WEBVTT - Fixed Income Credit Analyst to Bond Manager With Loomis Sayles 0:00:02.440 --> 0:00:11.160 Bloomberg Audio Studios, podcasts, radio news. This is Master's in 0:00:11.240 --> 0:00:14.840 Business with Barry red Holds on Bloomberg Radio. 0:00:16.320 --> 0:00:19.760 This week on the podcast, I have an extra spatial guest. 0:00:20.239 --> 0:00:24.320 If you are at all interested in fixed income, how 0:00:24.400 --> 0:00:28.600 you assess bonds, how you evaluate the economy, the market, 0:00:28.640 --> 0:00:32.559 what the Fed's gonna do, what clients want, how to 0:00:32.600 --> 0:00:36.080 assess risk in credit markets, Well, then you're going to 0:00:36.159 --> 0:00:40.560 really enjoy this conversation. Matt Egan has spent his entire 0:00:40.720 --> 0:00:45.120 career in fixed income, from credit analysts to portfolio manager. 0:00:45.159 --> 0:00:48.599 Now he's the head of the discretion team at Loomis Sales, 0:00:48.640 --> 0:00:52.040 which manages well over three hundred and thirty five billion 0:00:52.120 --> 0:00:57.400 dollars in client assets. He's really seen every aspect of 0:00:57.440 --> 0:01:01.000 the fixed income side more than just a bond manager, 0:01:01.080 --> 0:01:04.440 but someone who has really covered it, from credit analyst 0:01:04.920 --> 0:01:10.280 to research analysts, to fixed income member to full unconstrained 0:01:10.280 --> 0:01:14.440 bond manager and now running this discretionary team. His group 0:01:14.480 --> 0:01:18.039 has about seventy five billion that they're responsible for. I 0:01:18.040 --> 0:01:19.880 don't know what else to say other than there are 0:01:19.880 --> 0:01:22.720 a few people in the world that understand running a 0:01:22.720 --> 0:01:27.560 fixed income portfolio on behalf of institutional for retail clients 0:01:27.840 --> 0:01:30.880 as well as Matt Egan does. I thought this conversation 0:01:31.040 --> 0:01:34.040 was fascinating and I think you will also with no 0:01:34.160 --> 0:01:35.960 further ado, Loomis Sales. 0:01:36.400 --> 0:01:38.920 Matt Egan, thanks for having me Berry. 0:01:38.680 --> 0:01:40.760 Well, well, thanks for coming. Let's talk a little bit 0:01:40.800 --> 0:01:44.800 about your background. You get a bachelor's from Northeastern and 0:01:44.840 --> 0:01:49.680 an NBA from Boston University. Was finance always the career plan? 0:01:49.920 --> 0:01:54.200 It was not. I started northeasterners an electrical engineering. Oh 0:01:54.240 --> 0:01:57.400 that's a major. And the good thing about Northeastern University 0:01:57.400 --> 0:02:01.240 that they've tremendously great quad education program. That saved my 0:02:01.360 --> 0:02:04.080 life because it made me understand it did not want 0:02:04.120 --> 0:02:08.440 to be a double or an engineering in my profession. 0:02:08.480 --> 0:02:10.560 And the key was I started after one year. I 0:02:10.639 --> 0:02:14.280 kind of gutted through one year of engineering classes. It 0:02:14.320 --> 0:02:17.320 wasn't really that interested, but I gutted through it, and 0:02:17.440 --> 0:02:20.239 I started interviewing for the first internships and I started, 0:02:20.240 --> 0:02:21.920 you know, I had a number of them. I realized 0:02:22.280 --> 0:02:24.440 I am not like these people and this is not 0:02:24.480 --> 0:02:26.400 what I want to do, and so I transferred to 0:02:26.440 --> 0:02:26.959 the business. 0:02:26.760 --> 0:02:28.640 School after it. It's so funny you say that I 0:02:28.680 --> 0:02:32.760 started out math and physics, And in high school I 0:02:32.840 --> 0:02:34.520 was a rock star in math and physics. And you 0:02:34.520 --> 0:02:37.720 get to college and suddenly it's like, oh, I'm okay 0:02:37.760 --> 0:02:41.200 at this, but those guys are great, and you quickly realize, hey, 0:02:41.440 --> 0:02:44.160 this is way above my pig. I need to figure 0:02:44.160 --> 0:02:46.720 out what I need to do. So Northeastern and Boston. 0:02:46.919 --> 0:02:48.040 Were you a Boston kid? 0:02:48.200 --> 0:02:50.880 Boston kid? Well, I grew up outside in a relatively 0:02:50.919 --> 0:02:54.480 small city, and of course moved to the city to 0:02:54.720 --> 0:02:56.720 go to school and just fell in love with Boston 0:02:56.800 --> 0:02:57.680 and stayed ever since. 0:02:57.919 --> 0:03:00.680 Right, Oh, that's interesting, And is that where you are today? 0:03:00.720 --> 0:03:02.680 You're not New York, You're boss. I'm in Boston, right, 0:03:03.600 --> 0:03:07.320 And there's a giant set of finance farms in Boston. 0:03:07.360 --> 0:03:08.480 That must be fun there. 0:03:08.560 --> 0:03:10.639 Yeah, there was a lot to choose from you as 0:03:10.720 --> 0:03:13.720 a you know, newly minted financed major coming out of school. 0:03:13.720 --> 0:03:16.840 There were a lot of things to do. This profession 0:03:16.919 --> 0:03:21.320 wasn't necessarily my first choice coming out of undergrad, but 0:03:21.360 --> 0:03:23.280 there were plenty of other things to do in the 0:03:23.320 --> 0:03:25.760 field too. It's a broad field, to say the least. 0:03:26.040 --> 0:03:29.520 So you start out credit analyst at Century Back Bank 0:03:29.560 --> 0:03:33.280 and Trust prior to getting an MBA. What was it 0:03:33.360 --> 0:03:35.920 like being a credit analyst in the nineteen eighties. 0:03:35.680 --> 0:03:38.600 Yeah, I gravitated to I had to envision myself as 0:03:38.600 --> 0:03:41.320 a commercial banker. You know. Back when I graduated and 0:03:41.320 --> 0:03:43.680 I had done an internship at Bank of Boston, one 0:03:43.720 --> 0:03:47.560 of the first things I did was spread financial statements. 0:03:47.760 --> 0:03:50.960 This in the old days before really there were spreadsheets there, 0:03:51.000 --> 0:03:53.640 and we would take fortune five hundred annual reports or 0:03:53.680 --> 0:03:55.760 ten queues and put them into a spreadsheet give them 0:03:55.720 --> 0:03:57.680 to the commercial armorms. That was when I first started 0:03:57.680 --> 0:04:01.840 getting involved with looking at company. So when I fancy 0:04:01.920 --> 0:04:04.880 myself as a loan officer, there were great programs in 0:04:04.920 --> 0:04:09.840 that field. There was a super regional banking industry in Boston. However, 0:04:09.880 --> 0:04:12.120 when I graduated, there was a really kind of a 0:04:12.240 --> 0:04:16.640 nasty correction in the market. What year nineteen eighty nine, 0:04:16.880 --> 0:04:19.880 and you remember, there's a pretty nasty recession, believe it 0:04:20.000 --> 0:04:23.440 or not, Massachusetts U employment was over ten percent back then. Wow, 0:04:23.440 --> 0:04:25.719 which is hard to believe because mass always had relatively 0:04:25.760 --> 0:04:28.360 low But there was a real estate crisis back then. 0:04:28.720 --> 0:04:32.440 We were just talking about this over the weekends. You know, 0:04:32.640 --> 0:04:38.440 the problem with the financial crisis, models were Supposedly many 0:04:38.480 --> 0:04:42.279 failed to contemplate real estate prices going down. But I 0:04:42.400 --> 0:04:45.039 remember coming out of grad school in the late eighties 0:04:45.480 --> 0:04:49.240 and friends who had purchased co ops in New York 0:04:49.240 --> 0:04:52.680 City in like eighty seven, eighty eight, eighty nine. You 0:04:52.720 --> 0:04:55.560 didn't get back to break even until like the late nineties. 0:04:55.600 --> 0:04:57.920 There was a major dip. It might have been worse 0:04:57.960 --> 0:05:01.240 in some areas than others, but nationally, real estate foundered in. 0:05:01.160 --> 0:05:04.280 The ninth right, New England was crushed. There was a 0:05:04.320 --> 0:05:07.279 big glut of condos. You know, you'd walk it bride 0:05:07.320 --> 0:05:09.040 by certain you know, you'd be on the highway you 0:05:09.360 --> 0:05:12.560 go by, say a one hundred unit condo building there 0:05:12.600 --> 0:05:15.360 was one light on right. You know. It also hit 0:05:15.400 --> 0:05:17.679 hard in Texas too, which was you know, after the 0:05:17.720 --> 0:05:20.680 oil bus the sea through buildings, right, that was the 0:05:20.720 --> 0:05:23.080 origination to see through buildings. And it was a great 0:05:23.160 --> 0:05:24.839 learning experience for me. But first of all, when I 0:05:24.880 --> 0:05:27.000 was in the you know, looking for jobs, you had 0:05:27.040 --> 0:05:28.839 to go to the placement office back then, And as 0:05:28.880 --> 0:05:31.000 I was looking at jobs, I remember looking at a 0:05:31.040 --> 0:05:33.760 g finance job and as I was looking at as 0:05:33.800 --> 0:05:35.480 somebody pulled it down in front of me. It's not 0:05:35.520 --> 0:05:38.760 available anymore. That's where the economy was at that point. 0:05:38.880 --> 0:05:42.360 And so but I I knew a fella, this guy, 0:05:42.400 --> 0:05:44.880 George Duncan, who was a friend of my dad's. He 0:05:44.880 --> 0:05:47.360 he was a president of a small bank, enterprise bank 0:05:47.440 --> 0:05:49.320 up in Lowell. He didn't have a job for me, 0:05:49.360 --> 0:05:51.360 but he got me in touch with Century Bank and Trust. 0:05:51.839 --> 0:05:54.200 I had an interview there, became credit analyst. I was 0:05:54.200 --> 0:05:56.159 thankful I had an opportunity at that point. So I 0:05:56.200 --> 0:05:58.720 did that first, and that was a good learning experience. Again, 0:05:58.760 --> 0:06:01.160 you know what I witnessed then, as you know that 0:06:01.200 --> 0:06:03.920 real estate bubble kind of burst, is those same loan 0:06:04.000 --> 0:06:06.640 officers with their underwriting loans that was helping them. Do 0:06:06.920 --> 0:06:08.480 they became landlords? 0:06:08.880 --> 0:06:09.040 Oh? 0:06:09.160 --> 0:06:11.000 No, that was the thing, you know, because they were 0:06:11.040 --> 0:06:13.240 you know, they were taking on some losses and they 0:06:13.279 --> 0:06:15.040 would have to go and then show the buildings. 0:06:15.040 --> 0:06:17.039 You know, they would take over the. 0:06:17.880 --> 0:06:20.120 Yeah, I mean that thing did fine. We were fine, 0:06:20.160 --> 0:06:22.200 but you know, that was it was an experience. 0:06:22.240 --> 0:06:27.279 So essentially they go from underwriters to default managers to 0:06:27.800 --> 0:06:29.880 suddenly we're real estate portfolio. 0:06:30.000 --> 0:06:32.039 Right. It's like working with the borrower, right, you know 0:06:32.120 --> 0:06:34.400 that whole that concept. But but I didn't stay there 0:06:34.400 --> 0:06:36.920 a lot that long. I learned how commercial banking worked, 0:06:37.040 --> 0:06:39.240 but I had an opportunity after that to move over 0:06:39.400 --> 0:06:41.719 back to Bank Boston, which is where I was interested 0:06:41.720 --> 0:06:42.320 in at the time. 0:06:42.440 --> 0:06:44.599 So, so, how did you end up as a senior 0:06:44.640 --> 0:06:47.240 fixed income analyst at Liberty Mutual Insurance. 0:06:47.560 --> 0:06:50.440 It was funny that same fellow, George Duncan, when I 0:06:50.560 --> 0:06:52.600 talked to him, he said, go go check out this bank. 0:06:52.600 --> 0:06:54.360 He said, you know, whatever you do, you're gonna need 0:06:54.360 --> 0:06:55.800 to go back for a graduate career. You go get 0:06:55.800 --> 0:06:58.640 your MBA and make sure your company pays for it. 0:06:58.880 --> 0:07:01.120 And the guy ran Centry Bank and Trust was an 0:07:01.120 --> 0:07:04.240 older fella, guy Sloan. He was a family owned bank. 0:07:04.560 --> 0:07:06.320 And I asked him, mister Sloan, will you will you 0:07:06.320 --> 0:07:09.800 pay for my MBA? He said absolutely not. He said 0:07:09.840 --> 0:07:11.400 you're going to get it and you're going to move on. 0:07:12.200 --> 0:07:14.720 And I said, all right, you know, And actually so 0:07:14.800 --> 0:07:16.640 that's why I went to Back of Possum. From there 0:07:16.720 --> 0:07:21.080 I started. I enrolled in Boston University, and that's when 0:07:21.080 --> 0:07:24.920 I started meeting people that were actually in the investment business. 0:07:24.960 --> 0:07:26.480 And I met a really good friend of mine at 0:07:26.480 --> 0:07:29.600 that time. We went through our entire career together, NBA career, 0:07:30.160 --> 0:07:31.640 and he said, why don't you come over to Liberty 0:07:31.720 --> 0:07:34.080 Mutual and applied for a job in the investment apartment, 0:07:34.080 --> 0:07:36.240 and so I did that and I started working there, 0:07:36.280 --> 0:07:38.760 and that was to me, really my first sort of 0:07:38.920 --> 0:07:40.640 entry into you know, investing. 0:07:40.800 --> 0:07:43.800 So I'm assuming a Liberty mutual, what you're investing is 0:07:43.840 --> 0:07:46.760 the firm's own capital from the insurance, right. 0:07:46.600 --> 0:07:49.720 It's the pot of money that it's the insurance money. 0:07:49.960 --> 0:07:53.080 And what was that experience, like, how did that affect 0:07:53.560 --> 0:07:55.360 how you approach fixed income today? 0:07:55.520 --> 0:07:57.040 To me, it was sort of the boot camp for 0:07:57.080 --> 0:08:00.960 fixed income investing. So we were pretty lean group of 0:08:01.000 --> 0:08:04.440 individuals by nature. Most of us were research people and 0:08:04.480 --> 0:08:07.920 we were giving corporate insurance. Companies do a lot of 0:08:07.920 --> 0:08:10.840 corporate investing, so we've had our own sectors. I took 0:08:10.840 --> 0:08:13.400 on the banking sector, which was interesting. I had a 0:08:13.480 --> 0:08:16.680 number of other things as well. But we also traded 0:08:17.240 --> 0:08:20.120 for our sector. So we had an empty trading room 0:08:21.080 --> 0:08:22.840 and the tartphones were in there. If you wanted to trade, 0:08:22.880 --> 0:08:24.360 you say, hey, fellas were you know, I'm going to 0:08:24.440 --> 0:08:26.280 go do some bank trades, you know, come on in 0:08:26.320 --> 0:08:28.280 and we'd call Wall Street and we you know, we'd 0:08:28.320 --> 0:08:29.800 do the trades right there and when we're done, we 0:08:29.800 --> 0:08:32.280 would go back to our research. And also dabbled in 0:08:32.280 --> 0:08:34.320 a little portfolio management. At the time, I ran a 0:08:34.320 --> 0:08:38.160 Mexican peso denominated portfolio believe it or not. So it 0:08:38.240 --> 0:08:41.120 was a really great boot camp, and you know, I 0:08:41.120 --> 0:08:45.560 had a really interesting manager there who was really disciplined people. 