WEBVTT - The Debt Ceiling Crisis Is an Opportunity 0:00:13.880 --> 0:00:17.280 Hello, and welcome to What Goes Up, a weekly markets podcast. 0:00:17.320 --> 0:00:19.279 My name is Mike Reagan. I'm a senior editor at 0:00:19.320 --> 0:00:20.040 Bloomberg and. 0:00:20.000 --> 0:00:22.480 I'm Aldana Hire, a cross asset reporter with Bloomberg. 0:00:22.680 --> 0:00:25.320 And this week on the show, Well, the recent failure 0:00:25.400 --> 0:00:28.440 of some regional banks has turned investors' attention to the 0:00:28.480 --> 0:00:32.120 health of the credit markets and the possibility of a 0:00:32.120 --> 0:00:35.440 so called credit crunch in which the availability of debt 0:00:35.479 --> 0:00:40.000 financing becomes drastically reduced. So what kind of shape are 0:00:40.080 --> 0:00:42.800 credit markets in right now and what can we expect 0:00:42.840 --> 0:00:45.160 for the rest of the year. We'll get into it 0:00:45.200 --> 0:00:48.800 with a veteran portfolio manager in the fixed income markets. 0:00:49.040 --> 0:00:52.159 But first though, Donna, I have to ask, have you 0:00:52.200 --> 0:00:53.440 done all your Mother's Day shopping? 0:00:53.720 --> 0:00:55.360 I haven't bought anything for anybody? 0:00:55.440 --> 0:00:57.840 Nothing for not anybody mom. 0:00:57.920 --> 0:01:00.960 Not for my mom, not for my my husband's mom, 0:01:01.160 --> 0:01:03.320 not for his grandma. 0:01:03.600 --> 0:01:06.440 Nothing, nothing. A terrible daughter. 0:01:06.640 --> 0:01:09.360 I'll just buy flowers on the day off. I guess, okay, 0:01:09.400 --> 0:01:13.560 But we are flying to Florida to see my husband's grandma. 0:01:13.640 --> 0:01:16.720 She's ninety nine. Ohs, she's turning one hundred in August. 0:01:17.000 --> 0:01:17.520 Oh my god. 0:01:17.600 --> 0:01:20.720 So that's the gift. Really, you know, Okay, have you 0:01:20.760 --> 0:01:21.800 done your shopping? 0:01:21.920 --> 0:01:24.440 I've got a reservation for my wife. 0:01:24.480 --> 0:01:29.200 That sounds nice that you're making me feel bad. You're 0:01:29.200 --> 0:01:30.440 making me feel a little bad. 0:01:30.680 --> 0:01:33.280 Of course I waited till last week and there's no 0:01:33.440 --> 0:01:35.480 reservations left, so I have a three thirty. 0:01:35.840 --> 0:01:40.080 No, you don't the worst time. It's like not brunch, 0:01:40.120 --> 0:01:41.080 but also not dinner. 0:01:41.200 --> 0:01:42.319 What is it? I don't know what it is. 0:01:42.640 --> 0:01:44.199 You're lucky. The restaurant is even I'm. 0:01:44.080 --> 0:01:46.360 Trying to convince her. It's the new hip thing. Yeah, 0:01:46.400 --> 0:01:47.559 everyone's brunching it. 0:01:47.560 --> 0:01:51.640 It's early early bird, yeah, early the earliest, but late. 0:01:51.680 --> 0:01:52.760 It's a late night brunch. 0:01:53.280 --> 0:01:58.120 Nice. Nice, that's perfect. Anyway, our guest is waiting for us. 0:01:59.080 --> 0:02:00.800 I do want to bring her, and I'm so excited 0:02:00.800 --> 0:02:03.480 to have her on. I've heard her speak so many times. 0:02:03.560 --> 0:02:05.800 I'm so happy she could join us for the podcast. 0:02:06.160 --> 0:02:10.240 It's Elaine Stokes, executive vice president and portfolio manager and 0:02:10.400 --> 0:02:13.640 co head of the Full Discretion team at Loomis Sales. Elaine, 0:02:13.639 --> 0:02:15.320 thank you so much for coming on the podcast. 0:02:15.600 --> 0:02:16.480 Thanks for having me. 0:02:16.840 --> 0:02:18.520 Like I mentioned, I've been to a bunch of you 0:02:18.560 --> 0:02:22.359 guys's events I've heard you over the last couple of 0:02:22.400 --> 0:02:25.120 years talk about your many different outlooks, but maybe we 0:02:25.160 --> 0:02:27.400 can just start with you just giving us a quick 0:02:27.480 --> 0:02:31.600 overview of who you are and what your role entails. 