1 00:00:10,680 --> 00:00:14,560 Speaker 1: Hello, and welcome to another episode of the Odd Lots Podcast. 2 00:00:14,600 --> 00:00:19,840 Speaker 1: I'm Joe and I'm Tracy Allaway. Tracy, so you know 3 00:00:19,880 --> 00:00:23,480 Speaker 1: what a sort of depressing phenomenon has been lately. You're 4 00:00:23,480 --> 00:00:28,440 Speaker 1: going to have to narrow that down. Job. Yeah, right there, 5 00:00:29,000 --> 00:00:34,880 Speaker 1: that's that's a very broad category, very micro depressing phenomenon. 6 00:00:36,080 --> 00:00:39,280 Speaker 1: Is that a lot of our recent episodes that we've done, 7 00:00:39,720 --> 00:00:42,840 Speaker 1: which we sort of discussed in a very theoretical sense, 8 00:00:43,240 --> 00:00:48,279 Speaker 1: have unfortunately started to become relevant extremely quickly. Yeah, you're 9 00:00:48,320 --> 00:00:51,320 Speaker 1: absolutely right. One of the ones that springs to mind 10 00:00:51,560 --> 00:00:54,400 Speaker 1: is the one we did with Claudia Psalm back in 11 00:00:54,640 --> 00:00:58,160 Speaker 1: I think it was January or February about actually giving 12 00:00:58,160 --> 00:01:01,240 Speaker 1: people money as a form of econo stimulus in order 13 00:01:01,280 --> 00:01:04,039 Speaker 1: to stave offer session. And now we're sort of seeing 14 00:01:04,040 --> 00:01:07,440 Speaker 1: that actually happen in the US, although obviously there are 15 00:01:07,880 --> 00:01:11,280 Speaker 1: issues in a wider debate about the way that's currently 16 00:01:11,280 --> 00:01:15,960 Speaker 1: being done. Yeah. Absolutely, another one, And I would say 17 00:01:16,000 --> 00:01:19,520 Speaker 1: this episode that we're going to do even more than 18 00:01:19,600 --> 00:01:24,080 Speaker 1: any other. On Twitter, several times a week people ask 19 00:01:24,240 --> 00:01:27,839 Speaker 1: for updates of it. So there's one in particular where 20 00:01:28,040 --> 00:01:30,600 Speaker 1: I'm always getting tweets. It's like, hey, what's going on 21 00:01:30,680 --> 00:01:32,760 Speaker 1: with what you talked about that one episode I'm curious 22 00:01:32,760 --> 00:01:36,560 Speaker 1: about you sort of have been getting the same one, Yeah, 23 00:01:36,680 --> 00:01:39,840 Speaker 1: I absolutely have. I know exactly what episode you were 24 00:01:39,840 --> 00:01:42,360 Speaker 1: talking about, and it was a really good one. It's 25 00:01:42,440 --> 00:01:46,119 Speaker 1: Korean structured products. And not only have I been getting 26 00:01:46,120 --> 00:01:49,600 Speaker 1: the same tweets with the same questions and people asking 27 00:01:49,640 --> 00:01:52,320 Speaker 1: for a general update and what's going on with the 28 00:01:52,320 --> 00:01:56,240 Speaker 1: structured products as well as the overall options market, but 29 00:01:56,320 --> 00:01:59,480 Speaker 1: over in Asia we've also been doing a few stories 30 00:01:59,520 --> 00:02:02,880 Speaker 1: on it well, and it turns out there's quite a 31 00:02:02,920 --> 00:02:05,560 Speaker 1: lot that's been happening with these right. So for those 32 00:02:05,560 --> 00:02:10,160 Speaker 1: who do remember, in January, we recorded an episode about 33 00:02:10,240 --> 00:02:15,120 Speaker 1: these Korean structured products popular with retail investors that we're 34 00:02:15,160 --> 00:02:19,040 Speaker 1: sort of premised on a there essentially, the payout was 35 00:02:19,080 --> 00:02:23,680 Speaker 1: premised on a massive stock market crash not happening, and 36 00:02:23,840 --> 00:02:26,840 Speaker 1: as everybody knows, we've gotten this market crash, and so 37 00:02:26,960 --> 00:02:29,320 Speaker 1: everybody has been saying, what's going on with those career 38 00:02:29,320 --> 00:02:31,240 Speaker 1: structured products when you're going to do a follow up? 39 00:02:31,600 --> 00:02:34,120 Speaker 1: So today we're going to do a follow up. Great, 40 00:02:34,360 --> 00:02:37,360 Speaker 1: I can't wait. Okay, So we are are guests back 41 00:02:37,400 --> 00:02:40,320 Speaker 1: in January is the same guest we have today to 42 00:02:40,760 --> 00:02:43,880 Speaker 1: do Part two is Ben Effort. He's the c i 43 00:02:43,960 --> 00:02:49,840 Speaker 1: O and founder of qv R Advisors. Uh Ben, how 44 00:02:49,840 --> 00:02:52,880 Speaker 1: are you doing so, Tracy? Hey, I'm doing well. Thanks. 