0:08:45.559 --> 0:08:48.520 In terms of research, it was deep dive research. We 0:08:48.559 --> 0:08:49.480 did a really good job. 0:08:49.679 --> 0:08:54.080 Huh. Really interesting. So, from Century Bank to Liberty Mutual, 0:08:54.720 --> 0:08:57.640 the rest of your career has been primarily on the 0:08:57.760 --> 0:09:02.120 fixed income side. Was that happenstance? By design? What led 0:09:02.160 --> 0:09:02.880 to that outcome? 0:09:03.040 --> 0:09:05.320 You know, I think it just was a natural fit 0:09:05.360 --> 0:09:07.800 for me, you know, with the training as a as 0:09:07.840 --> 0:09:10.880 a commercial bank analyst, and then it just really kind 0:09:10.880 --> 0:09:13.600 of fascinated me more. And so I think, you know, 0:09:13.640 --> 0:09:16.679 my skill set when I was, you know, approaching employers, 0:09:16.679 --> 0:09:19.560 it just naturally gravitated towards the fixed income area. And 0:09:19.559 --> 0:09:21.560 for me, surprising to say, it's a little bit more 0:09:21.600 --> 0:09:25.640 exciting than stocks, and the stocks are interesting, but there's 0:09:25.760 --> 0:09:29.760 so many different facets to fixed income. It's become highly 0:09:29.920 --> 0:09:33.960 much more specialized. But I'm fortunate. I span a lot 0:09:34.000 --> 0:09:36.880 of different areas, you know, my career, which has been. 0:09:36.920 --> 0:09:39.880 So let's talk about that. So not only a head 0:09:39.880 --> 0:09:43.120 of the full discretionary team, and we'll get to exactly 0:09:43.120 --> 0:09:46.400 what that means in a bit, but you run ten 0:09:46.440 --> 0:09:51.200 different mutual funds and ten institutional strategies. I assume there's 0:09:51.200 --> 0:09:54.079 a lot of overlap, and it covers the spectrum of 0:09:54.120 --> 0:09:58.439 fixed income from treasuries here to high you'el there, and everything. 0:09:58.120 --> 0:10:01.559 In between, everything in between globally, So we're kind of 0:10:01.600 --> 0:10:04.480 an eclectic group, you know, in terms of investment style. 0:10:04.760 --> 0:10:07.000 It sounds like there's a lot of strategies that we do, 0:10:07.040 --> 0:10:11.160 and that's true, but really there's the same common investment 0:10:11.160 --> 0:10:13.440 engine underneath it, and that's really what we're focused on. 0:10:13.440 --> 0:10:15.480 I spend most of my time on that. And what 0:10:15.520 --> 0:10:18.880 does that mean. It means the frameworks and the investment 0:10:19.040 --> 0:10:22.880 processes that we put in place provide through that provide 0:10:22.920 --> 0:10:26.199 the raw materials for investing. That's views on rates, you know, 0:10:26.240 --> 0:10:29.000 where you want your duration to be, et cetera, Views 0:10:29.040 --> 0:10:33.319 on the value in certain sectors, views on individual securities, 0:10:33.320 --> 0:10:35.280 you know. So that's the raw material that we get 0:10:35.320 --> 0:10:37.520 and then we can mix and match that to our 0:10:37.600 --> 0:10:42.000 various portfolios, most of our portfolios. Really it's a spectrum, 0:10:42.080 --> 0:10:43.560 just to kind of think about it. And it's a 0:10:43.600 --> 0:10:46.640 spectrum for I would say lower risk to a higher 0:10:46.679 --> 0:10:49.959 degree of risk. That's usually but not always defined by 0:10:50.080 --> 0:10:52.400 the quality that you can invest in. So as you 0:10:52.440 --> 0:10:54.880 go down more non investment great for example. 0:10:55.200 --> 0:10:58.440 Huh So I like the idea of this engine as 0:10:58.480 --> 0:11:02.520 the underlying driver of all these different strategies. It's not 0:11:02.720 --> 0:11:07.840 that there are ten completely novel approaches and ten different funds. 0:11:08.320 --> 0:11:12.840 It's really the core and you're just playing with how 0:11:12.920 --> 0:11:15.160 much returns you want and how much risk you have 0:11:15.200 --> 0:11:17.280 to take to get that, what sort of duration you're 0:11:17.320 --> 0:11:20.680 looking at, what sort of geographies. But the underlying engine 0:11:20.720 --> 0:11:22.800 is the same across all these different portfolios. 0:11:23.000 --> 0:11:25.320 That's right, that's right. And you know we can expand 0:11:25.360 --> 0:11:27.320 that risk depending on the client. And so when you 0:11:27.360 --> 0:11:30.000 look across our least risky RAN, we run a really 0:11:30.000 --> 0:11:33.520 great core plus product. It's a bit more out there 0:11:33.559 --> 0:11:36.079 than the typical court plus that you'll see, you know, 0:11:36.080 --> 0:11:39.960 other words got cor plus meaning treasury treasure corporates, you know, 0:11:39.960 --> 0:11:41.559 but we don't do for example, we don't do a 0:11:41.600 --> 0:11:44.080 lot of agency. We don't know agency works back securities. 0:11:44.080 --> 0:11:47.199 We definitely tilt into corporates. That's our you know, our 0:11:47.240 --> 0:11:50.160 bread and butter. What Loomis is known for our research. 0:11:50.800 --> 0:11:53.959 Uh and so that'll have you know, the least amount 0:11:54.000 --> 0:11:57.240 of risk, let's say, relative to say a multisector bond 0:11:57.320 --> 0:12:00.920 fund style portfolio or strategic income that's going to tilt down. 0:12:00.960 --> 0:12:04.640 But when you look across those, you'll see commonalities in 0:12:04.720 --> 0:12:09.560 terms of interest rate, positioning, names, exposures from a top 0:12:09.559 --> 0:12:10.880 down and a bottom up perspective. 0:12:11.480 --> 0:12:14.760 So you are now the head of the discretion team. 0:12:15.120 --> 0:12:18.920 Tell us what that means. Certain funds have discretion, others don't. 0:12:19.000 --> 0:12:21.520 I think the average lay person is not familiar with 0:12:22.000 --> 0:12:23.479 discretion in that context. 0:12:23.520 --> 0:12:25.400 You know, the business sometimes does a poor job of 0:12:25.480 --> 0:12:27.840 labeling things, and this is not no different, you know. 0:12:27.880 --> 0:12:30.520 And the way I kind of describe it is that, 0:12:30.720 --> 0:12:34.160 you know, a more constrained approach is typically something wrapped 0:12:34.200 --> 0:12:36.960 around it index, you know, And a lot of our 0:12:37.280 --> 0:12:40.600 competitors in the core plus space are like this. They 0:12:40.640 --> 0:12:43.200 take a benchmark. In that case, the Agrid index is 0:12:43.360 --> 0:12:46.800 bi bar the most common one used, and they'll have 0:12:46.840 --> 0:12:48.840 a very low tracking, or that they'll just ebb and 0:12:48.880 --> 0:12:51.840 flow with pretty much the beta that's you know, assigned 0:12:51.840 --> 0:12:53.760 to that with maybe generating a little bit of excess 0:12:53.760 --> 0:12:55.880 return for the good managers that are there. You know, 0:12:55.920 --> 0:12:58.200 when you start to get into something that has full discretion, 0:12:58.280 --> 0:13:01.640 the client says, Okay, let's sort of go or lean 0:13:01.679 --> 0:13:05.160 into your opportunity set where your skills are. Let's allow 0:13:05.240 --> 0:13:08.280 you to do more and have a wider degree of 0:13:08.400 --> 0:13:11.160 risk and off benchmarkting sector. And that's where that full 0:13:11.200 --> 0:13:13.959 discretion notion. So when you think of core plus, it's 0:13:14.000 --> 0:13:18.200 those plus sectors, non investment grade, you know, emerging markets, 0:13:18.200 --> 0:13:21.200 things like that that somebody was looking to you to 0:13:21.280 --> 0:13:23.840 have discretion. But full discretion doesn't mean you don't have 0:13:23.880 --> 0:13:26.800 any limits, right you still we all have constraints, right, 0:13:26.800 --> 0:13:27.800 there's always constraints. 0:13:27.840 --> 0:13:30.880 So the phrase I always hear is it's an unconstrained fund. 0:13:31.320 --> 0:13:34.880 What's the difference between constraints and discretion or or they 0:13:35.000 --> 0:13:37.240 just really the same terms to me? 0:13:37.480 --> 0:13:41.120 They can be used interchangeably. I think the nomenclature typically, 0:13:41.160 --> 0:13:44.280 you know when I started and multisector for example, has changed. 0:13:44.440 --> 0:13:46.079 We run the bond fund, which is kind of a 0:13:46.200 --> 0:13:48.520 go anywhere strategy or strategy come. Those used to be 0:13:48.559 --> 0:13:52.280 called multisector even before they were medium grade or something 0:13:52.320 --> 0:13:52.559 like that. 0:13:52.679 --> 0:13:57.079 See today when I think of multisector, I think of corporates, treasuries, 0:13:57.160 --> 0:14:02.160 high yield equities, and private including private credit. All that 0:14:02.200 --> 0:14:04.520 seems to be multi sector unconstrained. 0:14:04.720 --> 0:14:07.760 Yeah, it's this is where the nomenclature changes over time. 0:14:07.800 --> 0:14:10.679 I've known and it causes some confusion. And then you 0:14:10.679 --> 0:14:12.680 know what emerged too, and I launched one of these 0:14:12.720 --> 0:14:16.080 over ten years ago. Is that unconstrained or non traditional space. 0:14:16.120 --> 0:14:18.880 That was the you know, what's the difference between unconstrained 0:14:18.880 --> 0:14:22.000 and multisector. Well, there's not really that much difference. The 0:14:22.000 --> 0:14:24.760 young constraint typically does not have a benchmark. That was 0:14:24.960 --> 0:14:27.640 one aspect of it. So so does. 0:14:27.520 --> 0:14:31.280 That mean it's an absolute return fund? Yes, so, and 0:14:31.320 --> 0:14:33.480 then we'll care about relative performance and what's. 0:14:33.320 --> 0:14:36.000 The difference between absolute return and total return? In some ways, 0:14:36.280 --> 0:14:39.200 because like the bond fund we're looking, I don't really 0:14:39.200 --> 0:14:41.640 manage on a tracking your I don't like managing on 0:14:41.640 --> 0:14:45.320 a relative return. Let's say, you know, like it's like, oh, 0:14:45.600 --> 0:14:49.320 mister client, you know, we outperformed your index was down 0:14:49.320 --> 0:14:51.320 ten percent and we were only down nine That's not 0:14:51.400 --> 0:14:54.600 really a great outcome, right, Right. We're looking to make money, 0:14:54.680 --> 0:14:57.400 and that's absolute return or total return, whatever you want 0:14:57.400 --> 0:14:57.680 to call it. 0:14:57.720 --> 0:15:01.600 That's what we see. We talk about jargon and confusing labels. 0:15:01.600 --> 0:15:05.280 To me, total return on the equity side is equity 0:15:05.320 --> 0:15:08.760 plus dividends. As on the bond side, it means something else. 0:15:08.840 --> 0:15:11.680 Income, right, income and principal return. 0:15:11.800 --> 0:15:15.080 That's right. So you've spent more than twenty seven years 0:15:15.080 --> 0:15:19.440 at Loomis Sales and Company. That's rather unusual these days. 0:15:20.320 --> 0:15:22.800 What has kept you around so long? What's it like 0:15:23.560 --> 0:15:27.400 growing with the firm that that's been in business? You're 0:15:27.440 --> 0:15:28.760 coming up on one hundred years. 0:15:29.480 --> 0:15:32.560 Sometimes you're you know, you're you're looking and doing your 0:15:32.600 --> 0:15:34.040 job and you wake up, you know, you look up 0:15:34.080 --> 0:15:36.000 and you go, wow, I've been here this long. It's 0:15:36.040 --> 0:15:38.560 been fun. I've enjoyed it. You know. When I first 0:15:38.560 --> 0:15:40.680 came to Loomis, you know, I encountered this guy named 0:15:40.720 --> 0:15:43.160 Dan Fuss, and I was to me, it was like 0:15:43.640 --> 0:15:45.920 a duck to water. I just took to his style. 0:15:46.080 --> 0:15:48.080 I can't imagine doing investing any of the way. It 0:15:48.200 --> 0:15:49.080 just suited me to. 0:15:49.040 --> 0:15:50.720 Attend and he is a little bit of a legend 0:15:50.760 --> 0:15:51.360 this and he. 0:15:51.360 --> 0:15:52.360 Is a he is a legend. 0:15:52.440 --> 0:15:56.040 Yeah, he's been around a while. And how long have 0:15:56.080 --> 0:15:57.160 you did you work with him? 0:15:57.720 --> 0:16:00.840 Well, the funny story, when I first came to Loomis interviewed, 0:16:00.880 --> 0:16:03.080 there was a sort of an arms race for research 0:16:03.120 --> 0:16:05.240 analysts on the street on the by side. At that 0:16:05.280 --> 0:16:08.640 point in time, Wall Street had tons of research analysts, 0:16:09.400 --> 0:16:11.440 but the by side was really ramping up. And I 0:16:11.480 --> 0:16:14.040 had a lot of opportunities to interview and one of 0:16:14.040 --> 0:16:15.920 them was at Looma Sales and I got the job 0:16:16.480 --> 0:16:19.160 and a fella helped me, This guy, Dan Holland at 0:16:19.240 --> 0:16:22.600 Golden Sacks was instrumental helping me and took at the job. 0:16:22.640 --> 0:16:24.600 And I'm like, well, there's this guy Dan Fuss there 0:16:24.640 --> 0:16:26.120 and I know I don't really know him that well, 0:16:26.160 --> 0:16:29.200 but he's sixty five, let's say. At the time, he said, 0:16:29.200 --> 0:16:30.720 I don't know, you know, it seems like he's really 0:16:30.720 --> 0:16:33.120 a key marque part of that firm. Maybe there's a 0:16:33.200 --> 0:16:36.080 risk there. And Dan told me was great advice, He said, 0:16:36.120 --> 0:16:39.840 Matt five years as an eternity, take the job. So 0:16:40.000 --> 0:16:43.040 many eternities later, because Dan worked is still working. He's 0:16:43.160 --> 0:16:45.200 ninety really yeah, he could still comes out here. 0:16:45.240 --> 0:16:45.720 Bless him. 0:16:46.160 --> 0:16:49.840 He stopped managing money a while ago. But never did 0:16:49.880 --> 0:16:53.800 I expect what was to come, and nor did I 0:16:53.840 --> 0:16:56.680 expect that I would become a successor for him. That 0:16:56.840 --> 0:16:58.600 was the entry point. And I'll tell you a story. 