0:02:32.200 --> 0:02:36.240 Okay, well, I am obviously you mentioned my name, Elaine Stokes. 0:02:36.280 --> 0:02:39.519 I've been working at Loomis for thirty five years this week. 0:02:40.280 --> 0:02:42.520 I am part of what we call the full Discretion Team. 0:02:42.800 --> 0:02:47.800 What we manage is multisector portfolios. We take a long 0:02:47.919 --> 0:02:52.399 term opportunistic approach, so active management, which. 0:02:52.160 --> 0:02:54.240 Has been a little out of othe as of late. 0:02:54.320 --> 0:02:56.679 But I think something that people are are, you know, 0:02:57.040 --> 0:02:59.639 eyes open to again now that we're starting to see 0:02:59.680 --> 0:03:00.639 some value in the market. 0:03:00.880 --> 0:03:03.280 You know, Elaine, I know you keep close eye on 0:03:03.320 --> 0:03:06.720 credit markets in your role, and there's been so much 0:03:06.840 --> 0:03:11.840 talk lately after the failure of these regional banks about 0:03:11.840 --> 0:03:15.520 a potential quote unquote credit crunch. So far, I'm not 0:03:15.560 --> 0:03:17.760 seeing a lot of like hard data evidence of it. 0:03:17.800 --> 0:03:19.880 If you look at say, high yield spreads, they seem 0:03:20.040 --> 0:03:23.639 pretty well contained. I know that FED Senior Loan Officer 0:03:23.720 --> 0:03:26.840 survey showed a little bit of an increase in tightening 0:03:26.880 --> 0:03:29.680 of standards, but nothing sort of through the roof. They're 0:03:29.680 --> 0:03:33.919 obviously are pockets of weakness commercial real estate, mortgage backed securities. 0:03:33.919 --> 0:03:36.160 Those spreads are getting pretty wide. But I'm curious how 0:03:36.200 --> 0:03:40.880 you're thinking about sort of the macro conditions for credit 0:03:41.000 --> 0:03:44.400 right now. Is that a real risk of a credit 0:03:44.440 --> 0:03:48.800 crunch where supply of credit gets greatly curtailed because of 0:03:48.880 --> 0:03:51.320 all these issues that we've seen in the banks. 0:03:51.880 --> 0:03:55.840 It seems to us that what has happened and what 0:03:55.880 --> 0:03:59.880 we've really seen out of this banking turmoil, i'll. 0:03:59.680 --> 0:04:03.360 Call it, is that we have seen. 0:04:03.880 --> 0:04:06.920 A proof point that all these moves by the FED 0:04:06.960 --> 0:04:07.840 are finally working. 0:04:08.480 --> 0:04:10.120 But they're working in. 0:04:11.880 --> 0:04:18.800 People's risk appetite going down for things like new technology, crypto, 0:04:19.760 --> 0:04:24.920 even some private equity. But we're not seeing it in 0:04:25.920 --> 0:04:27.880 our day to day life right We're not seeing it 0:04:27.920 --> 0:04:30.880 to the extent that you would expect to be seeing 0:04:30.920 --> 0:04:36.000 it in normal day to day borrowing. What my fear 0:04:36.160 --> 0:04:41.640 is is that if we continue to have equity markets 0:04:42.279 --> 0:04:47.360 telling us that regional banks aren't safe, then regional banks 0:04:47.360 --> 0:04:51.360 and banks in general will then continue to tighten and 0:04:51.400 --> 0:04:52.680 continue to tighten. 0:04:52.400 --> 0:04:54.960 Their standards, and that's going to start to hit those 0:04:55.000 --> 0:04:58.720 small and medium sized businesses. If that happens. 0:05:00.000 --> 0:05:02.480 I think we all have a different view of what 0:05:02.520 --> 0:05:05.800 the recession will look like. Being the week prior to 0:05:05.880 --> 0:05:09.880 Mother's Day, and Regulate is liking to come out and 0:05:09.920 --> 0:05:12.360 give us something on Sundays. 0:05:12.480 --> 0:05:14.040 I was thinking that maybe. 