45 00:02:52,919 --> 00:02:57,120 Speaker 1: It's it's great to be back. So I'll preface this 46 00:02:57,200 --> 00:02:59,959 Speaker 1: by saying that I think anyone listening to this episode 47 00:03:00,400 --> 00:03:03,920 Speaker 1: should go back and listen to the first interview that 48 00:03:03,960 --> 00:03:06,680 Speaker 1: we did with you back in the middle of January, 49 00:03:06,720 --> 00:03:09,560 Speaker 1: so that we don't have to do a complete refresher 50 00:03:09,800 --> 00:03:13,840 Speaker 1: of the Korean structured products. But well, we just sort 51 00:03:13,840 --> 00:03:17,640 Speaker 1: of give us the sort of the short version of 52 00:03:17,840 --> 00:03:22,440 Speaker 1: the instruments that we were discussing and how their payout 53 00:03:22,639 --> 00:03:28,840 Speaker 1: was linked to essentially stability in the market. Sure. So 54 00:03:28,919 --> 00:03:32,120 Speaker 1: the very brief recap is, you know, there are large 55 00:03:32,160 --> 00:03:36,560 Speaker 1: global structured product businesses targeted primarily at retail and high 56 00:03:36,640 --> 00:03:40,280 Speaker 1: net worth investors around the world, but very large in 57 00:03:40,680 --> 00:03:44,240 Speaker 1: Korea in particular, also Japan to a somewhat lesser extent now, 58 00:03:44,840 --> 00:03:48,920 Speaker 1: and the most popular types of products in the recent 59 00:03:48,960 --> 00:03:51,400 Speaker 1: market environment that we've had for the last decade or 60 00:03:51,400 --> 00:03:55,200 Speaker 1: so where interest rates are very low are essentially what 61 00:03:55,280 --> 00:04:00,760 Speaker 1: are called reverse convertible autocollable notes, which is a lot words, 62 00:04:00,800 --> 00:04:04,720 Speaker 1: but the idea is effectively, you know, the retail investors 63 00:04:04,800 --> 00:04:08,480 Speaker 1: looking to generate a coupon, so a fixed income out 64 00:04:08,480 --> 00:04:11,280 Speaker 1: of the equity market, and the way that you do 65 00:04:11,360 --> 00:04:15,320 Speaker 1: that in this environment is you sell some kind of optionality, right, 66 00:04:15,360 --> 00:04:18,839 Speaker 1: and so these notes typically the way they work is 67 00:04:18,880 --> 00:04:21,520 Speaker 1: that the investor might get let's say a five percent 68 00:04:21,640 --> 00:04:26,600 Speaker 1: or a seven percent annual coupon unless or until one 69 00:04:26,800 --> 00:04:29,080 Speaker 1: or more of what you know, at least one of 70 00:04:29,120 --> 00:04:31,680 Speaker 1: the underlying equity indices that the note is linked to 71 00:04:32,480 --> 00:04:36,920 Speaker 1: is down by let's say thirty percent or at some 72 00:04:37,000 --> 00:04:40,320 Speaker 1: point during the life of the note, and in that eventuality, 73 00:04:40,360 --> 00:04:42,400 Speaker 1: at the point where that happens, the note is is 74 00:04:42,440 --> 00:04:46,200 Speaker 1: triggered into a knockout state and the investor loses that say, 75 00:04:46,240 --> 00:04:49,839 Speaker 1: thirty or of their investments. So the investor puts in 76 00:04:49,839 --> 00:04:52,159 Speaker 1: a hundred dollars, they're going to get a hundred and 77 00:04:52,200 --> 00:04:55,640 Speaker 1: seven back unless the markets down. But if the market 78 00:04:55,720 --> 00:04:58,520 Speaker 1: at some point is down, let's say in one in 79 00:04:58,640 --> 00:05:00,440 Speaker 1: let's call it the euro stocks or the knee K 80 00:05:00,920 --> 00:05:03,760 Speaker 1: or the SMPH, then the investor is actually just going 81 00:05:03,839 --> 00:05:06,560 Speaker 1: to take a forty percent loss at that point, and 82 00:05:06,600 --> 00:05:09,400 Speaker 1: that will be crystallized, and then they'll have other features. 83 00:05:09,440 --> 00:05:12,279 Speaker 1: Often they'll be callable on a on you know, a 84 00:05:12,360 --> 00:05:14,960 Speaker 1: year out, so for example, if the underlying equity market 85 00:05:15,040 --> 00:05:18,080 Speaker 1: is up, they'll just get their coupon, and then then 86 00:05:18,120 --> 00:05:20,839 Speaker 1: note will be terminated early and probably reissued and maybe 87 00:05:20,839 --> 00:05:23,280 Speaker 1: they'll do the same trade again. And so usually these 88 00:05:23,320 --> 00:05:26,840 Speaker 1: notes are linked, especially these days, you know, more recently, 89 00:05:26,920 --> 00:05:29,719 Speaker 1: with you know, low interest rates and low levels of 90 00:05:29,760 --> 00:05:33,839 Speaker 1: equity volatility. You know, they embed all sorts of exciting optionality, 91 00:05:33,960 --> 00:05:36,200 Speaker 1: like as I alluded to, being linked not just to 92 00:05:36,320 --> 00:05:39,159 Speaker 1: one equity index, but like the worst performing of a 93 00:05:39,240 --> 00:05:42,799 Speaker 1: basket of four or five equity industries for example. So 94 00:05:43,200 --> 00:05:47,200 Speaker 1: we're talking about those knockout levels, those barrier levels, whatever 95 00:05:47,240 --> 00:05:49,440 Speaker 1: you want to call them. And with the market sell 96 00:05:49,480 --> 00:05:53,080 Speaker 1: off that we've just seen, it would seem that some 97 00:05:53,160 --> 00:05:56,520 Speaker 1: of those have hit the point at which investors will 98 00:05:56,640 --> 00:06:02,600 Speaker 1: be experiencing losses to their principal. Walk us through what 99 00:06:02,640 --> 00:06:05,000 Speaker 1: you've seen in the market, give us some color how 100 00:06:05,080 --> 00:06:08,560 Speaker 1: many of the structured products you know, roughly are really 101 00:06:08,640 --> 00:06:11,799 Speaker 1: hitting those knockout levels at the moment. Yeah, So there's 102 00:06:11,920 --> 00:06:15,039 Speaker 1: you know, there's a large stock of of these types 103 00:06:15,040 --> 00:06:18,040 Speaker 1: of products globally that you know turns over over some 104 00:06:18,120 --> 00:06:22,480 Speaker 1: period of time. The and you have your banks do 105 00:06:22,520 --> 00:06:26,039 Speaker 1: a good job of aggregating and publishing you know, models 106 00:06:26,120 --> 00:06:29,400 Speaker 1: of what the overall space looks like. So we've seen 107 00:06:29,520 --> 00:06:32,760 Speaker 1: you know, a quick and quite large drawdout and inequity 108 00:06:32,800 --> 00:06:35,479 Speaker 1: markets globally. Now we're a bit off of the you know, 109 00:06:35,560 --> 00:06:37,920 Speaker 1: off of the lows, but the lows where let's call it, 110 00:06:38,320 --> 00:06:41,200 Speaker 1: you know, thirty plus percent down from from the highs 111 00:06:41,200 --> 00:06:44,240 Speaker 1: and the inequity markets. So you did see, um, you know, 112 00:06:44,360 --> 00:06:47,479 Speaker 1: globally quite a lot a large stock of these notes 113 00:06:47,520 --> 00:06:52,560 Speaker 1: you know, approaching those barriers where where the trigger a 114 00:06:52,680 --> 00:06:55,160 Speaker 1: termination of the notes you did see you know some 115 00:06:55,640 --> 00:06:59,120 Speaker 1: you know, non trivial percentage of the outstanding stock of 116 00:06:59,240 --> 00:07:03,640 Speaker 1: notes you know terminate mostly not actually with respect to 117 00:07:03,720 --> 00:07:07,200 Speaker 1: the SMP levels and the barriers more more on the 118 00:07:07,520 --> 00:07:10,760 Speaker 1: eurostocks and some Asian industries, if you're called. So the 119 00:07:10,840 --> 00:07:13,440 Speaker 1: SMP has been down quite a lot, but also the 120 00:07:13,600 --> 00:07:17,400 Speaker 1: SMP in the you know, call it thirty five percent 121 00:07:17,520 --> 00:07:20,400 Speaker 1: from the highs at you know a few about a 122 00:07:20,440 --> 00:07:22,800 Speaker 1: couple of weeks ago. But remember the SMP had rallied 123 00:07:22,880 --> 00:07:25,880 Speaker 1: very aggressively up to the highs from you know, late 124 00:07:26,440 --> 00:07:30,240 Speaker 1: nineteen and the and these notes aren't linked like to 125 00:07:30,320 --> 00:07:32,120 Speaker 1: the high point in the equity market. They're linked to 126 00:07:32,160 --> 00:07:34,320 Speaker 1: the point at which they were issued, right, And so 127 00:07:34,360 --> 00:07:37,040 Speaker 1: the smp IS is still a little bit off of 128 00:07:37,040 --> 00:07:39,600 Speaker 1: off of you know, the levels of where some of 129 00:07:39,640 --> 00:07:42,200 Speaker 1: the SMP barriers are. But yeah, we've seen call it 130 00:07:42,320 --> 00:07:46,040 Speaker 1: some you know, low double digits percentage probably of the 131 00:07:46,080 --> 00:07:49,000 Speaker 1: note stock actually knockout. And then you know, a large 132 00:07:49,040 --> 00:07:52,920 Speaker 1: part of the notes stock obviously need on a probabilistic basis, 133 00:07:52,960 --> 00:07:57,200 Speaker 1: become much closer to a knockout point. And as a result, 134 00:07:57,240 --> 00:07:59,040 Speaker 1: of course, the investors who owned those notes, if they 135 00:07:59,040 --> 00:08:01,280 Speaker 1: were to look at their stay months, uh, you know, 136 00:08:01,320 --> 00:08:04,080 Speaker 1: would see a large market market loss. And of course 137 00:08:04,160 --> 00:08:07,520 Speaker 1: the the risk managers you know, who managed structured product 138 00:08:07,520 --> 00:08:11,760 Speaker 1: portfolios and headed them at banks face the issue that 139 00:08:12,240 --> 00:08:16,560 Speaker 1: many of those notes either have terminated, therefore losing their hedging, 140 00:08:17,040 --> 00:08:20,840 Speaker 1: losing their long volatility characteristics from the bank's perspective, or 141 00:08:20,920 --> 00:08:26,160 Speaker 1: are nearing termination, which you know probabilistically reduces the volatility 142 00:08:26,200 --> 00:08:29,040 Speaker 1: component there. So you know, large draw out in that market. 