0:16:58.600 --> 0:17:01.640 But when I first came, there was not seven ninety eight, Okay, 0:17:01.640 --> 0:17:04.200 the Asian crisis was just getting going. Remember the tie 0:17:04.240 --> 0:17:06.960 Bot the value it went down like fifty percent, and 0:17:07.040 --> 0:17:10.600 you know LTCM was going to hit Russia default and 0:17:10.640 --> 0:17:13.760 so it was you know, bonds were coming out, and 0:17:14.240 --> 0:17:16.200 back then there was the the Brady bond market was 0:17:16.200 --> 0:17:19.400 still big. Brazilian Sea bond was the most liquid bond 0:17:19.400 --> 0:17:22.600 in the universe. The market was going down, and I 0:17:22.680 --> 0:17:25.399 witnessed Dan with a big smile on his face in 0:17:25.400 --> 0:17:27.560 the trading room in the morning meetings. I'd go there 0:17:27.600 --> 0:17:31.439 and he would be snapping up all these bargains. Our 0:17:31.480 --> 0:17:34.240 portfolios went from you know, close to zero in the 0:17:34.280 --> 0:17:37.679 Asian market to reaching like we were talking about constraints, 0:17:37.840 --> 0:17:41.080 reaching the limits that we could do by specified by 0:17:41.160 --> 0:17:45.480 the guidelines at thirty thirty five percent, right, And so 0:17:45.720 --> 0:17:48.120 that was a huge lesson for me, first of all, 0:17:48.119 --> 0:17:50.320 I said, this is where I want to be. What 0:17:50.400 --> 0:17:53.240 he was doing there was providing liquidity to illoquin markets. 0:17:53.280 --> 0:17:55.320 Now I participated in some of that as a research 0:17:55.320 --> 0:17:58.879 analyst by looking at companies like Total Access Communications, a 0:17:58.960 --> 0:18:03.879 tie wireless comme, PLD, Philippine long Distance Telecom. It's like 0:18:03.920 --> 0:18:04.879 AT and TuS. 0:18:04.640 --> 0:18:06.200 And all these companies have fixed income. 0:18:06.600 --> 0:18:09.600 They had fixed income, and they're trading wavelessens in the 0:18:09.640 --> 0:18:12.400 dollar sense of dollar. In the case of Total Access Communication, 0:18:12.520 --> 0:18:15.280 bought the stock at eleven cents, went to five. 0:18:15.960 --> 0:18:18.560 You know, it's a five cents or five dollars dollars. 0:18:18.640 --> 0:18:19.320 That's a good rate. 0:18:19.400 --> 0:18:21.800 Yeah, I should have specified that. So these were you know, 0:18:21.920 --> 0:18:24.320 like in my formative stages like as a as a 0:18:24.359 --> 0:18:28.479 research channelst and becoming you know, not just a research 0:18:28.520 --> 0:18:31.480 chanalyst in making calls or you know, sort of opining 0:18:31.520 --> 0:18:34.680 on the credit quality or the opportunities and risks of 0:18:34.720 --> 0:18:37.520 a particular credit. It's really becoming an investor. And that's 0:18:37.600 --> 0:18:39.000 that's sort of what they end taught me. 0:18:39.359 --> 0:18:43.520 I love the expression providing liquidity to ill liquid markets, 0:18:43.840 --> 0:18:48.080 which usually means picking up things at fractions of their 0:18:48.119 --> 0:18:51.880 actual value. The same phrase was during the financial crisis 0:18:51.920 --> 0:18:55.920 when people talked about toxic assets, and my answer was always, 0:18:55.920 --> 0:18:58.280 there's no such thing as a toxic asset. It is 0:18:58.320 --> 0:19:03.240 only a toxic price. At the right price, everything has value. 0:19:03.240 --> 0:19:05.439 Without a doubt, and it introduced me to sort of 0:19:05.440 --> 0:19:07.120 that concept of margin and safety. A lot of people 0:19:07.200 --> 0:19:09.879 talk about it, but with bonds it's really interesting, particularly 0:19:09.880 --> 0:19:14.000 the corporate bonds. As the dollar prices come down, your 0:19:14.080 --> 0:19:16.640 risk goes down because there's a recovery. In the worst 0:19:16.640 --> 0:19:20.160 case scenario, you end up you know, owning the company basically, right. 0:19:20.200 --> 0:19:23.200 So the recovery value, and sometimes those recovery values are 0:19:23.280 --> 0:19:25.480 the trading value you could come close to or if 0:19:25.520 --> 0:19:28.399 not below, the actual recovery value in those situations. So 0:19:28.600 --> 0:19:31.040 because like a quant person would come in and say, oh, 0:19:31.040 --> 0:19:33.639 your value at risk is going bonkers right now, you know, 0:19:33.680 --> 0:19:36.880 of all, if your portfolio is nine percent and you're backwards, 0:19:37.200 --> 0:19:39.080 it's like, no, no, this is the time you want 0:19:39.119 --> 0:19:41.040 to go. And in fact, at that point the returns 0:19:41.040 --> 0:19:44.080 are skewed in your favor. Before looking returns, huh. 0:19:44.119 --> 0:19:47.119 Really fascinating. So let's talk a little bit about the 0:19:47.160 --> 0:19:49.640 team you work with. Your head of the full discretion team. 0:19:50.080 --> 0:19:52.520 What does the team do, how are they working with 0:19:52.600 --> 0:19:55.560 various funds and strategies, and how do they work with client? 0:19:55.760 --> 0:19:58.880 Right, So we're managing roughly about seventy four billion dollars 0:19:58.920 --> 0:20:02.200 and fixing come portfolio. We have four main product categories. 0:20:02.200 --> 0:20:05.200 That talked about our Core plus offering, which is our 0:20:05.280 --> 0:20:08.320 largest over twenty eight billion dollars, and then it goes 0:20:08.320 --> 0:20:11.200 into sort of multisector, and then after that you're into 0:20:11.240 --> 0:20:13.159 the high yield. We do all our dedicated high land 0:20:13.160 --> 0:20:16.159 BANKO and investing as well. Like I said, we're pretty eclectic. 0:20:16.880 --> 0:20:19.280 We tend to not look like our benchmarks. We have 0:20:19.320 --> 0:20:21.280 a lot of discretion to go outside, and we're you know, 0:20:21.600 --> 0:20:24.879 really interested in just generating the best total returns we 0:20:24.960 --> 0:20:27.680 can from a very wide opportunity set. 0:20:28.560 --> 0:20:32.960 Really really interesting. You talk a bit about various strategies 0:20:32.960 --> 0:20:36.240 across all the funds. I want to dive into these 0:20:36.440 --> 0:20:39.480 and get a handle on what they mean. So I 0:20:39.520 --> 0:20:43.119 often see the phrase research driven, bottom up approach. I 0:20:43.160 --> 0:20:46.360 assume that means we're not making big macro calls. We're 0:20:46.400 --> 0:20:48.960 looking at quality, we're looking at duration, we're looking at risk. 0:20:49.600 --> 0:20:51.240 Right, I mean it's hard to get away from macro 0:20:51.320 --> 0:20:54.240 calls altogether. Fixing come portfolio for example, duration is a 0:20:54.240 --> 0:20:56.680 big call you got to but you know a lot 0:20:56.720 --> 0:20:58.840 of our alpha are so called total access. Sort of 0:20:58.840 --> 0:21:02.359 return is driven buy our bottom up security selection and 0:21:02.400 --> 0:21:05.840 that comes through really excellent research. When you look at 0:21:05.840 --> 0:21:09.560 our process, we do think about a macro. We are 0:21:09.680 --> 0:21:12.200 credit cycle investors. As I said before, we lean into 0:21:12.200 --> 0:21:14.040 the credit markets. Where we're going to make our money 0:21:14.119 --> 0:21:18.000 is tilting into risk. So for us, you know, most 0:21:18.040 --> 0:21:20.280 of our intermediate quality is going to be triple B 0:21:20.400 --> 0:21:22.720 average quality of our portfolios. 0:21:23.240 --> 0:21:25.040 So that's a little below of investment. 0:21:25.280 --> 0:21:27.679 Yeah, and we think that it really makes sense to 0:21:27.800 --> 0:21:32.520 tilt in through the cycle. Okay, to get that spread premium, 0:21:32.560 --> 0:21:35.280 you get compensated for it as an investor. You know, 0:21:35.320 --> 0:21:37.840 maybe it's only one hundred or two hundred basis points, 0:21:37.840 --> 0:21:40.320 but compound that over five years you got more than 0:21:40.320 --> 0:21:43.720 double the money. It's significant. Yes, The key is to 0:21:43.920 --> 0:21:47.399 not to avoid permanent losses, and that's where you know 0:21:47.480 --> 0:21:49.960 the individual security selection comes out. We tend to be 0:21:50.080 --> 0:21:52.960 concentrated in those so we when we find something we like, 0:21:53.440 --> 0:21:56.000 we'll buy it relatively big size, not as big as 0:21:56.000 --> 0:21:58.159 they say a forty You know, you look at the stocks, 0:21:58.200 --> 0:22:00.760 you might say something like a thirty five star portfolio. 0:22:00.800 --> 0:22:02.400 You can't do that in the fixed income. You got 0:22:02.400 --> 0:22:05.920 to diversify more. But that's what we seek to do. 0:22:06.480 --> 0:22:10.200 Opportunistic we'll get to value driven That is so interesting 0:22:10.760 --> 0:22:14.399 on the fixed income side and so different than what 0:22:14.480 --> 0:22:17.720 people mean when they say value inequity. What are you 0:22:17.760 --> 0:22:20.720 getting paid for the risk you assume and fixed income? 0:22:20.880 --> 0:22:24.920 Like if we look currently, especially with an inverted yield curve, 0:22:25.560 --> 0:22:28.640 you're not getting paid a lot for very long duration, 0:22:29.840 --> 0:22:33.320 but there's some risk with very short duration that hey, 0:22:33.359 --> 0:22:37.040 if the Fed decides to eventually one of these days 0:22:37.240 --> 0:22:41.480 cut rates, well, your short term duration now you have 0:22:41.520 --> 0:22:44.879 reinvestment risk. How do you think of value relative to 0:22:44.960 --> 0:22:45.680 fixed income? 0:22:45.840 --> 0:22:47.720 You bringing up a point. There are a lot of 0:22:47.720 --> 0:22:50.320 different types of risk premium and fixed income more so 0:22:50.359 --> 0:22:52.520 than there are just in the stock market. And that's 0:22:52.640 --> 0:22:55.919 interesting because you can build really interesting portfolios that have 0:22:56.400 --> 0:22:59.879 different risk factors that co vary very well together, not 0:23:00.080 --> 0:23:04.320 perfectly correlated. So that's diversification. So let's just focus on 0:23:04.359 --> 0:23:06.600 the interest rate risk premium that you're talking about. You 0:23:06.600 --> 0:23:09.159 bring up a good point here, So first, and I've 0:23:09.240 --> 0:23:11.480 learned a lot of this from Dan, But you think 0:23:11.520 --> 0:23:13.920 about this. Let's take a big, big step back about 0:23:14.000 --> 0:23:16.240 interest rates. You know, we all know for a long 0:23:16.320 --> 0:23:21.800 time your concept of reinvestment rate risk and principle risk 0:23:22.200 --> 0:23:25.159 are the key big picture risks that you take in 0:23:25.200 --> 0:23:29.160 fixed income for many decades. You know, after the poll 0:23:29.280 --> 0:23:33.640 Vocar slayed inflation, right, your biggest risk. People really didn't 0:23:33.720 --> 0:23:36.240 understand this, but your biggest rist of reinvestment rate risks. 0:23:36.040 --> 0:23:38.560 Right, especially when you're in a thirty year market where 0:23:38.640 --> 0:23:42.280 rates continue to fall. I remember my father in law 0:23:42.359 --> 0:23:46.280 saying to me back in like two thousand, he had 0:23:46.320 --> 0:23:50.719 a bunch of NYC GEO bonds that were fifteen percent 0:23:50.800 --> 0:23:53.240 when New York City was in trouble, and he's like, 0:23:53.240 --> 0:23:54.720 what can I do with this? I'm like, ah, we 0:23:54.760 --> 0:23:56.920 get six and a half seven on a treasury. He's 0:23:56.960 --> 0:23:59.280 like seven percent. That's why would I want seven percent 0:24:00.119 --> 0:24:01.920 going lower? We'll talk in a few years it will 0:24:01.920 --> 0:24:04.400 be five percent, no, can't be yes? 0:24:04.640 --> 0:24:07.360 Yes, yes, So rates start came down more and more 0:24:07.440 --> 0:24:09.800 more than people are expecting over time. You know, it's 0:24:09.840 --> 0:24:13.040 interesting Dan used to run a ten year duration in 0:24:13.080 --> 0:24:15.719 his portfolio. That's for people to know, that's very difficult 0:24:15.760 --> 0:24:18.160 to do. You have to buy basically thirty years zeros 0:24:18.480 --> 0:24:20.320 right to kind of get you out there, and he 0:24:20.400 --> 0:24:22.879 was doing that in the Canadians bond market zero. So 0:24:22.920 --> 0:24:25.000 it was very interesting. People ask them, well, well, you 0:24:25.000 --> 0:24:27.359 don't manage duration just sort of artifact of your PORTFOLI. 0:24:27.400 --> 0:24:30.600 He's like, no, no, no, I want to maximize that because 0:24:30.640 --> 0:24:34.520 I want to capture this yield for as long as possible. 0:24:35.080 --> 0:24:37.520 Don't worry about the cycles. You're going to have lower 0:24:37.560 --> 0:24:40.600 lows and lower highs. And that persisted until about two 0:24:40.640 --> 0:24:44.120 thousand and three. Remember the conundrum, the bond conundrum. Right 0:24:44.200 --> 0:24:46.600 rates started getting really lower. It was kind of back then, 0:24:46.600 --> 0:24:48.120 even approaching the lower bound. 0:24:48.080 --> 0:24:51.600 That whole excess savings nonsense we heard from at least 0:24:51.640 --> 0:24:53.960 I thought it was nonsense. Fixed income people might have a. 0:24:54.040 --> 0:24:57.159 Right and so then now you had to get to 0:24:57.240 --> 0:24:59.760 a point where you start, okay, now you have to 0:24:59.760 --> 0:25:02.240 start considering the principal risk. Now, it took a long 0:25:02.359 --> 0:25:07.080 time before principal risks has become a problem, but even 0:25:07.080 --> 0:25:09.560 I would say even before the pandemic, there were signs 0:25:09.640 --> 0:25:13.199 that you need to start flipping your calculus as a 0:25:13.200 --> 0:25:16.280 fixed incoming vector investor on a secular. 