0:05:13.760 --> 0:05:16.479 That would be the regulator's gift to us, is that 0:05:16.520 --> 0:05:22.800 they gave us something that would quiet down this. You know, constant, 0:05:23.000 --> 0:05:25.280 let's take a run at the regional banks and then 0:05:25.320 --> 0:05:27.320 settle down. Take a run at the regional banks and 0:05:27.360 --> 0:05:30.599 settle down, and would get something that would would put 0:05:30.640 --> 0:05:35.240 that potential crisis of confidence that we're all looking at 0:05:35.320 --> 0:05:37.320 and kind of put it to bed once and for all. 0:05:38.000 --> 0:05:39.360 We have strong. 0:05:39.040 --> 0:05:42.919 Banks, and it's a confidence game, and we need to 0:05:42.960 --> 0:05:46.440 do something to swelch that confidence or it is going 0:05:46.480 --> 0:05:47.800 to start to affect the economy. 0:05:48.279 --> 0:05:51.400 So you said in your notes, obviously a lot rides 0:05:51.440 --> 0:05:55.040 on a resolution to the banking issues. How plausible is 0:05:55.080 --> 0:05:58.520 it to actually see something like the universal Deposit insurance 0:05:58.600 --> 0:06:01.599 or how do you actually see things playing out going forward? 0:06:02.360 --> 0:06:05.200 You know, I really think a lot of it rides 0:06:05.240 --> 0:06:09.760 on watching what happens to the equities of these regional banks, 0:06:10.040 --> 0:06:12.599 because that's the only place we're still you know, keeping 0:06:12.640 --> 0:06:16.600 our eye on and watching where that fear is coming. 0:06:17.160 --> 0:06:20.160 If we can get to a steady state, maybe we're 0:06:20.200 --> 0:06:22.960 going to have an orderly merger or two beyond what 0:06:23.000 --> 0:06:26.599 we've already had, then I think we're past it. But 0:06:26.720 --> 0:06:28.880 if we I think the next two weeks are critical, 0:06:29.760 --> 0:06:33.080 and having the negotiations in Washington kind of hanging over 0:06:33.120 --> 0:06:37.480 our head at the same time definitely has the ability 0:06:37.560 --> 0:06:39.760 to make markets. 0:06:39.440 --> 0:06:42.479 Overreact, you know, And obviously it all comes back to 0:06:43.240 --> 0:06:46.719 interest rates and the path for the Fed this year. Elaine. 0:06:47.360 --> 0:06:51.880 We did get CPI data this week, headline number four 0:06:51.880 --> 0:06:55.320 point nine percent, that about one tenth from the previous month. 0:06:55.400 --> 0:06:57.840 Core at five point five percent, also down about a tenth, 0:06:57.880 --> 0:07:02.080 but really not aggressively normalizing the way it did, say 0:07:02.200 --> 0:07:06.440 last summer. What's your big picture view on where the 0:07:06.440 --> 0:07:10.440 Fed and rates markets are headed in general? Given this 0:07:10.760 --> 0:07:14.840 inflation scenario that the worst it seems to be over, 0:07:14.920 --> 0:07:17.640 but we really kind of seem to be plateauing almost 0:07:17.680 --> 0:07:19.760 at some pretty elevated levels. What do you expect for 0:07:19.800 --> 0:07:21.160 the rest of the year as far as rates and 0:07:21.240 --> 0:07:21.560 the Fed? 0:07:22.200 --> 0:07:26.360 Yeah, so, because of the short term reasons we already mentioned, right, 0:07:26.480 --> 0:07:30.080 what's what's happening with the regional banks and the debt 0:07:30.080 --> 0:07:34.880 sailing talks. I think the FED will absolutely pause at 0:07:34.880 --> 0:07:35.640 its next meeting. 0:07:36.440 --> 0:07:38.880 But longer term. 0:07:38.520 --> 0:07:44.760 Our view is that there are some big picture secular 0:07:44.840 --> 0:07:51.160 trends that are going to keep inflation elevated, not necessarily 0:07:51.200 --> 0:07:54.680 elevated at five percent, you know, but I think it's 0:07:54.680 --> 0:07:57.080 going to be really really hard to get to target. 0:07:57.680 --> 0:07:59.840 You know, we believe that the FED is going to 0:07:59.880 --> 0:08:04.520 be a little slower to react in cutting rates. 