143 00:08:29,600 --> 00:08:33,240 Speaker 1: So let's talk about the sort of risk management from 144 00:08:33,600 --> 00:08:37,800 Speaker 1: the bank's perspective, And again people should go back and 145 00:08:37,840 --> 00:08:41,040 Speaker 1: listen to the original episode because we've got a lot 146 00:08:41,080 --> 00:08:44,720 Speaker 1: in the weed about how the hedging consideration of the 147 00:08:44,760 --> 00:08:49,200 Speaker 1: banks changes. But as the note gets closer to the 148 00:08:49,240 --> 00:08:52,520 Speaker 1: knockout or the barrier, but talk to us about sort 149 00:08:52,520 --> 00:08:55,240 Speaker 1: of like what we've seen. So we've seen volatility absolutely 150 00:08:55,280 --> 00:08:57,640 Speaker 1: exploding the last few weeks. It's come down a little 151 00:08:57,640 --> 00:09:00,920 Speaker 1: bit lately, but it's still very elevating. Did the S 152 00:09:01,000 --> 00:09:03,640 Speaker 1: and P even if it hasn't crashed as much as 153 00:09:03,679 --> 00:09:07,200 Speaker 1: some indusicries, is still down quite a bit? How much 154 00:09:07,280 --> 00:09:10,680 Speaker 1: does how much of a problem does this pose for 155 00:09:10,800 --> 00:09:13,720 Speaker 1: the banks that have to hedge their exposure so they 156 00:09:13,760 --> 00:09:15,880 Speaker 1: can either so that they're not on the hook and 157 00:09:15,920 --> 00:09:21,000 Speaker 1: what have they been doing to uh to manage their risk? Yeah, absolutely, 158 00:09:21,040 --> 00:09:24,560 Speaker 1: So we'll give their just really fast risk recap of 159 00:09:24,600 --> 00:09:26,520 Speaker 1: the nature of this risk and then put it in 160 00:09:26,559 --> 00:09:29,480 Speaker 1: the context of everything else that's going on. You know, 161 00:09:29,520 --> 00:09:33,800 Speaker 1: these notes have a barrier option characteristic to them if 162 00:09:33,800 --> 00:09:37,720 Speaker 1: you kind of no derivative speak. Essentially, the retail investors 163 00:09:37,720 --> 00:09:40,760 Speaker 1: are selling what are called down and in knock inputs 164 00:09:41,280 --> 00:09:44,240 Speaker 1: in other words, they're a put option that really only 165 00:09:44,600 --> 00:09:47,760 Speaker 1: that's binary in the sense that it only matters if 166 00:09:47,760 --> 00:09:50,920 Speaker 1: you actually hit the barrier, and then it just triggers 167 00:09:50,920 --> 00:09:54,600 Speaker 1: a binary event, right, And so the you know, when 168 00:09:54,720 --> 00:09:59,400 Speaker 1: banks issue these products, typically the first proxy hedge of 169 00:09:59,440 --> 00:10:02,320 Speaker 1: the risk going to be that they sell some fairly 170 00:10:02,360 --> 00:10:04,480 Speaker 1: deep out of the money, call it out of the 171 00:10:04,520 --> 00:10:06,800 Speaker 1: money two or three year puts on the on the 172 00:10:06,880 --> 00:10:09,360 Speaker 1: underlying indices, and that will be kind of just the 173 00:10:09,440 --> 00:10:13,000 Speaker 1: first order proxy heads for the type of risk that 174 00:10:13,040 --> 00:10:16,319 Speaker 1: they have. Now, as the markets start to go down, 175 00:10:17,559 --> 00:10:21,360 Speaker 1: the combined hdged portfolio that a structured products book has 176 00:10:22,040 --> 00:10:25,920 Speaker 1: will actually start to get somewhat longer volatility from the 177 00:10:25,960 --> 00:10:30,080 Speaker 1: bank's perspective. And the reason for that gives you know, 178 00:10:30,200 --> 00:10:34,040 Speaker 1: barrier options are tricky. They have they have in some 179 00:10:34,160 --> 00:10:39,240 Speaker 1: sense they have a much more pronounced profile of volatility 180 00:10:39,240 --> 00:10:43,000 Speaker 1: exposure to the downside than any vanilla option does. And 181 00:10:43,120 --> 00:10:47,439 Speaker 1: so the vanilla options that the banks sell in some 182 00:10:47,520 --> 00:10:50,679 Speaker 1: sense the convexity that the banks have is that they 183 00:10:50,720 --> 00:10:54,080 Speaker 1: get longer volatility for some call it the first ten 184 00:10:54,160 --> 00:10:56,960 Speaker 1: or fiftent of the move on the way down. But 185 00:10:57,120 --> 00:10:59,720 Speaker 1: then as those as the market keeps falling and keeps 186 00:10:59,720 --> 00:11:02,719 Speaker 1: falling down towards those barriers. Then the net position that 187 00:11:02,800 --> 00:11:06,720 Speaker 1: the banks have suddenly gets shorter, very fast, and then 188 00:11:06,800 --> 00:11:10,120 Speaker 1: collapses when as as you hit the notes, as you 189 00:11:10,200 --> 00:11:12,880 Speaker 1: hit those trigger values, the reason being, you know, the 190 00:11:13,280 --> 00:11:16,520 Speaker 1: notes themselves actually just terminate, right, and