0:25:15.880 --> 0:25:19.639 Basis another word saying, hey, we've been at zero for 0:25:19.680 --> 0:25:23.080 a long time. Eventually rates are going to go up, 0:25:23.600 --> 0:25:26.960 and I would rather be sooner than later, because if 0:25:27.000 --> 0:25:32.200 I wait too long, especially with long duration, rising rates 0:25:32.240 --> 0:25:35.920 in long duration fixed income leads to capital laws. 0:25:36.160 --> 0:25:39.080 In twenty twenty to ten years fifty basis points, we 0:25:39.200 --> 0:25:41.240 ran a very low duration there, and you would say, well, 0:25:41.280 --> 0:25:43.000 it wasn't a big risk because you're at the zero 0:25:43.240 --> 0:25:45.880 lower bound. What are the chances they're going to go lower. 0:25:45.720 --> 0:25:46.840 And you weren't getting paid for it. 0:25:46.840 --> 0:25:48.920 And you weren't getting paid for it. Now that seems 0:25:48.960 --> 0:25:52.040 like any decision now, but it not necessarily at the 0:25:52.119 --> 0:25:55.080 time because people weren't sure. But that was a really 0:25:55.080 --> 0:25:57.040 good call for us. And before you used to be 0:25:57.040 --> 0:25:58.960 able to ride the like Dan did the tenure you 0:25:58.960 --> 0:26:01.720 could just stay long. You can not stay short right 0:26:01.800 --> 0:26:04.119 in this market and expect to do well over the 0:26:04.119 --> 0:26:06.560 long run. You've got to manage through the FED cycle. 0:26:06.640 --> 0:26:08.600 So I like to think about it as a FED cycle. 0:26:09.160 --> 0:26:11.719 I think we're, you know, obviously coming to a cutting 0:26:11.760 --> 0:26:15.720 cycle soon. Your risk now on reinvestment rate risk is 0:26:15.760 --> 0:26:17.119 in the short end, and I think it's time to 0:26:17.200 --> 0:26:19.679 kind of move out into the intermedia of the part of. 0:26:19.680 --> 0:26:23.040 The cur I totally agree. We've sort of taken the 0:26:23.040 --> 0:26:26.639 same approach internally. Let's go over the rest of your 0:26:28.080 --> 0:26:31.680 core principles for the for the key strategies we briefly 0:26:31.680 --> 0:26:34.560 mentioned multi asset. Does that include equities? That does that 0:26:34.600 --> 0:26:37.760 include private credit? How multi is multi asset? 0:26:38.160 --> 0:26:41.800 Multi asset does include for certain portfolios, you know, the 0:26:41.840 --> 0:26:44.600 more risky portfolios, we can start putting in stocks, our 0:26:44.640 --> 0:26:48.480 most risky strategic income. We can do up to thirty 0:26:48.680 --> 0:26:52.400 five percent stocks in that portfolio. Then you go into 0:26:52.440 --> 0:26:55.760 something called global allocation, which I manage the bonds leave 0:26:55.840 --> 0:26:58.000 but with a couple of great equity managers and a 0:26:58.000 --> 0:27:00.919 great global manager. On the fixed income side, that is 0:27:00.960 --> 0:27:04.360 typically like seventy percent stocks. So we do bottom up 0:27:04.640 --> 0:27:05.760 stock selection as well. 0:27:05.880 --> 0:27:10.119 So in your multi asset, where you're looking at the equities, 0:27:10.400 --> 0:27:12.480 is it a particular type of equities? Are you looking 0:27:12.480 --> 0:27:15.200 at diven m payers, are you looking at convertibles? What 0:27:15.920 --> 0:27:19.280 sort of equities complement the fixed income side and the 0:27:19.359 --> 0:27:20.200 multi asid. 0:27:19.960 --> 0:27:23.159 Yeah, you bring a good point. Equity premium can be 0:27:23.200 --> 0:27:26.520 gotten from not just stocks but also from converts. Yeah, right, 0:27:26.600 --> 0:27:29.600 So we do that across all our portfolios. Right, even 0:27:29.640 --> 0:27:32.320 once that don't necessarily allow us to buy outright stocks, 0:27:32.320 --> 0:27:34.960 we can buy convertible bonds, and we've made hay in 0:27:35.000 --> 0:27:37.000 that market because it's I think it's less efficient. 0:27:38.119 --> 0:27:42.399 So it's a challenging space because if done right, you 0:27:42.440 --> 0:27:45.280 get the best of both worlds. Yes, and have done poorly, 0:27:45.480 --> 0:27:47.840 it's the worst of both worlds. Hey, low yield, but 0:27:47.840 --> 0:27:50.360 at least as principal risk that wants that. 0:27:50.720 --> 0:27:52.840 Well, it's the only kind of bond that's a growth 0:27:52.880 --> 0:27:55.199 bond too. So if you're right, you're really right. And 0:27:55.240 --> 0:27:58.359 we've had some really great winters like cornering over the years. 0:27:58.400 --> 0:28:01.120 Well if the underlying if the if the paying company 0:28:01.200 --> 0:28:07.119 has some positive corporate event, well obviously the convertibles do 0:28:07.240 --> 0:28:09.359 really well, and some of them have you know, the 0:28:09.440 --> 0:28:11.240 terms that say, hey, well this is going to convert 0:28:11.320 --> 0:28:13.880 at this low price. When the price is up here, 0:28:13.960 --> 0:28:16.640 it's a win win other than having to pay the taxes. 0:28:16.840 --> 0:28:19.040 Right, So we do that and we're very good at that, 0:28:19.080 --> 0:28:21.879 always have been. And on the stock side, you know 0:28:21.920 --> 0:28:25.600 we are we're fixed income investors our investors expect us 0:28:25.600 --> 0:28:27.639 to generate yield, so that pushes us into the dibbinit 0:28:27.720 --> 0:28:30.679 paying stocks. For the most part, I would say from 0:28:30.680 --> 0:28:33.680 a bottom up perspective, you know, our research group does 0:28:33.720 --> 0:28:37.159 a tremendous job at uncovering value. What I asked my 0:28:37.240 --> 0:28:39.440 nis to do is really understand what the assets of 0:28:39.480 --> 0:28:42.280 a company are worth. Okay, this is our fixed income analysts. 0:28:42.280 --> 0:28:42.400 You know. 0:28:42.440 --> 0:28:44.720 This is typically you know, you think of equity. 0:28:44.640 --> 0:28:46.360 Meaning an event of a default. What do we end 0:28:46.440 --> 0:28:48.200 up with as what is? Yeah? 0:28:48.200 --> 0:28:49.800 But what is the value? Because then I can look 0:28:49.800 --> 0:28:52.000 at the cap structure and I can say how well 0:28:52.120 --> 0:28:53.920 is that debt cover But and then I can look 0:28:53.920 --> 0:28:57.160 at have a view on the stock too. So oftentimes 0:28:57.200 --> 0:28:59.040 where we see the best value is that in the 0:28:59.080 --> 0:29:01.920 equity market. Is it is when a company is going 0:29:01.960 --> 0:29:05.320 from say, you know, a low quality but is all 0:29:05.320 --> 0:29:08.840 of a sudden moving up rapidly from a credit fundamental 0:29:08.880 --> 0:29:13.040 perspective that starts to accrue eventually to the stock. It 0:29:13.120 --> 0:29:15.880 sort of goes from sort of worry about the leverage too, Oh, 0:29:15.880 --> 0:29:18.080 we're not worried about it. The risk premium starts to 0:29:18.080 --> 0:29:19.960 come down stock and it starts. 0:29:19.720 --> 0:29:23.320 To so when you're doing your fixed income corporate analysis 0:29:23.320 --> 0:29:28.480 of bonds, you can also identify mispricing on the equity side. Absolutely, yes, 0:29:28.600 --> 0:29:31.200 we see you know all the time that that explains 0:29:31.280 --> 0:29:35.160 this sort of pet thesis I've had for many, many years. 0:29:35.680 --> 0:29:40.160 A lot of my favorite equity analysts began as bond 0:29:40.200 --> 0:29:44.280 analysts or are bond analysts with opinions on equities, and 0:29:44.320 --> 0:29:48.520 it's very different than the equity side, perhaps because of 0:29:48.560 --> 0:29:52.840 that exact reason. They're really in the minutia of cap table, 0:29:53.280 --> 0:29:57.240 the corporate structure, what the priorities are, and that really 0:29:57.280 --> 0:29:59.560 seems to provide a lot of insight into what does 0:29:59.640 --> 0:30:02.680 this compon been really worth going forward? 0:30:02.880 --> 0:30:04.400 I agree, we see it all the time. 0:30:04.680 --> 0:30:07.560 So let's talk a little bit about your clients. Loomis 0:30:07.600 --> 0:30:11.360 sales manages well over three hundred billion dollars three hundred 0:30:11.360 --> 0:30:13.719 and thirty three hundred and forty billion dollars. Who are 0:30:13.760 --> 0:30:17.040 your clients? I know they're primarily institutional and they're spread 0:30:17.040 --> 0:30:21.239 out over twenty countries, is it US, Europe? Asia? Who 0:30:21.320 --> 0:30:22.440 and where are your clients? 0:30:23.080 --> 0:30:25.720 But most of our asset bases in North America, as 0:30:25.720 --> 0:30:28.600 you would expect being a US manager. But we've expanded 0:30:28.920 --> 0:30:31.120 both in Europe. Asia, I think is the biggest pot 0:30:31.120 --> 0:30:35.000 of money outside of the United States, so we're pretty 0:30:35.080 --> 0:30:37.520 much everywhere. We have offices now in Singapore for Loomis 0:30:37.560 --> 0:30:41.280 offices in Singapore and in London, and that's something that's 0:30:41.320 --> 0:30:44.520 grown as I've grown over there. It's been fun to 0:30:44.640 --> 0:30:47.880 kind of expand internationally. My client base. Half of it 0:30:48.000 --> 0:30:50.840 is retail. You know, we're either doing our own funds 0:30:50.920 --> 0:30:53.960 or subadvising on that half. And you know, so we're 0:30:54.000 --> 0:30:56.880 dealing mainly with the big wirehouses like the Merrill Lynches 0:30:56.880 --> 0:30:59.160 of the world, et cetera. You know, the fas are 0:30:59.160 --> 0:31:01.880 investing in the funds. That's for the most part. Oria's 0:31:01.920 --> 0:31:04.880 two places like that. And then on the institutional side 0:31:04.880 --> 0:31:08.320 we do of course all private pensions, somber wealth funds, 0:31:08.360 --> 0:31:12.960 public pensions, tapped, Hartley plans, insurance, all of that. 0:31:13.560 --> 0:31:16.600 Huh. Really interesting how often you get to London or Singapore. 0:31:17.040 --> 0:31:20.080 I go to Asia. My wife's from Sydney. I was 0:31:20.120 --> 0:31:22.800 just in Sydney a couple of weeks ago. Interesting contrast 0:31:22.840 --> 0:31:24.160 between the US and Sydney right now. 0:31:24.160 --> 0:31:25.840 But why is that? 0:31:26.480 --> 0:31:29.240 Well, this goes back to the FED and the transmission 0:31:29.280 --> 0:31:31.440 of policy here in the United States, we've bet what's 0:31:31.440 --> 0:31:33.760 the the average mortgage now is like a three handle. 0:31:33.880 --> 0:31:37.080 Yeah, So like if you look at the pool of 0:31:37.120 --> 0:31:40.720 mortgages five percent below, it's like sixty five seventy percent 0:31:40.760 --> 0:31:43.040 of yes, well outstanding, whereas most of the rest of 0:31:43.040 --> 0:31:45.600 the world is variable, not fixed mortgages. 0:31:45.720 --> 0:31:49.040 That's just it. So that transmission is muted on the 0:31:49.120 --> 0:31:51.840 upside for when they're raising rates for the FED. On 0:31:51.880 --> 0:31:55.680 the downside, refine it refined. Every penis some mortgage once 0:31:55.720 --> 0:31:57.920 a long time ago before I made one coupon payment. 0:31:58.200 --> 0:32:00.680 But that so there's a sort of asymmetry now. When 0:32:00.720 --> 0:32:03.840 I was over in Sydney visiting family and doing some business, 0:32:03.880 --> 0:32:07.080 you talk to people there, their mortgage bills is hitting 0:32:07.120 --> 0:32:09.760 their pocketbuts right away a little bit of a lab 0:32:09.800 --> 0:32:12.640 but it's killing them right now. And you know, inflation 0:32:12.760 --> 0:32:15.080 is tough there. The same themes here are there, but 0:32:15.160 --> 0:32:17.960 you can start to see it more there is. 0:32:18.320 --> 0:32:21.160 That why we've seen who's cut rates over the past 0:32:21.200 --> 0:32:24.280 few weeks. The Bank of Canada, Canada, Bank of Australia 0:32:24.360 --> 0:32:28.040 right cb RBA has not done that. They have not yet. 0:32:28.160 --> 0:32:30.440 Yeah, and they're even talking about raising because inflation is 0:32:30.440 --> 0:32:32.440 still a problem there. Now. The difference there is I 0:32:32.520 --> 0:32:35.520 got way more immigration, right, and it's a growing population. 0:32:35.680 --> 0:32:37.280 You talk to a developer there, they have the same 0:32:37.280 --> 0:32:40.520 housing problem. Not they just can't and you can't find 0:32:40.520 --> 0:32:44.240 skilled labors to do the job. So that's that's where 0:32:44.240 --> 0:32:45.200 the similarities are. 0:32:45.200 --> 0:32:47.440 It's still a robust economy that's doing pretty well. 0:32:47.480 --> 0:32:50.400 It's a robust economy. Yeah, so in Australia has always 0:32:50.440 --> 0:32:51.600 been like that because that growth. 0:32:52.080 --> 0:32:54.520 Plus they have China. They're a giant supplier to China 0:32:54.600 --> 0:32:58.200 for commodities everything else. I would love to go to Australia. 0:32:58.440 --> 0:33:01.040 I am just so intimidated by that flight. It's on 0:33:01.080 --> 0:33:04.000 a flight, it's like eighteen twenty hours something crazy. 0:33:04.120 --> 0:33:05.440 You bring a good book with you. 0:33:05.440 --> 0:33:07.040 You've got to bring a couple of books, a couple 0:33:07.120 --> 0:33:10.640 of movies, and some sleeping pills and you're halfway there, right. 0:33:11.000 --> 0:33:14.440 It's it's really tough, all right. So across your career 0:33:14.640 --> 0:33:17.720 at Loomis, for twenty seven years, you have gone from 0:33:17.840 --> 0:33:24.240 analysts to portfolio manager to head of the full discretionary team. 0:33:24.840 --> 0:33:28.440 Tell us what that transition was like and how are 0:33:28.440 --> 0:33:31.360 you able to relate with some of the younger analysts 0:33:31.360 --> 0:33:34.040 in the firm. Considering you started out where they. 0:33:33.880 --> 0:33:35.880 Did, I kind of got lucky and that there was 0:33:35.920 --> 0:33:38.360 an opening as a portfolio manager. And you know, I 0:33:38.360 --> 0:33:40.520 had spent only three years in the research group. I 0:33:40.560 --> 0:33:42.360 was sort of snake bitten as an analyst. Anything I 0:33:42.400 --> 0:33:44.360 touched as an industry seemed to blow up. But when 0:33:44.400 --> 0:33:47.000 I came to Loomis, I was covering oil and gas 0:33:47.040 --> 0:33:49.000 when oil went to five dollars a barrel, right, or 0:33:49.040 --> 0:33:51.240 ten dollars something like that, and then I also pa. 0:33:51.480 --> 0:33:54.480 Dollars a barrel, I want to say, late nineties. 