0:08:04.560 --> 0:08:06.760 We think the market's a little bit ahead of itself here. 0:08:07.280 --> 0:08:10.640 The market, I think is pricing in, you know, one 0:08:10.680 --> 0:08:14.280 of those first two short term items going horribly wrong 0:08:14.960 --> 0:08:17.040 and the FED having to come in and really cut. 0:08:17.760 --> 0:08:20.040 We think that, you know, this is what we refer 0:08:20.120 --> 0:08:23.480 to as the four d's. Right, we have demographics we're 0:08:23.760 --> 0:08:28.040 working against us. We have deglobalization working against us. We 0:08:28.120 --> 0:08:31.200 have decarbonization working against us. 0:08:31.200 --> 0:08:32.599 In growing deficits. 0:08:32.679 --> 0:08:35.600 Right, we have those four things that we all you know, 0:08:35.920 --> 0:08:42.480 are familiar with that are all potentially inflationary, and it's 0:08:42.520 --> 0:08:46.040 going to be hard for the FED to kind of take. 0:08:45.880 --> 0:08:47.600 The foot off the pedal completely. 0:08:48.640 --> 0:08:52.240 It just doesn't feel like a strong cutting cycle is 0:08:52.679 --> 0:08:53.320 in our future. 0:09:00.080 --> 0:09:03.320 Can we talk about what the market is expecting, because 0:09:03.400 --> 0:09:07.360 the market is pricing in cuts, you know, as early 0:09:07.400 --> 0:09:11.920 as July, which is like in a couple of weeks basically, 0:09:12.000 --> 0:09:15.839 so like what is behind that thinking there? And then 0:09:16.080 --> 0:09:18.240 almost everybody I talked to is like, that is not 0:09:18.320 --> 0:09:21.040 going to happen. The Fed is not going to be 0:09:21.080 --> 0:09:21.920 cutting in July. 0:09:22.640 --> 0:09:24.760 The only way that really makes sense to me is 0:09:24.800 --> 0:09:30.600 that the market is saying in putting pressure on the 0:09:30.640 --> 0:09:32.480 government to get its act together and come to an 0:09:32.520 --> 0:09:37.800 agreement or to figure out how to make this bank 0:09:37.880 --> 0:09:38.839 situation go away. 0:09:39.600 --> 0:09:39.760 Right. 0:09:39.800 --> 0:09:42.240 I feel I got some market saying, hey, we're here 0:09:42.320 --> 0:09:45.440 telling you to get your act together, because it doesn't 0:09:45.480 --> 0:09:50.480 make sense given the economic numbers that we're seeing. You know, 0:09:50.559 --> 0:09:53.600 we're still seeing some up, some down, you know, a 0:09:53.760 --> 0:09:57.840 very mixed bag of economic numbers, and still have too 0:09:57.880 --> 0:10:03.120 many good potentials wrong drivers of this economy. 0:10:03.480 --> 0:10:05.520 So that just does not make sense. 0:10:05.559 --> 0:10:07.880 And I just think it's the market using whatever lever 0:10:08.040 --> 0:10:11.480 it has to get the attention of the regulators to 0:10:11.559 --> 0:10:12.480 force the fence hand. 0:10:12.520 --> 0:10:15.240 I guess yeah, you know, Elaine, it's kind of a 0:10:15.280 --> 0:10:19.240 fascinating time to be surveying the fixed income landscape because 0:10:19.240 --> 0:10:23.240 there's some tremendous opportunities in the front end. You know, 0:10:24.000 --> 0:10:26.560 even in a money market phone you can get five 0:10:26.559 --> 0:10:31.000 percent basically yield right now. So I'm curious, what where 0:10:31.040 --> 0:10:34.680 are you seeing value? You know, is is the front 0:10:34.760 --> 0:10:36.640 end the place to be right now with these high 0:10:36.679 --> 0:10:39.120 yields or is it you know, what are you looking 0:10:39.160 --> 0:10:43.280 at is terms as attractive corners of fixed income right now? 0:10:43.760 --> 0:10:45.920 What I love about fixed income is is you kind 0:10:45.920 --> 0:10:50.240 of have to triangulate. Right, it's great. We have over 0:10:50.360 --> 0:10:53.360 five percent in the short end, you know, up from 0:10:53.640 --> 0:10:57.280 under two percent, and for the last several years, any 0:10:57.320 --> 0:10:59.439 of us would look at five percent as wow, that's 0:10:59.600 --> 0:11:01.120 that's an healthy return. 