so all volatility 191 00:11:16,520 --> 00:11:19,240 Speaker 1: exposure associated with the notes are gone. But the hedge 192 00:11:19,320 --> 00:11:21,880 Speaker 1: was a vanilla option which still exists and still has 193 00:11:22,040 --> 00:11:25,360 Speaker 1: you know, short volatility exposure from the bank's perspective. And 194 00:11:25,440 --> 00:11:28,880 Speaker 1: so we're very much in that environment where where the 195 00:11:28,920 --> 00:11:32,920 Speaker 1: banks have you know, have started to see you know, 196 00:11:33,280 --> 00:11:36,640 Speaker 1: their hedges, you know, the volati of the vegua exposure, 197 00:11:36,679 --> 00:11:39,760 Speaker 1: the volatility on exposure on their hedges now kind of 198 00:11:39,800 --> 00:11:42,360 Speaker 1: falling as the market goes down much slower than than 199 00:11:42,400 --> 00:11:46,000 Speaker 1: their long exposure is falling um and you know, the 200 00:11:46,120 --> 00:11:49,760 Speaker 1: rally alleviated that somewhat. But you do have to put 201 00:11:49,800 --> 00:11:53,520 Speaker 1: that in the broader context of of everything else that's 202 00:11:53,559 --> 00:11:57,920 Speaker 1: happening in the world, in in equity, derivatives, portfolios and banks, 203 00:11:58,280 --> 00:12:01,360 Speaker 1: you know, and there's and there's you know, have some 204 00:12:01,440 --> 00:12:03,760 Speaker 1: insight here. Again, every bank of course is different and 205 00:12:03,960 --> 00:12:07,840 Speaker 1: has different clan flows and so forth. But um, this 206 00:12:08,240 --> 00:12:12,080 Speaker 1: the key thing to understand is that this crisis has 207 00:12:12,200 --> 00:12:16,560 Speaker 1: developed and the equity market experienced a large draw down 208 00:12:16,880 --> 00:12:20,480 Speaker 1: at an extremely fast pace. Right. So the credit crisis, 209 00:12:20,520 --> 00:12:25,560 Speaker 1: of course, was you know, a a materially deeper market 210 00:12:25,640 --> 00:12:29,520 Speaker 1: crisis across a variety of markets, uh, you know, in hindsight, 211 00:12:29,600 --> 00:12:32,760 Speaker 1: relative to what we've seen so far. But it also 212 00:12:32,920 --> 00:12:36,120 Speaker 1: was a relatively slow building crisis that took a while 213 00:12:36,200 --> 00:12:39,120 Speaker 1: to manifest, where there were you know, many large legs 214 00:12:39,160 --> 00:12:42,120 Speaker 1: down and in asset values over a sustained period of time, 215 00:12:43,160 --> 00:12:46,440 Speaker 1: right whereas here we saw um just to truly up 216 00:12:46,440 --> 00:12:48,240 Speaker 1: excel off over the course of you know, three or 217 00:12:48,240 --> 00:12:53,640 Speaker 1: four weeks. And so in the broader risk portfolios of banks, 218 00:12:54,440 --> 00:12:58,080 Speaker 1: you know, contrary to maybe what some folks might expect 219 00:12:59,120 --> 00:13:02,440 Speaker 1: derivatives portfoli, it was a banks have generally done very 220 00:13:02,440 --> 00:13:05,360 Speaker 1: well in this environment, and you know, they have not 221 00:13:05,440 --> 00:13:09,200 Speaker 1: been exposed to large losses across there, across their business lines. 222 00:13:10,000 --> 00:13:13,240 Speaker 1: And the reason for that is really the you know, 223 00:13:14,559 --> 00:13:17,480 Speaker 1: the banking industry and investment banks are very different in 224 00:13:17,559 --> 00:13:22,439 Speaker 1: a Dodd Frank world than they were back in two 225 00:13:22,480 --> 00:13:25,120 Speaker 1: thousand and eight. In two thousand and eight, you know, 226 00:13:25,200 --> 00:13:29,600 Speaker 1: bank in bank prop desks and bank flow book flow 227 00:13:29,600 --> 00:13:32,520 Speaker 1: trading books were some of the largest risk takers in 228 00:13:32,559 --> 00:13:36,000 Speaker 1: the world. They held some of the largest tail risk 229 00:13:36,080 --> 00:13:38,600 Speaker 1: in the world across you know, and they were you know, 230 00:13:38,640 --> 00:13:40,960 Speaker 1: they were they were the world's largest hedge funds, and 231 00:13:41,040 --> 00:13:43,360 Speaker 1: they were holding you know, carry trades, and they were 232 00:13:43,400 --> 00:13:46,600 Speaker 1: holding aggressive risk taking positions that lost the massive amounts 233 00:13:46,640 --> 00:13:49,280 Speaker 1: of money. What we you know, what we did with 234 00:13:49,360 --> 00:13:53,120 Speaker 1: Dodd Frank and steadily implemented you know, over the years, 235 00:13:53,200 --> 00:13:57,560 Speaker 1: and especially combined with Basil three, we dramatically de risked 236 00:13:57,640 --> 00:14:02,320 Speaker 1: the banks. We enforced dreamly type stress testing requirements on 237 00:14:02,400 --> 00:14:06,480 