0:33:54.120 --> 0:33:56.960 Something like that was yeah, with late nineties and on 0:33:57.000 --> 0:33:59.440 the cover of the Economists that said five dollars with 0:33:59.560 --> 0:34:00.400 a I'm like that. 0:34:00.800 --> 0:34:03.880 And that was low. So it's so funny you say 0:34:03.880 --> 0:34:06.120 that I sat in on a meeting I won't mention 0:34:06.200 --> 0:34:11.520 the firm and listen to the market strategist slash managing 0:34:11.560 --> 0:34:15.040 partner scream about two and three dollars oil, and I 0:34:15.120 --> 0:34:17.000 leaned over the guy next to him, I'm like, you 0:34:17.040 --> 0:34:19.640 will never see in the lower print of oil in 0:34:19.680 --> 0:34:23.200 our lifetime, literally read the same nonsense that this guy 0:34:23.280 --> 0:34:25.960 was spewing in Barns that week, and I'm like, gee, 0:34:26.000 --> 0:34:28.960 this sounds kind of like the opposite of what you 0:34:28.960 --> 0:34:32.200 get at the tops and equity markets. That's it. Oil 0:34:32.280 --> 0:34:34.319 is bottomed, and that was fair enough. 0:34:34.360 --> 0:34:36.000 It was, yeah, and so we made some good money. 0:34:36.160 --> 0:34:38.160 We made tons of money of chutspeak energy back then 0:34:38.200 --> 0:34:40.880 and the Asian crisis. Have made a lot of money 0:34:40.960 --> 0:34:43.520 with Dan in the trading desk. At that time. I 0:34:43.600 --> 0:34:46.160 also covered wireless telecoms, so that entered into a you know. 0:34:47.000 --> 0:34:49.799 So anyways, I had a lot of swings there that 0:34:49.840 --> 0:34:51.560 went really well, and I was asked to manage money 0:34:51.600 --> 0:34:54.239 with Dan and I didn't expect it at that time, 0:34:54.280 --> 0:34:56.520 but it just happened, and so I fell into that. 0:34:57.680 --> 0:34:59.480 Back then, it was a lot different. You ate what 0:34:59.520 --> 0:35:01.440 you killed. What I mean by that is you were 0:35:01.440 --> 0:35:04.040 loosely affiliated as a portfolio manager. You know. I basically 0:35:04.040 --> 0:35:06.200 would hang my name up on a shingles, say Maddie 0:35:06.200 --> 0:35:09.040 and portfolio manager, and a client would hire me right, 0:35:09.360 --> 0:35:12.600 not necessarily Loomis, and we were loosely affiliated around like 0:35:12.640 --> 0:35:15.239 the Dan Fuss style, and I love the Dan Fust style. 0:35:15.280 --> 0:35:18.520 So I was investing like that. But my first opportunity 0:35:18.520 --> 0:35:20.520 as a as a portfolio manager, you know, you had 0:35:20.560 --> 0:35:22.360 to go where other people didn't want to go. The 0:35:22.400 --> 0:35:25.040 other senior managers didn't want to go. So an opportunity 0:35:25.080 --> 0:35:27.200 came up in the middle of January to go to Helsinki, 0:35:27.520 --> 0:35:29.160 Finland for a highyield opportunity, and. 0:35:29.160 --> 0:35:30.480 I raised me in the middle of January. 0:35:30.480 --> 0:35:32.560 In the middle of January, which is quite interesting, is 0:35:32.960 --> 0:35:35.120 very cold and very dark and very dark, and I 0:35:35.160 --> 0:35:36.680 went there and I got it. It was like two 0:35:36.760 --> 0:35:39.120 or three hundred million dollar mandate for high yield, so 0:35:39.600 --> 0:35:42.840 that was great. At the same time, we started institutionalizing 0:35:42.880 --> 0:35:45.640 as a business because Loomis was really created as an 0:35:45.640 --> 0:35:49.400 investment counselor back in the day. The manager did bonds 0:35:49.440 --> 0:35:52.960 and stocks and worked directly with that client one on one, 0:35:53.400 --> 0:35:55.800 and we needed to institutionalize. When I first started Loomis, 0:35:55.800 --> 0:35:58.520 we were eighty billion in AUM and we were growing 0:35:58.719 --> 0:36:00.920 right so now we're almost three under fifty billions, so 0:36:01.000 --> 0:36:02.400 it's been a lot of growth, and that's one of 0:36:02.440 --> 0:36:06.440 the reasons. Growth creates opportunities right for people, So we 0:36:06.480 --> 0:36:10.640 need institutionalize. We hired a new CEO, Cio came in 0:36:10.680 --> 0:36:12.960 to help us do that, and we created teams and 0:36:13.000 --> 0:36:16.040 that's when we started to create the team that you 0:36:16.080 --> 0:36:19.320 know Dan was on. I was on Elaine Stokes. Everybody's 0:36:19.360 --> 0:36:21.960 retired except for me, off that original team, you know. 0:36:21.960 --> 0:36:24.720 From there, I started creating that product team that you 0:36:24.840 --> 0:36:29.840 see over twenty people today. We institutionalized the products, the 0:36:29.880 --> 0:36:32.880 product offerings, which really makes you think about how do 0:36:32.960 --> 0:36:35.879 you explicitly state what the objectives are? 0:36:36.239 --> 0:36:36.439 Right? 0:36:36.960 --> 0:36:40.280 And then we institutionalized the framework. And I think behind 0:36:40.360 --> 0:36:45.600 every great shop, equity bonds, whatever, behind every great manager 0:36:45.680 --> 0:36:48.440 is a great framework, a repeatable framework. 0:36:48.480 --> 0:36:51.759 That's the hardest thing we did developing the process that 0:36:51.800 --> 0:36:53.000 you can do over and over again. 0:36:53.120 --> 0:36:56.200 We had the foundation, we had it up in our brains. 0:36:56.239 --> 0:36:59.040 The idea was to put it on paper and write 0:36:59.080 --> 0:37:02.040 it out, and that took a long time. And then, 0:37:02.080 --> 0:37:04.000 of course succession for Dan was a huge part of 0:37:04.040 --> 0:37:04.840 my microphone. 0:37:05.160 --> 0:37:08.520 So let's let's talk a little bit about what you 0:37:08.680 --> 0:37:13.920 described as the Dan Fuss approach. I love the concept 0:37:14.080 --> 0:37:19.520 of opportunistic investing, So a few questions. Let me just 0:37:19.560 --> 0:37:22.920 start with explain what is the Dan Fuss approach? 0:37:23.239 --> 0:37:25.880 Before I answer that question, let me just describe, you know, 0:37:25.920 --> 0:37:28.040 a situation when I became a portfolio manager. I was 0:37:28.080 --> 0:37:29.880 a credit guy, you know, I was a credit research 0:37:29.920 --> 0:37:32.920 channels and I really liked hy yield investing. And you know, 0:37:33.000 --> 0:37:35.800 Dan was covering all these markets and it looked really daunting. 0:37:35.920 --> 0:37:38.440 I mean when I say everything, everything around the globe. 0:37:38.440 --> 0:37:41.360 He was reading, you know, uh Asian papers, he was 0:37:41.400 --> 0:37:44.480 covering Canadian bond markets and all the Ozzie bond markets, 0:37:44.480 --> 0:37:47.520 et cetera. I said, hmm, maybe I can just do hi, 0:37:47.800 --> 0:37:49.399 I said, Dan, you know, I think I just want 0:37:49.400 --> 0:37:51.640 to focus on our Higeld portfolios. What do you think 0:37:51.640 --> 0:37:53.160 about that? And Dan said, You're not going to get 0:37:53.160 --> 0:37:56.480 away with that too easy. You're not gonna get away 0:37:56.480 --> 0:37:59.200 with that. So you are. You are going to be 0:37:59.239 --> 0:38:01.239 a better investor. Trust me, You're gonna be a better 0:38:01.320 --> 0:38:03.640 vestor if you can cast a wire net. So that's 0:38:03.640 --> 0:38:06.480 one of the first things, cast a wye net. Okay, 0:38:06.480 --> 0:38:08.239 So I said, all right, how does he do that? 0:38:08.760 --> 0:38:12.600 So what I started observing him and what people know 0:38:12.680 --> 0:38:14.799 Dan very well. Most of the times when this to 0:38:14.880 --> 0:38:16.759 this day, he still does this. He stands up in 0:38:16.800 --> 0:38:19.840 his office and there's a sort of a table that 0:38:19.880 --> 0:38:25.640 he's at and he charts things by hand. He charts, commodities, 0:38:25.880 --> 0:38:29.840 bond prices, stock, all of these market information. So I 0:38:29.880 --> 0:38:31.759 asked him to show me this and it was done 0:38:31.800 --> 0:38:34.160 on green Ledger paper, you know, the old Green County paper. 0:38:34.320 --> 0:38:37.239 And he started flipping this thing open and it just 0:38:37.320 --> 0:38:40.319 flipped page after page after page. He used to have 0:38:40.360 --> 0:38:43.719 a he has a slide ruler that he says he 0:38:43.800 --> 0:38:47.120 used to scratch his back and also to do straight lines. 0:38:47.880 --> 0:38:50.440 And I said, wow, right, I said, why do you 0:38:50.560 --> 0:38:54.040 do this? He said, I learned through the end of 0:38:54.040 --> 0:38:57.160 a pencil, okay. And what it does is it allows 0:38:57.200 --> 0:39:01.800 you to connect disparate spots and connect points that seem 0:39:02.120 --> 0:39:05.879 unconnected and then you see that they are connected, right, 0:39:06.640 --> 0:39:09.080 And that's where how you learn as an investor. So 0:39:09.200 --> 0:39:11.520 I started doing that. I did it through spreadsheets. It's 0:39:11.560 --> 0:39:14.120 different than just looking at a chart. You pull up 0:39:14.120 --> 0:39:16.520 a bloom chart, you look at it right, doesn't stay 0:39:16.560 --> 0:39:19.759 with you as well. Another way method is actually either 0:39:19.800 --> 0:39:21.799 writing it out or putting it into a spreadsheet and 0:39:21.920 --> 0:39:25.840 looking at the data over time and tracking it economic data, 0:39:26.160 --> 0:39:31.400 GDP data, employment data, bond prices, auction. I have auction, 0:39:31.920 --> 0:39:34.160 you know, data going back on a spreadsheet, back to 0:39:34.200 --> 0:39:38.759 the two thousand, So that helped me become a multisector investor. 0:39:39.400 --> 0:39:43.759 Huh, really intriguing. I took the technical analyst course in 0:39:43.800 --> 0:39:47.719 the nineties with Ralph Akmpora, and I had not only 0:39:47.800 --> 0:39:51.759 heard something very similar from him to what you're describing 0:39:51.800 --> 0:39:55.920 with Dan, but a number of traders and fund managers 0:39:56.000 --> 0:40:00.319 and technicians all had said, I like the expression learning 0:40:00.320 --> 0:40:03.040 from the end of a pencil. Looking at a chart 0:40:03.239 --> 0:40:06.200 is not the same as drawing a chart. You end 0:40:06.280 --> 0:40:10.240 up feeling something viscerally that you can't get just by 0:40:10.360 --> 0:40:14.120 visually viewing it, especially when you're doing it every day 0:40:14.160 --> 0:40:17.680 with a whole run of different assets. What you begin 0:40:17.760 --> 0:40:21.439 to feel is a real rhythm, a real intuition as 0:40:21.480 --> 0:40:25.480 to what's going on. It may look random, and often is, 0:40:26.000 --> 0:40:28.000 but when you're doing it manually, day by day, you 0:40:28.080 --> 0:40:29.440 kind of get a sense of what's happening. 0:40:29.520 --> 0:40:32.680 Yeah. In fact, as it's your intuition that everybody talks about, 0:40:32.760 --> 0:40:34.640 you start to build this kind of intuition about the 0:40:34.640 --> 0:40:38.040 market and these funny feelings that something's going on, you know, 0:40:38.080 --> 0:40:40.160 on the surface, and then you know, I would like 0:40:40.200 --> 0:40:42.239 to listen to that, and you start sort of on 0:40:42.440 --> 0:40:44.880 peeling that and it leads you to start to focus 0:40:44.920 --> 0:40:46.840 on areas that maybe other people aren't focusing on. 0:40:46.880 --> 0:40:50.000 That that's the art, not the science. When I think 0:40:50.040 --> 0:40:54.960 of opportunistic investing on the equity side, it's very much, 0:40:55.640 --> 0:40:58.560 you know, buying when there's blood in the streets. Taking 0:40:58.600 --> 0:41:02.560 the opposite side of panic. It's a little harder tops 0:41:02.600 --> 0:41:05.319 than bottoms. Bottoms are very visible tops or this long, 0:41:05.400 --> 0:41:10.120 slow process, but it's really visceral and emotional and people 0:41:10.120 --> 0:41:12.959 are panicking and I'll make a little liquidity over here. 0:41:13.560 --> 0:41:17.680 What you described in terms of opportunistic investing on the 0:41:17.719 --> 0:41:24.080 fixed income side seems somewhat qualitatively different. What is opportunistic 0:41:24.160 --> 0:41:25.840 investing on the bond side. 0:41:26.040 --> 0:41:27.879 I think it's it's similar. I mean, like I said, 0:41:27.880 --> 0:41:30.319 we provide liquidity to illocan markets, so we're looking for 0:41:30.760 --> 0:41:34.160 dislocations in the market and that because of greed and fear, 0:41:34.440 --> 0:41:40.960 you know, or different differences in timing of horizons of investments. 0:41:41.000 --> 0:41:42.799 You know, for the street is very short, you know, 0:41:42.800 --> 0:41:45.440 we can be longer. I think you know the temperament 0:41:45.480 --> 0:41:49.879 for my style, I think you have to really enjoy volatility. 0:41:50.719 --> 0:41:53.000 I noticed that, well, I'm smiling when the market is 0:41:53.040 --> 0:41:55.680 down and I think that's an important kind of trait 0:41:55.760 --> 0:41:59.600 to have. I get antsy and kind of more grouchy. Unfortunately, 0:41:59.640 --> 0:42:01.600 a lot of the times you're in these markets where 0:42:01.600 --> 0:42:03.319 they're just kind of going sideways and there's not a 0:42:03.320 --> 0:42:06.080 lot of bad right, that makes me grouchy. I try 0:42:06.080 --> 0:42:07.080 not to bring that home. 0:42:06.920 --> 0:42:08.760 But nauci or is it just boring? 