speaker 1: the VIX is what's quoted quite a bit. But if

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Speaker 1: you look at the VIX term structure, so VIX index

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Speaker 1: ct GO contract table, it's going to show you all

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Speaker 1: the futures and uh, this configuration right now is just

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Speaker 1: absolutely flat like a pancake. Everything is just right around twenty.

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Speaker 1: It's pretty interesting. It's just about as flat as US

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Speaker 1: flat as the olkre what does that tell us? It

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Speaker 1: tells us that UM in typical format, the curve is

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Speaker 1: upward sloping, so that it's really the short dated implied

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Speaker 1: volatility levels that are low. So these have come up

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Speaker 1: a little bit as markets have gotten worried, and right

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Speaker 1: now the VIX October VIX future is also right around twenty.

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Speaker 1: They trade at a very significant premium to the backward

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Speaker 1: looking realized volatility, which over the last month is just ten.

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Speaker 1: As I said, it started to pop up a little

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Speaker 1: bit these last couple of days, but this is a

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Speaker 1: significant premium of implied to realize, which really puts pressure

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Speaker 1: on the folks that are nervous and defensive and spending

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Speaker 1: money on premium because it's not that the market has

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Speaker 1: really started to move just yet. So for the VIX

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Speaker 1: to stay up here, you're gonna have to start to

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Speaker 1: see these one one and a half percent moves in

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Speaker 1: the SMP materialized on a daily basis for that risk

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Speaker 1: premium to hold up. Dean, first of all, thank you

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Speaker 1: for for teaching me a tenure Bloomberg veteran. A new

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Speaker 1: function VIX index ct I just popped it up. Very cool,

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Speaker 1: uh function here giving us a sense of kind of

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Speaker 1: the forward look on the VIX very helpful. Um. It

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Speaker 1: seems like over the last two days the narrative in

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Speaker 1: the market is really kind of veered away from trade

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Speaker 1: UH and focus really on the near term economic outlook,

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Speaker 1: particularly UH the consumer. How are you thinking about kind

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Speaker 1: of the outlook for the economy and maybe what that

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Speaker 1: means for volatility in the markets. Yeah, I think there's

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Speaker 1: a lot of value to studying periods of risk off

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Speaker 1: of episodes of significant volatility, And you know, there are

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Speaker 1: always some commonality, there's there's rhyme and rhythm to them,

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Speaker 1: but there's always a little bit of a different set

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Speaker 1: up as well, And I think there's a lot of

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Speaker 1: things that have to conspire together. I think Krugman called

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Speaker 1: it the smorgas board effect. There's always a number of

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Speaker 1: things that have to interact, and certainly the global economy

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Speaker 1: slowing as a backdrop is a big part of it.

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Speaker 1: At this point. You know, we really haven't seen this

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Speaker 1: for a period of time. We had that soft patch

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Speaker 1: in early two thousand sixteen as oil cracked and people

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Speaker 1: were worried about a China deval So that was real

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Speaker 1: and it did in effect self correct. I think the

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Speaker 1: set up here is more vulnerable. UM. And I say

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Speaker 1: that because a lot of the stimulus that was thrown

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Speaker 1: on the U. S economy in a late cycle way

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Speaker 1: is starting to roll off, and you know, globally things

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Speaker 1: are weak. And then just one last thing is there

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Speaker 1: is both real and imagined questions about monetary policy efficacy.

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Speaker 1: Is it going to work? Is it going to work?

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Speaker 1: You know forcefully enough? I think that's a big deal.

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Speaker 1: You know, I look at your CT chart again, v

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Speaker 1: I X index CT for those of you are the

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Speaker 1: terminal in your car, uh and and and Dean. Usually

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Speaker 1: there's a steepness to the forward market, like the vix

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Speaker 1: is set low and there's an understanding it will be

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Speaker 1: higher later. What is it significant that the curve isn't

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Speaker 1: curvy anymore? But it's flat as a pancake as you

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Speaker 1: put it, you know, near night teen and now it's

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Speaker 1: right on twenty. What is that significance? So see if

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Speaker 1: I can run through this really quickly. The upward slope

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Speaker 1: comes from the reality that implied volatility typically is higher

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Speaker 1: than realize volatility, and for folks to capture that from

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Speaker 1: a profit standpoint. UH, the options that you want to

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Speaker 1: sell to capture that premium. Are the shortest dated options

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Speaker 1: you can um so UM. When realized volatility starts to

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Speaker 1: pick up, this this term structure starts to flatten out. UH.

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00:24:31,320 --> 00:24:33,080
Speaker 1: And that's again, that's what you're seeing right now. In

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Speaker 1: a crisis, UH, in something like a you know, November

431
00:24:37,440 --> 00:24:40,000
Speaker 1: of two thousand and eight, or a sovereign crisis in

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00:24:40,000 --> 00:24:43,399
Speaker 1: two thousand and eleven, you'll see a deeply inverted vul curve.

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00:24:43,400 --> 00:24:45,600
Speaker 1: They're not rare, they're not It doesn't happen often, and

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00:24:45,640 --> 00:24:48,560
Speaker 1: they tend to work themselves out over time. But this

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00:24:48,640 --> 00:24:51,720
Speaker 1: is the first indication that you know, folks are getting

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00:24:51,720 --> 00:24:55,120
Speaker 1: nervous because you know, if you think it's gonna reign tomorrow,

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00:24:55,160 --> 00:24:57,679
Speaker 1: you want to you know, prepare today um and you

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Speaker 1: want to buy your insurance on a very short dated bay.

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00:25:00,040 --> 00:25:04,080
Speaker 1: So the bid to the short term options is reflecting

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Speaker 1: this increasing very near term nervousness flatness. De Curne. This

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Speaker 1: is brilliant. Thank you so much, Dean, current macare risk Advisors.

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Speaker 1: There in some of the nuances of pros look at.

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Speaker 1: Thanks for listening to the Bloomberg Surveillance podcast. Subscribe and

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