Speaker 1: the banks with very you know, proper careful stress testing analytics, 238 00:14:07,520 --> 00:14:11,280 Speaker 1: and we identified sources of tail risk in bank derivatives 239 00:14:11,280 --> 00:14:15,480 Speaker 1: portfolios and told them to get rid of it. And 240 00:14:15,760 --> 00:14:19,360 Speaker 1: banks have been very aggressive over the last five years 241 00:14:19,960 --> 00:14:24,080 Speaker 1: developing what we call what the banks called, you know, euphemistically, 242 00:14:24,160 --> 00:14:28,120 Speaker 1: alternative risk transfer programs, where they very explicitly had dedicated 243 00:14:28,160 --> 00:14:30,880 Speaker 1: salespeople to go out and you know, nice slide decks 244 00:14:30,920 --> 00:14:32,880 Speaker 1: going out to hedge funds and going out to asset 245 00:14:32,880 --> 00:14:37,120 Speaker 1: managers and um proposing trades that those hedge funds and 246 00:14:37,200 --> 00:14:39,960 Speaker 1: st managers would do you know that was associated with 247 00:14:40,000 --> 00:14:44,280 Speaker 1: potentially some positive carry uh, you know, so the idea 248 00:14:44,400 --> 00:14:46,680 Speaker 1: was banks shouldn't be holding this stuff, and banks were 249 00:14:46,760 --> 00:14:49,560 Speaker 1: very well hedged um facing a lot of hedge funds 250 00:14:49,560 --> 00:14:51,560 Speaker 1: and asset managers that have lost a tremendous amount of 251 00:14:51,560 --> 00:14:54,320 Speaker 1: money during this crisis. So really those big you know, 252 00:14:54,440 --> 00:14:58,160 Speaker 1: the big losses um in derivatives portfolios were on the 253 00:14:58,200 --> 00:15:01,320 Speaker 1: buy side, not the south side this time, and partly 254 00:15:01,360 --> 00:15:04,200 Speaker 1: as a result of how fast everything happened, you know, 255 00:15:04,240 --> 00:15:07,040 Speaker 1: the on that initial shock, the banks were actually pretty 256 00:15:07,080 --> 00:15:09,840 Speaker 1: well covered, even though they are auto called portfolios. We're 257 00:15:09,840 --> 00:15:27,840 Speaker 1: getting pretty risky. So banks, having de risked from post 258 00:15:27,960 --> 00:15:32,960 Speaker 1: financial crisis rules, are relatively well insulated from the volatility 259 00:15:32,960 --> 00:15:35,560 Speaker 1: and the market sell off that we've seen. But as 260 00:15:35,680 --> 00:15:37,840 Speaker 1: you point out, a lot of that tail risk has 261 00:15:37,840 --> 00:15:41,120 Speaker 1: been pushed onto the bye side, onto hedge funds, other 262 00:15:41,200 --> 00:15:45,000 Speaker 1: types of investors. Talk to us more about the alternative 263 00:15:45,320 --> 00:15:49,440 Speaker 1: risk transfer trades. How do those actually work? And what 264 00:15:49,560 --> 00:15:52,480 Speaker 1: are you observing now? Are we seeing some blow ups 265 00:15:52,480 --> 00:15:56,040 Speaker 1: in those? Sure? So I'll give you a couple of examples. 266 00:15:57,200 --> 00:16:00,280 Speaker 1: So and these, you know, these get a bit um 267 00:16:00,360 --> 00:16:02,760 Speaker 1: a bit wonky as is as is just the nature 268 00:16:02,800 --> 00:16:05,600 Speaker 1: of the business. But I'll do my best there so 269 00:16:06,600 --> 00:16:11,240 Speaker 1: um so. For example, historically there have been some large 270 00:16:11,440 --> 00:16:17,440 Speaker 1: sophisticated organizations that have liked to sell capped variance as 271 00:16:17,440 --> 00:16:22,000 Speaker 1: a carry trade. UM. The the what there so A 272 00:16:22,080 --> 00:16:28,200 Speaker 1: variant swap is a pure volatility position which pays off 273 00:16:28,320 --> 00:16:32,080 Speaker 1: the difference between implied variants and realized variants over the 274 00:16:32,120 --> 00:16:36,000 Speaker 1: maturity of the trade, and variance being the square of volatility. 275 00:16:36,120 --> 00:16:38,720 Speaker 1: And anytime you have squared terms in you know, the 276 00:16:38,720 --> 00:16:41,280 Speaker 1: p and l of something, it gets very exciting, right, 277 00:16:41,720 --> 00:16:44,320 Speaker 1: So the reason that they now want a capt varian 278 00:16:44,360 --> 00:16:47,360 Speaker 1: swap is um. A cap variant swap is one where 279 00:16:47,360 --> 00:16:50,080 Speaker 1: you if you are said carry trade or you sell 280 00:16:50,120 --> 00:16:53,600 Speaker 1: that variant swap um, but you sell its subject to 281 00:16:53,760 --> 00:16:57,400 Speaker 1: a cap of two and a half times the actual 282 00:16:57,520 --> 00:17:01,240 Speaker 1: level that you trade, where the most realized volatility that 283 00:17:01,280 --> 00:17:03,680 Speaker 1: can possibly count in the payoff of the trade is 284 00:17:03,720 --> 00:17:05,760 Speaker 1: two