0:42:08.920 --> 0:42:11.719 It's boring, which makes you a little bit irritable, you know, 0:42:11.800 --> 0:42:14.919 And I think, you know, I really enjoy I probably 0:42:14.960 --> 0:42:16.240 would have been a good er doctor. 0:42:16.280 --> 0:42:17.000 I like it. 0:42:17.040 --> 0:42:18.920 You know, in twenty twenty, you know, we're in the 0:42:18.960 --> 0:42:22.839 pandemic right right, and that's going on, and you can 0:42:22.880 --> 0:42:25.919 buy McDonald's at seventy cents of the dollar. I love 0:42:25.960 --> 0:42:27.000 that kind of market. 0:42:27.320 --> 0:42:31.080 That's hilarious. That's I remember in the middle of even 0:42:31.120 --> 0:42:34.040 the early months of eight and after being kind of 0:42:34.080 --> 0:42:37.280 a goat for a year saying warning, hey, it's coming. 0:42:37.440 --> 0:42:39.080 I don't know exactly when it's going to start, but 0:42:39.560 --> 0:42:43.000 you could see this can't last. In eight I used 0:42:43.000 --> 0:42:46.280 to play free Falling by Tom Petty on the computer 0:42:46.880 --> 0:42:50.799 and one of the older senior people said, listen, I 0:42:50.880 --> 0:42:54.560 understand what you went through, and you're finally getting a 0:42:54.560 --> 0:42:57.480 little come up in for everybody who doubted the analysis. 0:42:58.040 --> 0:43:01.319 But people are getting fired blood in the streets. You 0:43:01.400 --> 0:43:04.400 got to take it down, right, so that like smile 0:43:04.520 --> 0:43:06.759 is like okay, you got to kind of exactly got 0:43:06.760 --> 0:43:08.480 to kind of keep it on the inside. But when 0:43:08.480 --> 0:43:11.400 I was younger and dumber, I didn't realize that. Now 0:43:11.400 --> 0:43:13.560 I'm older and dumber, and I kind of figured some 0:43:13.640 --> 0:43:16.080 of that out. So let's talk about the state of 0:43:16.120 --> 0:43:19.080 the bond market. You and I kind of began around 0:43:19.120 --> 0:43:23.480 the same time, around mid nineties. We were the beneficiary 0:43:23.760 --> 0:43:29.319 of Paul Volker's breaking the back of inflation. For anybody 0:43:29.360 --> 0:43:33.240 who has been working in markets for most of the past, 0:43:33.760 --> 0:43:39.359 you know, forty years, rates primarily trended downwards. How does 0:43:39.400 --> 0:43:43.440 that impact how you think about fixed income? Sure, there 0:43:43.480 --> 0:43:46.080 have been occasional spasms upwards, and we'll talk about the 0:43:46.120 --> 0:43:49.759 twenty twenties next, But what does that framework do to 0:43:50.600 --> 0:43:54.120 how you were running a bond portfolio in a multi 0:43:54.239 --> 0:43:57.000 decade long bond bull market. 0:43:57.920 --> 0:44:00.359 Right, Well, you know, of course went into the Q years, 0:44:00.360 --> 0:44:02.319 and you know you had to look at like real 0:44:02.440 --> 0:44:05.040 What QUI does is it pulls real rates into the 0:44:05.080 --> 0:44:07.680 negative market and the Fed basically sells set tells you 0:44:07.800 --> 0:44:10.600 do something else, go by risk. Right, during those periods, 0:44:10.640 --> 0:44:12.400 we just had to follow what the Fed was doing, 0:44:12.680 --> 0:44:15.200 you know, and if they were providing liquidity in the market, 0:44:15.200 --> 0:44:17.000 you could feel pretty comfortable taking risk. 0:44:17.239 --> 0:44:19.520 And that's literally the past twenty years. You got to 0:44:19.560 --> 0:44:23.120 go back to the two thousand and one recession and 0:44:23.120 --> 0:44:27.160 then September eleventh, we were pretty close to zero for decades. 0:44:27.320 --> 0:44:29.879 Yeah, so we know the bond market really changed during 0:44:29.880 --> 0:44:31.640 that and you remember, you know, you used to earn 0:44:31.719 --> 0:44:33.360 you know, you think about the Yeld curve around the 0:44:33.360 --> 0:44:36.120 classical thinking thought processes, what the FED doing, what the 0:44:36.120 --> 0:44:39.040 economy is doing. During those Q years, you just worried 0:44:39.040 --> 0:44:40.640 about what the balance sheet of the FED look like, 0:44:40.840 --> 0:44:43.879 is it expanding or contracting? And that pretty much told 0:44:43.920 --> 0:44:46.839 you what to do. Really, I think que now is 0:44:46.880 --> 0:44:48.600 sort of in the rear view mirror for now. I 0:44:48.600 --> 0:44:50.359 don't think it's going to come back. I think we're 0:44:50.400 --> 0:44:54.319 in a different type of market where people who have 0:44:54.520 --> 0:44:58.520 not witnessed an era where inflation is driving more decisions. 0:44:58.560 --> 0:45:01.120 I think you really should look, you know, at longer history. 0:45:01.440 --> 0:45:03.120 I was telling some of the younger people, like, do 0:45:03.239 --> 0:45:08.600 not try to expect to extrapolate what's going to happen 0:45:08.640 --> 0:45:11.440 based on recent I mean I'm talking like decade or 0:45:11.440 --> 0:45:13.440 two type of bond markets. 0:45:13.480 --> 0:45:15.919 Mean, reversion doesn't mean going back to zero, it means 0:45:15.920 --> 0:45:17.640 it goes to five percent, right. 0:45:17.520 --> 0:45:19.560 So I think that you know, it kind of goes 0:45:19.600 --> 0:45:22.640 back to that concept we were talking about reinvestment rate 0:45:22.719 --> 0:45:25.600 risk and principal risk. Now going forward, your biggest concern 0:45:25.680 --> 0:45:29.279 or your challenge, and it's manageable, is how do you 0:45:29.280 --> 0:45:32.080 preserve principle while getting to a higher level yield. So 0:45:32.120 --> 0:45:34.480 you think of today's market, it used to be we 0:45:34.480 --> 0:45:38.640 were walking down a steep staircase. It was going down, down, down. 0:45:38.840 --> 0:45:41.640 Now you're looking at steps going up before you. 0:45:41.760 --> 0:45:43.520 I believe is that the new trend. 0:45:43.760 --> 0:45:46.280 I believe it is. I think we can talk about 0:45:46.280 --> 0:45:48.920 that there's a structural feature to this market that's going 0:45:49.000 --> 0:45:51.279 to keep it higher for longer, let's call at least 0:45:51.320 --> 0:45:53.480 over the next decade or so. And then there's a 0:45:53.480 --> 0:45:55.640 cyclical component, which we can talk about in a moment. 0:45:55.719 --> 0:46:00.040 But the structural components are there are tailwinds to in 0:46:00.680 --> 0:46:03.040 and the biggest driver is a fiscal deficit. 0:46:03.280 --> 0:46:06.000 I was going to ask about that we've had this 0:46:06.400 --> 0:46:10.840 giant regime change that during those twenty years, the prime 0:46:10.960 --> 0:46:14.560 driver was monetary policy. Now it feels like, not only 0:46:14.560 --> 0:46:18.320 do we have a massive fiscal stimulus first with the 0:46:18.360 --> 0:46:21.600 tax cuts under Trump and then kars Act one and two, 0:46:21.719 --> 0:46:25.080 which were giant fiscal stimulus, but now you have Karz 0:46:25.120 --> 0:46:28.000 Act three plus all of these ten year long the 0:46:28.120 --> 0:46:32.680 Infrastructure Bill, the Semiconductive Bill, the Inflation Reduction Bill, whatever 0:46:32.719 --> 0:46:35.560 the name of the bill was, that added a whole 0:46:35.560 --> 0:46:38.600 bunch of money to the veterans' hospitals. And those are 0:46:38.680 --> 0:46:43.080 all ten year ongoing fiscal stimulus. Is that what you 0:46:43.120 --> 0:46:44.320 mean when you talk about. 0:46:44.320 --> 0:46:48.000 I started this actually really predates the when I started 0:46:48.040 --> 0:46:50.719 thinking about this. Like for example, you know, I was 0:46:50.719 --> 0:46:53.840 always asking me during those Q years what fundamentally needs 0:46:53.880 --> 0:46:58.320 to change for us to start thinking differently about structurally 0:46:58.320 --> 0:47:00.440 where rates are going, because we were starting to see 0:47:00.760 --> 0:47:04.000 labor market conditions tight. Remember around eighteen nineteen, the FED 0:47:04.239 --> 0:47:06.319 was starting to you know, it started going the other way. 0:47:07.000 --> 0:47:09.319 Q four eighteen was a major draw down in the 0:47:09.320 --> 0:47:10.720 equity market almost twenty percent. 0:47:10.880 --> 0:47:13.360 Yeah, so you could see wages were just starting to 0:47:13.360 --> 0:47:15.160 lift up. And now all of that was hidden by 0:47:15.200 --> 0:47:17.719 the pandemic after that. But there's a tightening in the 0:47:17.800 --> 0:47:21.239 labor force underneath all of this, and that's the demographics. 0:47:21.280 --> 0:47:24.279 I was reading The Great Demographic Reversal at that time 0:47:24.320 --> 0:47:26.520 by good Heart at All. It was talking about the 0:47:26.560 --> 0:47:29.480 aging of the population. People used to think aging the 0:47:29.520 --> 0:47:32.360 population is deflationary. Well, he put a different spin on it, 0:47:32.360 --> 0:47:34.640 and it kind of got me thinking. And the big 0:47:34.640 --> 0:47:37.640 thing there is, globally in the industrialized world, this is true. 0:47:37.760 --> 0:47:41.120 Wait, the aging of the population is deflationary or is 0:47:41.200 --> 0:47:46.560 this not so? The traditional discussion is people get older, 0:47:46.640 --> 0:47:49.320 they stop consuming as much as they do when they're younger. 0:47:49.320 --> 0:47:51.799 They already own their house, the mortgage paid off, they 0:47:51.840 --> 0:47:56.120 own their cars, they'll drive them forever, and that's somewhat deflationary. 0:47:56.239 --> 0:47:59.399 What's the counter, Well, he talks about it's really about 0:47:59.400 --> 0:48:02.240 the working population. And if you looked at the big 0:48:02.280 --> 0:48:05.239 event that we had was the ascension of China to 0:48:05.280 --> 0:48:07.279 the World Trade Organization around two thousand and one or 0:48:07.320 --> 0:48:09.600 something like that, they brought eight hundred million people to 0:48:09.640 --> 0:48:12.600 the working age population. So our wages in the developed 0:48:12.600 --> 0:48:15.960 world were crushed on a you know, on a real basis. 0:48:15.960 --> 0:48:18.920 So there was sort of stagnation in there, and their 0:48:18.960 --> 0:48:22.239 wages grew in the emerging markets, they became richer. Now 0:48:22.320 --> 0:48:25.279 we all know the story now that China's you know, 0:48:25.360 --> 0:48:29.080 population is rolling over now globally in the industrialized world, 0:48:29.239 --> 0:48:33.160 the working age population is kind of stagnant, and that's 0:48:33.239 --> 0:48:36.600 the tightness there you're seeing there. The people who spend 0:48:36.760 --> 0:48:40.120 are the young folks and the older folks in the 0:48:40.200 --> 0:48:42.720 middle of the way working age populations where the saving 0:48:43.080 --> 0:48:46.840 takes place. So as you age, you actually spend your wealth. 0:48:47.000 --> 0:48:48.600 And so that's what's going on. 0:48:48.800 --> 0:48:50.239 I think, you know, a lot of people will push 0:48:50.239 --> 0:48:52.839 against that theory, and I understand a lot of that, 0:48:52.960 --> 0:48:55.640 but I look at it anecdotally. What did we see. 0:48:55.680 --> 0:48:58.759 We saw, you know, some unionization efforts happening in this 0:48:58.840 --> 0:49:01.759 country for the first time, small but an Amazon and 0:49:01.800 --> 0:49:04.440 so on. And we can feel it, you know, in 0:49:04.600 --> 0:49:07.560 our spending it wages, you know, having necessarily kept up 0:49:07.600 --> 0:49:10.120 with this boost and inflation, but they're continuing. So that 0:49:10.200 --> 0:49:12.520 was one aspect of it. The other thing was going on, 0:49:12.600 --> 0:49:15.919 and Trump was you know, really started more or less 0:49:15.920 --> 0:49:19.920 a trade war with China. Trade had been sort of 0:49:20.160 --> 0:49:22.960 you had the Chimerica, you know, you all understood that 0:49:23.000 --> 0:49:25.480 it worked well for both parties. Now we're in a 0:49:25.480 --> 0:49:29.480 situation where it's not working well. There's tensions there, securities 0:49:29.520 --> 0:49:34.240 concerns are rising, have risen. So now you have near shoring, 0:49:34.760 --> 0:49:38.440 you have chips war things like that. You have this 0:49:38.600 --> 0:49:41.719 fence spending going up. So all of these things are 0:49:41.760 --> 0:49:44.000 adding to that inflation. And then on top of that 0:49:44.040 --> 0:49:47.240 you have electrification through climate change and other factors evs, 0:49:47.280 --> 0:49:47.840 all of that stuff. 0:49:47.840 --> 0:49:51.080 Well, what's the impact of electrification, which I saw a 0:49:51.120 --> 0:49:55.480 chart this morning that just showed China's electrification has just 0:49:55.640 --> 0:50:00.840 blown everybody else away. They are moving towards full electrification 0:50:01.239 --> 0:50:04.319 faster than anybody else by in order of magnitude. 0:50:04.480 --> 0:50:06.160 Right, they're winning sort of in the battery in the 0:50:06.239 --> 0:50:08.840 V space. We know, we know that they're leapfrogging in 0:50:08.840 --> 0:50:11.399 certain areas where they can just sort of jump technologies, 0:50:11.400 --> 0:50:13.160 if you will. That happens a lot in the emerging market. 0:50:13.280 --> 0:50:15.439 So the electrification, though, you know, in the United States 0:50:15.480 --> 0:50:17.400 and the developed world, it's all about the grid and 0:50:17.440 --> 0:50:19.880 how you know, we've got to get our grid able 0:50:19.960 --> 0:50:23.480 to handle all these evs, all the electrification that's going 0:50:23.560 --> 0:50:26.759 to take place. And that's going to require just a 0:50:26.960 --> 0:50:30.600 massive amount of investment and also stranded assets down the road. 0:50:31.280 --> 0:50:33.359 So all you add all of these factors, I think 0:50:33.480 --> 0:50:37.439 structurally there are tailwinds to inflation. Now what I think 0:50:37.480 --> 0:50:40.759 that means, what the consequences of that are is that 0:50:40.800 --> 0:50:46.040 inflation will be unstable and so you'll have syckicality inflation. 