0:11:01.520 --> 0:11:04.040 Let's not forget that inflation is still around five percent. 0:11:04.600 --> 0:11:08.240 If you take more risk, get involved in in high 0:11:08.360 --> 0:11:10.880 yield we're talking about eight and a half to nine 0:11:10.920 --> 0:11:14.440 percent type of yields, so that's really attractive. So the 0:11:14.559 --> 0:11:18.840 yield levels has gotten really interesting. Spreads have also gotten 0:11:19.160 --> 0:11:22.280 much larger than they were a year ago. Right we're 0:11:22.440 --> 0:11:25.360 pretty much almost doubled in spread levels that we're getting 0:11:26.000 --> 0:11:29.720 from our tights, So that means that we're we're getting 0:11:29.760 --> 0:11:34.040 paid a bigger premium to take on some risk. Is 0:11:34.080 --> 0:11:37.760 it enough that it looks like we're getting paid as 0:11:37.760 --> 0:11:41.719 if we're in a downturn or a recession. 0:11:42.400 --> 0:11:43.240 Not quite. 0:11:44.160 --> 0:11:48.839 But the difference right now is that the dollar price 0:11:48.920 --> 0:11:55.480 is lower. We have been living in a market where 0:11:55.679 --> 0:11:59.439 dollar prices for bonds have been well over par for 0:12:00.160 --> 0:12:03.400 very long time, and now we're looking at dollar prices 0:12:03.440 --> 0:12:07.320 that index averages are close to ninety cents on the dollar. 0:12:08.080 --> 0:12:10.200 So not only can you buy that bond at the 0:12:10.240 --> 0:12:13.240 five percent or the eight and a half percent, but 0:12:13.360 --> 0:12:16.160 you also have the potential to go up those ten 0:12:16.240 --> 0:12:22.079 price points if there's any type of positive economic news 0:12:22.320 --> 0:12:26.120 or specific news. So when I look at all three 0:12:26.240 --> 0:12:30.280 together and really think about the technicals in the market, 0:12:30.559 --> 0:12:32.560 and when I talk about the technicals in the market, 0:12:32.600 --> 0:12:37.199 what I'm really referring to is the lack of issuance. 0:12:37.880 --> 0:12:41.439 We've had very very low issuance levels over the last 0:12:41.480 --> 0:12:47.080 few years. Borrowers have gone private and that has made 0:12:47.120 --> 0:12:50.520 a big difference in the markets in the number of 0:12:50.880 --> 0:12:54.080 buyers out there looking for product. So when I consider 0:12:55.040 --> 0:12:58.400 all that together, I think that there's value in this market, 0:12:58.760 --> 0:13:01.800 and it's in the short and yes, but we also 0:13:02.240 --> 0:13:04.640 can go down the risk spectrum a little bit and 0:13:04.720 --> 0:13:08.120 pick up some nice, low dollar priced bonds that have 0:13:08.240 --> 0:13:11.760 the potential to go up in a lot of xcess yield. 0:13:12.360 --> 0:13:15.480 Elaine, we had this very interesting interview with Bill Gross 0:13:15.520 --> 0:13:17.959 earlier this week where he said that he really likes 0:13:17.960 --> 0:13:21.680 one month tea bills because he thinks the debt ceiling issue, 0:13:21.720 --> 0:13:24.600 although it's a risk that it will get resolved. And 0:13:24.640 --> 0:13:26.640 so I'm curious, like if somebody came to you, if 0:13:26.640 --> 0:13:28.800 a client came to you and you know, asked you 0:13:28.840 --> 0:13:32.600 about tea bills, what would you advise them? And this 0:13:32.640 --> 0:13:34.880 is my sort of runabout way of asking you how 0:13:34.920 --> 0:13:38.920 you're managing and thinking about the debt ceiling issue. 0:13:40.600 --> 0:13:44.520 I look at it as a bump in the road. 0:13:45.440 --> 0:13:48.840 We've seen this movie before. Yes, it feels a little 0:13:48.840 --> 0:13:52.280 bit worse. I was just noting that, you know, credit 0:13:52.320 --> 0:13:56.280 DeVault swaps and US credit devult swaps are now wider. 0:13:55.840 --> 0:13:59.280 Than Greece, Brazil, Mexico. 