and a half times the initial level you sold, 285 00:17:06,280 --> 00:17:08,119 Speaker 1: which is still quite high, but it gives you a 286 00:17:08,240 --> 00:17:11,840 Speaker 1: finite stop loss where there is a maximum dollar amount 287 00:17:11,880 --> 00:17:13,199 Speaker 1: you can lose on that trade. And you know what 288 00:17:13,240 --> 00:17:16,040 Speaker 1: that number it is, right, you know? So this was 289 00:17:16,440 --> 00:17:18,520 Speaker 1: if you're going to be selling variants, this is at 290 00:17:18,600 --> 00:17:21,920 Speaker 1: least some somewhat of a prudent step, right. And the 291 00:17:21,920 --> 00:17:24,840 Speaker 1: the type of organizations that were you know, engaged in 292 00:17:24,840 --> 00:17:30,600 Speaker 1: this um you know, we're extremely large sophisticated peension funds 293 00:17:30,600 --> 00:17:32,840 Speaker 1: that you know, I'm not going to get into details, 294 00:17:32,880 --> 00:17:35,640 Speaker 1: but the size of those flows were quite large. Now, 295 00:17:36,040 --> 00:17:39,520 Speaker 1: when banks facilitate that business, right, banks are buying capped 296 00:17:39,560 --> 00:17:44,320 Speaker 1: variant swaps from these clients, and there's not really there's 297 00:17:44,359 --> 00:17:48,160 Speaker 1: not a liquid inter dealer market for capped variance swaps 298 00:17:48,200 --> 00:17:50,520 Speaker 1: because every you know, the caps on the variant swaps 299 00:17:50,520 --> 00:17:52,840 Speaker 1: are like options on variants, and every one of them 300 00:17:52,880 --> 00:17:54,639 Speaker 1: are at a different level, right, because it's two and 301 00:17:54,640 --> 00:17:57,800 Speaker 1: a half times the initial you know level where the 302 00:17:57,800 --> 00:18:01,119 Speaker 1: market is trading variants UM. So these are you know, 303 00:18:01,200 --> 00:18:04,800 Speaker 1: somewhat funny products. So when a bank actually buys capped 304 00:18:04,880 --> 00:18:06,760 Speaker 1: variants from a client and then it goes to lay 305 00:18:06,800 --> 00:18:08,360 Speaker 1: off the risk, what it's going to do is it's 306 00:18:08,359 --> 00:18:11,080 Speaker 1: going to sell uncapped variants in the inter dealer market 307 00:18:11,359 --> 00:18:14,320 Speaker 1: or to another hedgephund. And what the bank is left 308 00:18:14,359 --> 00:18:18,280 Speaker 1: with when it does that trade is a long position 309 00:18:18,359 --> 00:18:21,160 Speaker 1: in capped variants and a short position and uncapped variants, 310 00:18:21,680 --> 00:18:26,360 Speaker 1: which itself is just the bank being short a massively 311 00:18:26,440 --> 00:18:29,000 Speaker 1: crashy piece of tail risk, right, which is just this 312 00:18:29,160 --> 00:18:32,080 Speaker 1: cap so effectively, it's a call option on variants struck 313 00:18:32,119 --> 00:18:33,919 Speaker 1: at you know, two and a half times the initial 314 00:18:34,000 --> 00:18:37,159 Speaker 1: level of variance. And that is exactly the kind of 315 00:18:37,160 --> 00:18:39,159 Speaker 1: position that you know, in two thousand and seven, the 316 00:18:39,160 --> 00:18:41,680 Speaker 1: bank would have just done that and said, hey, we're 317 00:18:41,720 --> 00:18:43,720 Speaker 1: just gonna, you know, keep those and we're going to 318 00:18:43,800 --> 00:18:45,760 Speaker 1: get paid a lot of money and carry to keep 319 00:18:45,760 --> 00:18:48,240 Speaker 1: those because and we like getting rich and getting bonuses 320 00:18:48,280 --> 00:18:52,639 Speaker 1: and that's cool, um in you know, these days, the 321 00:18:52,680 --> 00:18:54,920 Speaker 1: banks cannot hang onto that kind of thing because you 322 00:18:55,000 --> 00:18:57,080 Speaker 1: run a proper stress test and you immediately see that 323 00:18:57,119 --> 00:18:59,879 Speaker 1: if the market goes down and it's very volatile, that 324 00:19:00,000 --> 00:19:03,360 Speaker 1: are going to lose an ungodly amount of money. And 325 00:19:03,440 --> 00:19:07,160 Speaker 1: so what one of the earlier risk transfer trains within 326 00:19:07,200 --> 00:19:10,760 Speaker 1: this alternative risk transfer universe was the bank's going out 327 00:19:10,800 --> 00:19:13,040 Speaker 1: to hedge funds and esset managers and trying to find 328 00:19:13,080 --> 00:19:17,080 Speaker 1: people to take exactly that position, so they would would 329 00:19:17,160 --> 00:19:21,840 Speaker 1: trade you know, short term one month capped variants versus 330 00:19:21,920 --> 00:19:24,919 Speaker 1: uncapped variants where the hedge funds sells the uncapped and 331 00:19:24,960 --> 00:19:29,480 Speaker 1: buys the capped, and that trade and and and pockets 332 00:19:30,080 --> 00:19:33,600 