0:50:46.120 --> 0:50:47.680 Think of it as like the saw tooth where the 0:50:47.719 --> 0:50:51.440 teeth become you know, steeper. You probably remember this. You 0:50:51.440 --> 0:50:55.280 have more variability in the economic cycle. Because what inflation 0:50:55.520 --> 0:50:59.239 does is it adds uncertainty to consumers spending. It adds 0:50:59.320 --> 0:51:02.680 uncertainty planning for businesses, and so you get these fits 0:51:02.719 --> 0:51:06.080 and starts. It's a more compacted business cycle. It makes 0:51:06.120 --> 0:51:08.359 it difficult or trickier for the FED to deal with. 0:51:09.160 --> 0:51:10.959 So I think that's what we're going to see. 0:51:10.960 --> 0:51:12.200 This last cycle was. 0:51:12.280 --> 0:51:14.000 Really weird, you know, and I think we're going to 0:51:14.000 --> 0:51:16.200 see more of these types of cycles, and so I 0:51:16.239 --> 0:51:17.880 just think you need to have that in your brain 0:51:17.960 --> 0:51:21.400 about how this market's going to behave and you know, 0:51:21.600 --> 0:51:24.280 we can talk about the cyclical component of that today 0:51:24.400 --> 0:51:25.799 and how you play it in the near term. 0:51:26.200 --> 0:51:29.120 The big counter to higher for longer. That I keep 0:51:29.160 --> 0:51:33.000 hearing is, you know, the things that are bringing rates 0:51:33.120 --> 0:51:36.839 down hasn't been higher interest rates because of the lack 0:51:36.880 --> 0:51:39.480 of pass through in the housing market. Although it is 0:51:39.520 --> 0:51:42.680 impacting the bottom half of the economic stratas credit spending, 0:51:42.719 --> 0:51:46.640 it'squesting them more. But wherever we look, we see these 0:51:46.960 --> 0:51:51.200 structural shortages. So you mentioned how tight the labor market is. 0:51:51.640 --> 0:51:55.120 A lot of that is a reduction in legal immigration, 0:51:56.200 --> 0:51:59.640 not just under Biden and under Trump, but going back 0:51:59.640 --> 0:52:02.880 about fifteen years that kind of post nine to eleven, 0:52:02.960 --> 0:52:07.320 we tightened our rules. Some people have said the entire 0:52:07.640 --> 0:52:11.480 jobs growth over the past few years has been primarily immigration. 0:52:12.600 --> 0:52:16.720 Giant shortage in housing in the United States, mostly because 0:52:16.800 --> 0:52:20.560 since the financial crisis, we pivoted to multifamily homes and 0:52:21.040 --> 0:52:24.120 didn't build enough homes to keep up with population growth, 0:52:24.200 --> 0:52:27.840 and suddenly there's a giant surge even things like cars 0:52:27.880 --> 0:52:30.719 and a shortage of semiconductors, and how long it took 0:52:31.040 --> 0:52:33.960 to get all that back online. We haven't had enough 0:52:34.000 --> 0:52:38.440 automobiles out there. That's what's elevated prices. So that's a 0:52:38.600 --> 0:52:42.040 long winded way to say, how much can the FED 0:52:42.400 --> 0:52:47.080 influence this current cycle of inflation when it's driven in 0:52:47.320 --> 0:52:51.600 part by so many things that are responsive to policies 0:52:51.640 --> 0:52:52.880 outside of the Federal Reserve. 0:52:52.960 --> 0:52:55.080 Yeah, and I think that's been their number one problem here. 0:52:55.080 --> 0:52:57.799 And there's been supply side issues. I know you've talked 0:52:57.800 --> 0:53:00.919 before about the housing market. Raise rates and then people 0:53:00.920 --> 0:53:03.360 stop building new homes, and how does that unpacked the 0:53:03.400 --> 0:53:04.200 supply of housing? 0:53:04.280 --> 0:53:08.560 It's counter you know, right, counteract raising rates makes inflation higher. 0:53:09.440 --> 0:53:13.000 It's a weird situation. I think all of that is true. 0:53:13.280 --> 0:53:15.960 I do not know for sure that we're structurally on 0:53:16.000 --> 0:53:18.800 a higher for longer type of scenario, higher highs and 0:53:18.880 --> 0:53:21.040 higher lows. That that is the way I think you 0:53:21.080 --> 0:53:23.680 should bet right now, based upon what I see other 0:53:23.719 --> 0:53:25.520 factors that I think are gonna you know, particularly on 0:53:25.560 --> 0:53:28.640 the democraphic side. What about AI, right, how does that 0:53:28.680 --> 0:53:31.920 affect you know, productivity, the productivity mirror. 0:53:32.120 --> 0:53:34.360 I mean outside of the AI companies, the rest of 0:53:34.440 --> 0:53:35.799 the marketplace. 0:53:35.320 --> 0:53:37.399 The rest of that, you know, just uh, how does 0:53:37.400 --> 0:53:40.040 it affect wages? How does it affect productivity? Can you 0:53:40.120 --> 0:53:43.680 actually have rising wages and rising productivity and growth without 0:53:43.800 --> 0:53:46.720 you know, wage inflation, Because if you don't have wage inflation, 0:53:46.800 --> 0:53:48.560 it's tough to get kind of like a more of 0:53:48.640 --> 0:53:51.440 a sort of spiral of if not a structural right, 0:53:51.480 --> 0:53:54.120 it's not structural. So if you if you start those 0:53:54.120 --> 0:53:56.359 things start to fall away, you kind of have to say, oh, 0:53:56.400 --> 0:53:59.560 maybe we're back to a two percent. I think it's 0:53:59.600 --> 0:54:01.799 it's not. I'm not talking about a reverse. I saw 0:54:01.840 --> 0:54:04.280 the seventies as a young you know, a young person. 0:54:04.680 --> 0:54:06.880 I know what that's. I'm not suggesting it it's going 0:54:06.920 --> 0:54:09.279 to be like that, but I just think that what's 0:54:09.320 --> 0:54:11.880 important for a bond investment to understand is that inflation, 0:54:12.000 --> 0:54:14.840 which was stuck below structurally blow too, is going to 0:54:14.840 --> 0:54:18.000 be above two to some level. How much I don't know, 0:54:18.440 --> 0:54:20.080 but I think it's going to spend more of his 0:54:20.239 --> 0:54:23.440 time above there. Higher for longer, in my mind means 0:54:23.800 --> 0:54:29.440 higher real rates and higher inflation premiums for the uncertainty 0:54:29.440 --> 0:54:32.160 of that inflation. So what does that mean? I think, 0:54:32.239 --> 0:54:35.880 for example, like on tenure today, like long term, you know, 0:54:35.960 --> 0:54:37.759 maybe fair value in the ten you're somewhere on four 0:54:37.760 --> 0:54:38.400 and a half percent. 0:54:38.880 --> 0:54:43.239 So that would suggest now is the time to start 0:54:43.320 --> 0:54:45.160 lengthening duration if you haven't already. 0:54:45.560 --> 0:54:47.440 Yes, and with a caveat that, I think there's going 0:54:47.480 --> 0:54:50.359 to be a shallow rate cutting cycle. I think they 0:54:50.400 --> 0:54:52.080 start at sometime at the end of this year be 0:54:52.120 --> 0:54:55.440 my expectation. I think the economy cyclically is losing momentum. 0:54:55.680 --> 0:54:58.080 You're seeing it on the consumer spending side starting to 0:54:58.200 --> 0:54:58.920 drift flow. 0:54:58.719 --> 0:55:02.640 And retail sales the while there's a lot of problems 0:55:02.680 --> 0:55:04.560 with the job data that I you know, can't even 0:55:04.560 --> 0:55:06.560 want to go into. It's hard to trust that data. 0:55:06.560 --> 0:55:09.440 But when you look at claims data. But even when 0:55:09.440 --> 0:55:11.799 you start digging into the job data, you know, you 0:55:11.840 --> 0:55:15.960 look at permanent job losers rising, you see you know, 0:55:16.000 --> 0:55:19.360 part time overtaking sort of full time. So on the 0:55:19.640 --> 0:55:22.400 you know it's I'm not this is not a big correction. 0:55:22.520 --> 0:55:25.240 Let's face it. Unployment is really low. But on the margin, 0:55:25.440 --> 0:55:27.040 you know you're going to see that acceleration. 0:55:27.280 --> 0:55:30.239 It's a robust economy. But cracks are starting to show 0:55:30.280 --> 0:55:31.040 in the foundation. 0:55:31.360 --> 0:55:33.319 And you know, like you always see, like people are 0:55:33.360 --> 0:55:35.160 not going to know you're let's say you go into 0:55:35.160 --> 0:55:36.400 a recession. I don't think it's going to be a 0:55:36.400 --> 0:55:41.319 full blown recession. Those numbers are revised. Like I always 0:55:41.480 --> 0:55:43.319 it's funny to me that we spend so much time. 0:55:43.360 --> 0:55:45.440 But you know, job Report Friday comes out and everybody 0:55:45.440 --> 0:55:47.719 trades all over the number, the most important number though, 0:55:47.920 --> 0:55:50.200 and a year later all those numbers are revised in 0:55:50.280 --> 0:55:53.239 a big, big way. Yes, and you'll often see, oh, 0:55:53.280 --> 0:55:56.560 we actually were losing jobs in that period of time. 0:55:57.080 --> 0:55:58.680 You know, I don't know if that's going to happen. 0:55:58.680 --> 0:56:01.320 It can go both way. It can revise to the 0:56:01.400 --> 0:56:05.440 upside too, But I do sense my senses that it, 0:56:05.640 --> 0:56:07.440 you know, looking at the tea leaves out there that 0:56:07.480 --> 0:56:08.319 were decelerated. 0:56:08.760 --> 0:56:11.560 If that's the case, then I have to ask you 0:56:11.600 --> 0:56:14.359 to put on your FED chairman hat and say, what 0:56:14.400 --> 0:56:15.239 are we waiting for? 0:56:15.480 --> 0:56:18.360 I think that the FED has been job owning rates 0:56:19.160 --> 0:56:22.120 as they Yeah, they've been job owning. So remember they 0:56:22.640 --> 0:56:26.080 last November time frame they did the Dubbes pivot. I 0:56:26.080 --> 0:56:28.840 think they did that to get ahead of the election cycle. 0:56:28.920 --> 0:56:31.920 I know people say, well, FED doesn't respond to elections. 0:56:32.320 --> 0:56:34.799 I talked to a prominent FED chairman and says, you know, 0:56:34.840 --> 0:56:36.440 in a week moment said, you know, you kind of 0:56:36.480 --> 0:56:38.879 have to take that into consideration. I do think they're 0:56:38.880 --> 0:56:40.840 political animals at the end of the day to a 0:56:40.880 --> 0:56:41.480 certain degree. 0:56:41.760 --> 0:56:45.000 Although they have raised in previews what they need to do. 0:56:45.640 --> 0:56:49.879 They've done rate changes in prior election years, but this election. 0:56:49.680 --> 0:56:52.400 Is a big one, right, and so I think they 0:56:52.440 --> 0:56:54.000 just wanted to be out of the way and then 0:56:54.120 --> 0:56:56.600 they could be in position to job own the rates 0:56:56.600 --> 0:56:58.960 because they knew they had done a yeoman's work already 0:56:59.000 --> 0:57:02.319 to reduce the spike in inflation to get down to 0:57:02.400 --> 0:57:05.600 that beginning of the last mile, so class mile, that's 0:57:05.640 --> 0:57:08.440 been more difficult than it expected. We were thinking that 0:57:08.520 --> 0:57:12.000 as well. We faded that bond rally in the fourth 0:57:12.080 --> 0:57:15.600 quarter the curve. I think it's a shallow rate cycle. 0:57:15.680 --> 0:57:17.240 Most of the ray cuts are going to come from 0:57:17.280 --> 0:57:20.080 the front end of the market. Remember the FED controls 0:57:20.160 --> 0:57:23.360 the front end of the market out to the two year, 0:57:23.520 --> 0:57:24.960 maybe even a little bit in the five year. 0:57:25.040 --> 0:57:26.920 After that, it's all the Bunne. 0:57:27.000 --> 0:57:29.360 It's all the pond market, particularly thirty year, it's in 0:57:29.400 --> 0:57:31.840 its own it's its own beast. It runs to supply 0:57:31.880 --> 0:57:34.520 and demand. I don't want to get stuck long the 0:57:34.560 --> 0:57:39.120 long end, especially going to this election uncertainty. So I 0:57:39.160 --> 0:57:41.200 think you don't want to get that reinvestment rate risk 0:57:41.240 --> 0:57:43.960 on a T bill and you know, watch that five 0:57:44.080 --> 0:57:47.280 percent go down with four to three percent handle. In 0:57:47.320 --> 0:57:49.440 short order, you want to move out in that five 0:57:49.720 --> 0:57:52.600 seven year part of the curve. That's the best risk reward. 0:57:52.280 --> 0:57:54.200 I think the belly of the curve in the middle 0:57:54.200 --> 0:57:57.640 of the duration. So let me throw one more question 0:57:57.720 --> 0:58:00.680 at you and then we'll get to our favorites. The 0:58:00.760 --> 0:58:04.680 curve ball question is tell us what Boston Scores is. 0:58:05.080 --> 0:58:08.400 What do you do working with kids and team environments 0:58:08.400 --> 0:58:09.640 to help build character. 0:58:10.000 --> 0:58:12.160 It's an interesting organization I've been involved in for a 0:58:12.160 --> 0:58:15.480 while now. And what Boston Scores does. It's the largest 0:58:15.720 --> 0:58:19.560 K through twelve after school program for Boston Public school 0:58:19.600 --> 0:58:22.400 so they partner with Boston Public schools. They're known for 0:58:22.480 --> 0:58:27.200 their soccer program, so they provide free soccer programs after 0:58:27.240 --> 0:58:30.000 school for children to get involved a number of days 0:58:30.040 --> 0:58:32.680 of weeks. And they also in addition that provide other 0:58:32.800 --> 0:58:36.360 Richmond like poetry, and they actually have an entrepreneurial type class, 0:58:36.360 --> 0:58:40.000 which I find interesting. So this is a terrific way 0:58:40.080 --> 0:58:43.840 to get these kids together working as groups. It's about mind, body, 0:58:44.040 --> 0:58:48.120 and spirit really and they learn how they can solve 0:58:48.160 --> 0:58:52.280 problems in their community, get them prepared for potentially going 0:58:52.320 --> 0:58:55.120 into to college. You know, as they come towards their 0:58:55.240 --> 0:58:59.160 twelve year So it's terrific. I've seen the outcome for kids, 0:58:59.240 --> 0:59:02.400 and they have so much confidence. Some of these kids 0:59:02.440 --> 0:59:04.400 that are coming out. I look at him from where, 0:59:04.480 --> 0:59:06.720 you know, when I was graduating at that time. It's 0:59:06.800 --> 0:59:09.960 just amazing what these kids in this program. 