0:13:59.480 --> 0:14:02.480 Like I could go on and on, right, but when 0:14:02.520 --> 0:14:05.840 all is said and done, everybody in that room knows 0:14:05.880 --> 0:14:07.720 they have to come up with some type of agreement. 0:14:08.480 --> 0:14:14.000 The alternative is too bad politically for both sides. Do 0:14:14.080 --> 0:14:18.720 I think it makes sense to be super short. Yes, 0:14:18.840 --> 0:14:22.080 there is value there. But what I would say is, 0:14:22.800 --> 0:14:28.440 let's take advantage of the volatility. The volatility that I 0:14:28.480 --> 0:14:30.600 think we're going to have over the next couple weeks 0:14:30.760 --> 0:14:33.800 is going to be the opportunity. So take advantage of 0:14:33.840 --> 0:14:37.000 that opportunity to buy a little further out the curve, 0:14:37.480 --> 0:14:41.960 to buy low dollar price bonds, to build in real 0:14:42.080 --> 0:14:43.720 return for a long time. 0:14:44.440 --> 0:14:47.760 Why stay. Maybe I'm too much of a risk taker. 0:14:48.200 --> 0:14:50.840 I was brought up in the high yield market, but 0:14:51.800 --> 0:14:56.360 these are the periods going into the downturn that you 0:14:56.480 --> 0:15:00.360 build your long term portfolios. So that's what I would 0:15:00.440 --> 0:15:01.440 use this opportunity for. 0:15:01.840 --> 0:15:03.840 So you do think high yield is worth the risk 0:15:03.880 --> 0:15:05.920 if we do get some volatility, even with all the 0:15:05.960 --> 0:15:07.400 recession concerns floating around. 0:15:07.840 --> 0:15:12.640 Yes, I don't believe that this time around it's going 0:15:12.680 --> 0:15:16.160 to be the traditional high yield market that's going to 0:15:16.200 --> 0:15:19.680 see the big wave in defaults. That is going to 0:15:19.720 --> 0:15:23.520 happen in either the bank loan market or the private market, 0:15:23.720 --> 0:15:25.680 and then we might not even see them as defaults 0:15:25.680 --> 0:15:28.240 because a lot gets worked out behind the scenes there. 0:15:28.720 --> 0:15:32.680 But that's where the weaker. 0:15:32.480 --> 0:15:36.440 Issuance has come and you know, the lower quality issuance. 0:15:36.720 --> 0:15:39.320 So the traditional high yield market is actually setting up 0:15:39.360 --> 0:15:42.120 to look pretty attractive, you know, Eleaene. 0:15:42.160 --> 0:15:44.600 I wanted to rewind a little bit because you mentioned 0:15:44.600 --> 0:15:47.240 something that I had intended to ask you about, and 0:15:47.240 --> 0:15:50.120 that is the shift into private credit that we've seen. 0:15:50.200 --> 0:15:52.760 I mean, I don't know how many stories I've seen 0:15:52.800 --> 0:15:57.920 about you know, borrowers tapping into the private credit markets 0:15:57.960 --> 0:16:00.080 more and more. I don't think we quite have the 0:16:00.160 --> 0:16:03.640 visibility into it and the transparency to put dollar figures 0:16:03.680 --> 0:16:07.080 on how big of a shift it's been. But clearly 0:16:07.440 --> 0:16:10.960 there's been a big shift into private credit. I'm curious 0:16:10.960 --> 0:16:13.040 what you think is driving that. I mean, is it 0:16:13.320 --> 0:16:16.640 simply a matter of less paperwork, less need for disclosure, 0:16:17.160 --> 0:16:19.360 that sort of thing, or is there more to within that. 0:16:20.040 --> 0:16:21.520 I think there's a lot of things that have been 0:16:21.560 --> 0:16:22.040 driving that. 0:16:22.400 --> 0:16:24.760 Part of it was, and I do want to tell 0:16:24.800 --> 0:16:28.520 you that kind of that straight line up has started. 0:16:28.120 --> 0:16:28.720 To roll over. 0:16:29.560 --> 0:16:32.960 Okay, so a little bit less year to date has 0:16:32.960 --> 0:16:36.200 been going into the private markets versus the public markets 0:16:36.240 --> 0:16:41.200 were starting to shift. Rates were so low, so much 0:16:41.720 --> 0:16:45.480 money was looking for something better to do a place 0:16:45.520 --> 0:16:48.240 where they could get higher returns, so they were going 0:16:48.320 --> 0:16:49.440 to the private market. 0:16:49.480 --> 0:16:52.280 That cash was going to the private markets. So now 0:16:52.280 --> 0:16:53.520 the private markets. 0:16:53.200 --> 0:16:55.840 Were flushed with all this cash and what are we 0:16:55.880 --> 0:16:59.160 going to do with it? And they started putting together 0:16:59.800 --> 0:17:02.760 and what we call them club deals. They started to 0:17:02.880 --> 0:17:06.919 join forces, friends getting together, and they would puck deals 0:17:07.000 --> 0:17:10.440 right out of the public market, print them a little 0:17:10.480 --> 0:17:13.640 bit about the same level or even a little bit 0:17:13.680 --> 0:17:17.040 tighter than they would have happened in the public market. 0:17:18.160 --> 0:17:21.359 But for the issuer, they took away that market risk, 0:17:22.000 --> 0:17:24.200 you know, that process of having to bring it out 0:17:24.240 --> 0:17:26.840 into the market as an issuer. 0:17:27.000 --> 0:17:29.520 Oh it's you know, it's five buyers. 0:17:29.560 --> 0:17:31.640 This is going to be much easier to negotiate if 0:17:31.640 --> 0:17:34.199 we do get ourselves into trouble. And a lot of 0:17:34.240 --> 0:17:36.920 this debt that came there was single B and below, 0:17:37.400 --> 0:17:40.879 you know, so it was definitely riskier type of debt. 0:17:41.640 --> 0:17:43.879 It kind of set itself up on both sides to 0:17:44.359 --> 0:17:51.680 be advantageous. Now with money being pulled back from taking 0:17:52.080 --> 0:17:56.480 on that excess risk and short rates at five percent, 0:17:57.119 --> 0:18:00.960 do we really need to go into that type of risk, 0:18:01.480 --> 0:18:04.400 So money is pulling away from it, and those same 0:18:04.560 --> 0:18:09.320 deals that come into the market, and whether they're private 0:18:09.400 --> 0:18:11.679 credit or bank loans, we're seeing them come to the 0:18:11.720 --> 0:18:14.520 market and looking to come back to the high yield market. 0:18:15.080 --> 0:18:17.800 So we're starting to go full circle on this whole swing. 0:18:18.320 --> 0:18:20.080 The bottom line is, I think this is one of 0:18:20.080 --> 0:18:22.960 the most fascinating parts of the debt markets right now. 0:18:24.040 --> 0:18:27.639 These markets are converging. It's getting harder and harder to 0:18:27.680 --> 0:18:30.840 tell the difference between the high yield market, the bank 0:18:30.880 --> 0:18:35.600 loan market, and the private debt market, and the players 0:18:35.600 --> 0:18:37.000 are a lot of the same players. 0:18:37.920 --> 0:18:40.120 The syndicate desks. 0:18:39.760 --> 0:18:42.760 Are you know, for new issues, are all talking to 0:18:42.800 --> 0:18:47.800 each other, and you know, almost any given deal, you 0:18:47.920 --> 0:18:50.439 could find a way to put it into the market 0:18:50.440 --> 0:18:52.119 that you want it to be in if you're a 0:18:52.200 --> 0:18:55.360 large enough buyer. So it's really become an interesting part 0:18:55.400 --> 0:18:58.320 of the market and we're watching it really really closely 0:18:58.880 --> 0:19:00.720 as potent she'll. 0:19:02.840 --> 0:19:06.440 Supply coming back into the debt markets. 0:19:06.440 --> 0:19:08.960 Elaine, I wanted to ask you because we're talking about 0:19:09.000 --> 0:19:12.400 all of these different risks that potentially are on the horizon. 0:19:12.720 --> 0:19:15.679 One of them, which you touched on, is that potentially 0:19:15.680 --> 0:19:19.560 inflation proofs you know, stickier than people think the other 0:19:19.600 --> 0:19:22.399 one is that we are misreading the labor market. And 0:19:22.440 --> 0:19:24.840 I'm wondering what your thought is on that, Like how 0:19:25.000 --> 0:19:26.719 potentially we might be misreading it. 0:19:27.800 --> 0:19:30.640 Yeah, labor has been sticky. 