0:59:09.640 --> 0:59:12.560 Does for the Boston school sounds really interesting. All right, 0:59:12.600 --> 0:59:14.880 our favorite questions, and we're going to turn this into 0:59:14.920 --> 0:59:18.439 a speed round. Tell us what's keeping you entertained these days? 0:59:18.480 --> 0:59:19.800 What are you watching or listening to? 0:59:20.800 --> 0:59:24.040 I'm watching Three Body Problem on loved It. Yeah, so 0:59:24.120 --> 0:59:26.080 I read the book a while ago. Somebody I was 0:59:26.080 --> 0:59:27.920 reading New York Times, like, what is this book? You know? 0:59:27.960 --> 0:59:29.760 There's such a love to get through? 0:59:30.040 --> 0:59:32.360 It was. I read all three of them. Actually there 0:59:32.440 --> 0:59:35.200 was a fourth one written by a fan. Finish it 0:59:35.240 --> 0:59:37.800 interesting to read if you want to continue that saga. 0:59:37.840 --> 0:59:40.720 But you know that that's on Amazon and Netflix. There's 0:59:40.960 --> 0:59:42.680 there's a Chinese version on Amazon. 0:59:42.760 --> 0:59:45.440 Oh really, yeeah, I get that one. Did you see 0:59:45.520 --> 0:59:46.760 did You? Subtitled did You? 0:59:47.040 --> 0:59:49.200 I started that one and I flipped to the Netflix 0:59:49.240 --> 0:59:51.960 one because it's faster moving. I think that's a hard 0:59:51.960 --> 0:59:52.840 book to translate. 0:59:53.080 --> 0:59:55.280 I picked it up and tried to read it a 0:59:55.280 --> 0:59:57.960 few times and just got It's like, it's like the 0:59:57.960 --> 1:00:01.840 first ninety two pages of nineteen eighty four is a tough, tough, 1:00:02.000 --> 1:00:05.520 tough slug. But I was I was down with COVID 1:00:05.560 --> 1:00:08.360 in March and just binged it and it was I 1:00:08.400 --> 1:00:09.360 thought it was fabulous. 1:00:09.440 --> 1:00:11.800 Yeah, typically don't read a lot of sci fi. But 1:00:11.800 --> 1:00:13.600 I read that and somebody said, if you like that, 1:00:13.760 --> 1:00:16.360 read Isaac as them off and I was a read foundation. 1:00:16.680 --> 1:00:18.280 It's an old you know classic. 1:00:18.840 --> 1:00:21.080 You know, once you go down that rabbit hole, there's 1:00:21.160 --> 1:00:23.080 no coming back. You should be you should be aware 1:00:23.240 --> 1:00:24.720 what else? What are the other ones you're watching? 1:00:24.920 --> 1:00:27.560 So I have more I have a bigger group of 1:00:27.720 --> 1:00:30.360 portfolio managers now, we went from forward to about eight, 1:00:31.080 --> 1:00:33.240 like managing different kinds of portfolios. And what I'm most 1:00:33.280 --> 1:00:35.640 interested in is behavior biases now because you get more 1:00:35.680 --> 1:00:38.640 people in the you know, in this in making decisions, 1:00:39.600 --> 1:00:42.960 it's important for a strategy have consistency and temperament and 1:00:42.960 --> 1:00:44.920 all that. The problem is you get eight people, they 1:00:44.920 --> 1:00:47.080 don't all have the same temperament. So I want people 1:00:47.120 --> 1:00:49.360 to really understand what their bias is. So the greatest 1:00:49.360 --> 1:00:52.160 guy to go do is is a comment on thinking 1:00:52.160 --> 1:00:54.720 fast and slow, right, or all those behavioral biases. I 1:00:54.760 --> 1:00:58.440 read that again, thinking fast and slow, and you know, 1:00:58.480 --> 1:01:00.840 the fast part reminds me is that that's the intuitive 1:01:00.920 --> 1:01:04.160 side of investing right, And we were talking a little 1:01:04.200 --> 1:01:06.080 bit about that. That's really important. I want to you know, 1:01:06.120 --> 1:01:08.680 foster that, but that can lead to a lot of 1:01:08.720 --> 1:01:12.440 behavioral biases. And the slow part, which is more difficult 1:01:12.440 --> 1:01:14.520 to slow down and really think about. That's sort of 1:01:14.520 --> 1:01:17.080 the checks. So you know, you have your investment thesis, 1:01:17.080 --> 1:01:19.000 you're like, go, We're ready to go. You want to 1:01:19.080 --> 1:01:20.320 keep checking it on those. 1:01:20.520 --> 1:01:22.320 Any other books you want to mention as long as. 1:01:22.240 --> 1:01:25.840 We're I think going into the elections, I've been reading 1:01:25.960 --> 1:01:28.560 a lot. I've done a lot of reading on China 1:01:28.600 --> 1:01:33.520 over the years. Cultural Revolution from now to now is 1:01:33.520 --> 1:01:36.360 a great want to understand what's going on in China. 1:01:36.920 --> 1:01:40.160 I think our Eastern civilization history was never that good 1:01:40.200 --> 1:01:42.000 for a lot of people in the United States, so 1:01:42.400 --> 1:01:45.240 revisiting that and what I'm reading now is called economic 1:01:45.280 --> 1:01:48.240 Independence in War by Copeland I think his name is Copeman. 1:01:49.240 --> 1:01:53.360 Interesting talking about even though you have trade that's very interdependent, 1:01:53.880 --> 1:01:55.760 that doesn't mean there won't be conflict. And it's about 1:01:55.760 --> 1:01:59.440 trade expectations. This is really key. It's key going up 1:01:59.440 --> 1:02:02.640 to the election because we're talking about big tariffs on 1:02:02.720 --> 1:02:04.040 both sides of the aisle. 1:02:03.880 --> 1:02:05.720 Right, and that's a tax on consumers. 1:02:05.840 --> 1:02:08.560 That's a tax on consumers. It's I think it's that's inflationary, 1:02:08.600 --> 1:02:11.360 by the way, and we have to be careful how 1:02:11.560 --> 1:02:14.640 we as a nation respond to these challenges. You know, 1:02:14.680 --> 1:02:18.880 it's going to be a rivalry, right, but expectations and 1:02:18.960 --> 1:02:21.200 you know if people think one is au serping the 1:02:21.240 --> 1:02:23.880 other or boxing people out, that's going to lead to 1:02:24.120 --> 1:02:25.120 possibility conflict. 1:02:25.160 --> 1:02:27.840 You know you mentioned China. The other book that's next 1:02:27.880 --> 1:02:30.360 up in my cueue is Chip Wars. People keep telling 1:02:30.400 --> 1:02:32.200 me I have to read that, you read it. 1:02:32.560 --> 1:02:33.880 I have not, but I want to read it yet. 1:02:33.960 --> 1:02:37.160 All right, Next question, who are your mentors who helped 1:02:37.560 --> 1:02:38.600 shape your career? 1:02:38.920 --> 1:02:41.480 Yeah, so there's so many. I mean I remember that 1:02:41.480 --> 1:02:43.840 there was an old guy, old banker Don Lang at 1:02:43.880 --> 1:02:47.000 Central Bank of Trust. He taught me how commercial lending works. 1:02:47.040 --> 1:02:49.320 You know, he's basically, somebody puts a deposit in, we 1:02:49.400 --> 1:02:51.240 lend the back their money and we make this amount 1:02:51.240 --> 1:02:52.760 of money. You went through the math and I'm like, wow, 1:02:52.800 --> 1:02:55.720 that's a great return. You lend people their own money. 1:02:56.200 --> 1:02:58.040 But he also said to me, Matt, because as I 1:02:58.040 --> 1:02:59.720 was leaving, he said, Matt, whatever you do, stay close 1:02:59.760 --> 1:03:03.760 to the revenues. It was a good advice career wise. 1:03:03.840 --> 1:03:05.760 Career wise, yeah, no matter what you do. I think 1:03:05.800 --> 1:03:09.320 that's that's something I always tell, you know, graduating students. Obviously, 1:03:09.400 --> 1:03:12.160 Dan Fuss has been an amazing you know, he's a 1:03:12.200 --> 1:03:14.440 non traditional mentor, but he really, you know, taught me 1:03:14.560 --> 1:03:16.760 how to invest. He also taught me this is a 1:03:16.800 --> 1:03:20.440 people business, our clients. Really understanding your clients. He was 1:03:20.520 --> 1:03:22.920 very close to his clients. But it's also about people 1:03:23.040 --> 1:03:25.280 in your work in the organization. There's a lot of 1:03:25.320 --> 1:03:28.120 stress of investing. We don't try to create that at work. 1:03:28.600 --> 1:03:32.520 And that was an important lesson I learned from him. 1:03:32.600 --> 1:03:34.040 And I would say, you know, I don't think he 1:03:34.120 --> 1:03:36.560 would know he's a mentor, but Howard Marx is just 1:03:36.640 --> 1:03:40.280 fantastic thinker. I read all of his stuff. He's got 1:03:40.320 --> 1:03:44.080 the I would say total force on the most wrote 1:03:44.080 --> 1:03:47.520 on liquidity, which was amazing. I think people should read that. 1:03:47.960 --> 1:03:49.520 What was the name of that it's one of the 1:03:49.600 --> 1:03:52.200 letters he wrote about liquidity. I'll dig that up and 1:03:52.280 --> 1:03:54.880 link to it and the book. The most important thing 1:03:55.000 --> 1:03:59.920 was really super seminal. Dan Fuss has all these affors 1:04:00.240 --> 1:04:03.320 and rules. Did anybody ever put that together? Says there 1:04:03.360 --> 1:04:04.200 ever been something like that? 1:04:04.280 --> 1:04:07.680 Essentially you did. It was our investment framework, right. I'd 1:04:07.720 --> 1:04:10.040 like to think we made it better because Dan was 1:04:10.040 --> 1:04:13.480 one person, and you know we've extended that into other 1:04:13.520 --> 1:04:18.360 markets like securitized bank loans, but it's the same underlying principles. 1:04:18.440 --> 1:04:22.720 I would love to see his quotes in like Top 1:04:22.760 --> 1:04:25.400 ten or Top twenty list. I know, in prepping for this, 1:04:26.000 --> 1:04:29.400 I keep coming across him in various articles and stuff 1:04:29.440 --> 1:04:32.520 being quoted. I thought it was really some fascinating stuff. 1:04:32.720 --> 1:04:35.720 Our last two questions, what advice would you give to 1:04:35.760 --> 1:04:39.520 a recent college grad interested in a career in fixed 1:04:39.560 --> 1:04:40.720 income or investing? 1:04:41.160 --> 1:04:43.200 One thing I would. I'd say, as soon as you 1:04:43.240 --> 1:04:45.600 can figure out what type of investor you are, understand 1:04:45.600 --> 1:04:47.800 what your temperament is. And that sounds easy, but it's 1:04:48.000 --> 1:04:51.200 really you really got to think about this, and you 1:04:51.200 --> 1:04:54.240 know describes you know where you might fit the best 1:04:54.440 --> 1:04:56.400 as you and I think that's important. You really got 1:04:56.400 --> 1:05:00.560 to gel with what you're doing. I also think I 1:05:00.560 --> 1:05:02.840 wish I knew this, you know, coming into the to 1:05:02.920 --> 1:05:06.080 the market is really don't wait, even if you don't 1:05:06.080 --> 1:05:08.720 know what you're doing, just pretend you're in the business 1:05:08.720 --> 1:05:11.840 and you're trying to invest and make money. Start reading 1:05:11.880 --> 1:05:14.000 things and you know, you know all the jargon and 1:05:14.080 --> 1:05:16.200 all the shows that go in, start reading it. If 1:05:16.240 --> 1:05:18.520 you don't understand something, go figure out what it is, 1:05:19.080 --> 1:05:21.160 and that will just you know, keep you going to 1:05:21.280 --> 1:05:23.080 the the next thing and the next. Before you know, 1:05:23.160 --> 1:05:24.000 you'll get it. 1:05:24.080 --> 1:05:26.360 And our final question, what do you know about the 1:05:26.360 --> 1:05:29.800 world of investing today? You wish you knew thirty five 1:05:29.880 --> 1:05:32.400 years or so ago when you were first getting started. 1:05:32.720 --> 1:05:36.160 Well, I think I was sort of this view. I 1:05:36.200 --> 1:05:38.440 was a pure fundamental person. I thought, you know, there 1:05:38.520 --> 1:05:40.680 was this hard fast number that you get and you 1:05:40.680 --> 1:05:43.280 could transact on pretty much all the ideas that you 1:05:43.680 --> 1:05:46.320 would get. And what I realized is that there are 1:05:46.320 --> 1:05:49.440 a lot of other things that move prices in the market, 1:05:49.440 --> 1:05:52.440 including technicals, and you know, things can say cheap for 1:05:52.440 --> 1:05:55.200 a lot longer, and you really have to understand what 1:05:55.240 --> 1:05:58.880 the other side of the argument is and understand what's 1:05:58.920 --> 1:06:01.280 being priced in. So you might have this great idea, 1:06:02.080 --> 1:06:04.640 but if it's already priced into the market, it ain't 1:06:04.640 --> 1:06:08.600 worth anything. So you really have to understand that and 1:06:08.720 --> 1:06:12.240 see where your edge is and understand why that edge 1:06:12.600 --> 1:06:13.440 is pertinent. 1:06:13.720 --> 1:06:17.080 Huh, really fascinating, Matt. Thank you for being so generous 1:06:17.080 --> 1:06:20.120 with your time. We have been speaking with Matt Egan, 1:06:20.240 --> 1:06:24.200 portfolio manager and head of the Full Discretion team at 1:06:24.240 --> 1:06:28.560 Loomis Sales. If you enjoy this conversation, well, be sure 1:06:28.600 --> 1:06:31.800 and check out any of the previous five hundred plus 1:06:32.240 --> 1:06:36.040 interviews we've done over the past ten years. You can 1:06:36.080 --> 1:06:41.080 find those at Bloomberg iTunes, Spotify, YouTube, wherever you find 1:06:41.160 --> 1:06:45.200 your favorite podcasts. Be sure and check out my new podcast, 1:06:45.400 --> 1:06:50.520 At the Money, short ten minute conversations with experts about 1:06:50.600 --> 1:06:54.480 topics related to your money, earning it, spending it, and 1:06:54.560 --> 1:06:58.880 most importantly, investing it. At the Money, in the Master's 1:06:58.920 --> 1:07:02.640 and Business feed, or wherever you find your favorite podcasts. 1:07:03.200 --> 1:07:04.920 I would be remiss if I did not thank the 1:07:04.960 --> 1:07:08.360 Cracked team who helps me put these conversations together each week. 1:07:08.640 --> 1:07:12.760 My audio engineer is Meredith Frank, My producer is Anna 1:07:12.840 --> 1:07:16.520 Luke Attika of Albron is my project manager. Short Russo 1:07:16.640 --> 1:07:19.360 is my head of research. Sage Bauman is the head 1:07:19.400 --> 1:07:24.000 of podcasts at Bloomberg. I'm Barry Ritholtz. You've been listening 1:07:24.040 --> 1:07:31.400 to Masters in Business on Bloomberg Radio.