0:19:31.080 --> 0:19:36.000 An other words, unemployment has stayed surprisingly low. We had 0:19:36.600 --> 0:19:42.720 a significant number of cross currents during COVID that took 0:19:42.760 --> 0:19:46.400 a lot of labor out of the market. But aside 0:19:46.440 --> 0:19:50.200 from that, we've also had some really big structural changes. 0:19:51.200 --> 0:19:55.560 We have the baby boomers getting older and getting to 0:19:55.600 --> 0:19:57.000 that age of retirement. 0:19:57.359 --> 0:19:58.440 It's a different cohort. 0:19:59.200 --> 0:20:04.120 They're looking at retirement as let's go, you know, get 0:20:04.119 --> 0:20:07.200 a condo in Florida and play pick a ball and golf. 0:20:07.320 --> 0:20:09.560 That sounds really nice. Actually, I would love to be 0:20:09.600 --> 0:20:10.480 doing that right now. 0:20:12.200 --> 0:20:18.520 And they have more means to retire early. I think 0:20:18.560 --> 0:20:20.679 a lot a lot of people were looking at that 0:20:20.960 --> 0:20:25.800 as a fluke, the early retirements and people coming out 0:20:25.840 --> 0:20:28.879 of the labor force through COVID. You know, don't forget 0:20:28.880 --> 0:20:33.439 how big that baby boomer cohort is. They're going to 0:20:33.480 --> 0:20:36.120 continue to be coming out of the labor force at 0:20:36.119 --> 0:20:37.040 a faster pace. 0:20:37.680 --> 0:20:40.120 And I think at the at the same time. 0:20:40.760 --> 0:20:45.080 Anecdotally locally, what I've noticed is when when we decide 0:20:45.080 --> 0:20:46.159 we're going to go out to dinner. 0:20:46.480 --> 0:20:48.280 Just an example, we decide we're going to go out 0:20:48.320 --> 0:20:49.040 to dinner, we. 0:20:49.040 --> 0:20:51.800 Have to really think about which restaurant is open which 0:20:51.920 --> 0:20:56.000 day because all of the restaurants in our area are 0:20:56.000 --> 0:20:56.800 short staffed. 0:20:57.359 --> 0:20:58.560 So what they've started to. 0:20:58.520 --> 0:21:00.680 Do is closed down for a cup days a week. 0:21:01.400 --> 0:21:04.520 And it's not just happening there. It's not just happening 0:21:04.600 --> 0:21:07.480 in the restaurant industry. It's happening that type of thing 0:21:08.280 --> 0:21:13.159 is happening where you know there is a need or 0:21:13.680 --> 0:21:18.520 companies would like to give better service, have more employees, 0:21:18.800 --> 0:21:22.120 but they're just on the employees to hire. I think 0:21:22.160 --> 0:21:25.520 there's some pent up demand there for labor that will 0:21:25.560 --> 0:21:27.040 come back in if. 0:21:26.920 --> 0:21:28.360 The labor market loosens up. 0:21:29.040 --> 0:21:32.000 So I do think if there's anywhere where we might 0:21:32.040 --> 0:21:35.680 be misreading, is that the pressure on the labor market 0:21:36.440 --> 0:21:39.399 and potentially wages might stick around a little bit longer. 0:21:54.960 --> 0:21:57.400 Well, Elaine Stokes, the new kid on the block, only 0:21:57.480 --> 0:22:01.359 thirty five years at Loomis Hills. Great to catch up 0:22:01.359 --> 0:22:03.199 with you. We're almost out of time. We can't let 0:22:03.280 --> 0:22:05.439 you go yet though, because Lol, Donna's going to tell 0:22:05.520 --> 0:22:08.639 us the craziest thing she saw in markets this week. 0:22:08.920 --> 0:22:12.280 Okay, remember last week I had a kind of lame 0:22:12.359 --> 0:22:17.400 one about Wendy's the chili and the can or whatever. Okay, 0:22:17.560 --> 0:22:22.840 this week's is also about Wendy's. I haven't been to 0:22:22.880 --> 0:22:25.320 Wendy's in years, but Frosty's in the can. No, this 0:22:25.440 --> 0:22:28.119 is so interesting. Oh that's a really good idea. They 0:22:28.119 --> 0:22:30.680 should sell that at grocery stores. I would definitely buy 0:22:30.880 --> 0:22:34.439