Speaker 1: the difference between those two variance levels, which might be 333 00:19:34,320 --> 00:19:36,359 Speaker 1: you know, five years ago when this started, it might 334 00:19:36,400 --> 00:19:38,280 Speaker 1: have been of all point. So it might have been 335 00:19:38,359 --> 00:19:41,280 Speaker 1: you know, variant uncapped variants at sixteen and buying capped 336 00:19:41,320 --> 00:19:44,439 Speaker 1: variants at fifteen. Uh, you know, by last year this 337 00:19:44,520 --> 00:19:48,200 Speaker 1: is you know, very popular among hedge fund carriage traders, 338 00:19:48,200 --> 00:19:50,320 Speaker 1: and it might have only been point for of all 339 00:19:50,359 --> 00:19:53,040 Speaker 1: points for example. And this is the kind of trade 340 00:19:53,040 --> 00:19:57,440 Speaker 1: that again, you just make money every month as long 341 00:19:57,480 --> 00:20:00,919 Speaker 1: as volatility does not rise I'm more than two and 342 00:20:00,920 --> 00:20:04,960 Speaker 1: a half times within the course of one month. Right. 343 00:20:05,040 --> 00:20:08,320 Speaker 1: And if you look back historically, as long as you 344 00:20:08,359 --> 00:20:13,400 Speaker 1: don't include, what to say is oh we'll look boss um. 345 00:20:13,440 --> 00:20:16,280 Speaker 1: Even in the credit crisis, these trades didn't lose money 346 00:20:16,320 --> 00:20:19,960 Speaker 1: because volatility increased a lot, and it increased you know, 347 00:20:20,040 --> 00:20:22,960 Speaker 1: ten times over the course of you know, several months. 348 00:20:23,000 --> 00:20:25,680 Speaker 1: But during no month did it rise more than two 349 00:20:25,680 --> 00:20:27,760 Speaker 1: and a half times. Look at only you know during 350 00:20:27,800 --> 00:20:31,280 Speaker 1: Lament it only rose two point four times, right, So 351 00:20:31,600 --> 00:20:35,440 Speaker 1: this is what they call back test over optimization right, 352 00:20:36,080 --> 00:20:38,600 Speaker 1: because you know it could have certainly just risen four 353 00:20:38,640 --> 00:20:41,320 Speaker 1: times on Lehman instead of two point four times. Um, 354 00:20:41,359 --> 00:20:44,240 Speaker 1: it just didn't. And this time, of course, it rose 355 00:20:44,720 --> 00:20:48,480 Speaker 1: by a factor of closer to eight. And so if 356 00:20:48,520 --> 00:20:50,480 Speaker 1: you so, if you were to do this trade again, 357 00:20:50,480 --> 00:20:52,479 Speaker 1: that the p m l is is proportional to the 358 00:20:52,520 --> 00:20:56,560 Speaker 1: square of the increase in volatility. Right, So in March, 359 00:20:56,800 --> 00:20:59,679 Speaker 1: if you had sold the February you know cap uncap 360 00:20:59,720 --> 00:21:03,560 Speaker 1: trade as a hedge fund engaging in alternative risk transfer, 361 00:21:04,400 --> 00:21:07,640 Speaker 1: you collected you know, point four points and you ended 362 00:21:07,680 --> 00:21:12,240 Speaker 1: up losing let's call it two d and fifty and 363 00:21:12,760 --> 00:21:16,560 Speaker 1: the you know that, so those positions alone were enough 364 00:21:16,680 --> 00:21:20,119 Speaker 1: to you know, wipe out the whole portfolio managers and 365 00:21:20,160 --> 00:21:24,320 Speaker 1: hedge funds. And there, you know, that's one example, and 366 00:21:24,359 --> 00:21:26,160 Speaker 1: I went into a decent amount of detail just because 367 00:21:26,160 --> 00:21:28,760 Speaker 1: I wanted to make that clear. But there are there are, 368 00:21:29,080 --> 00:21:31,440 Speaker 1: you know, a dozen things like that, or twenty things 369 00:21:31,520 --> 00:21:35,520 Speaker 1: like that, some longer dated and more related to different 370 00:21:35,600 --> 00:21:39,199 Speaker 1: kinds of you know, esoteric implied risk factors, some that 371 00:21:39,240 --> 00:21:41,680 Speaker 1: are more, but a lot of them related to gap risk, 372 00:21:41,840 --> 00:21:45,639 Speaker 1: to kind of the sudden appearance of very high levels 373 00:21:45,680 --> 00:21:49,080 Speaker 1: of realized volatility, and that's what you know, that's what 374 00:21:49,280 --> 00:21:52,800 Speaker 1: many um many folks were you know, happily engaged in 375 00:21:52,920 --> 00:21:56,080 Speaker 1: because it produced, you know, just a very consistent return 376 00:21:56,119 --> 00:21:58,479 Speaker 1: stream that you know, made a lot of people very 377 00:21:58,560 --> 00:22:03,000 Speaker 1: rich for many years. So it's really just this extraordinary 378 00:22:03,040 --> 00:22:07,479 Speaker 1: suddenness of the crash. It's not just that we had 379 00:22:07,520 --> 00:22:10,280 Speaker 1: a crash. It's not just that we've had extraordinary volatility, 380 00:22:10,359 --> 00:22:12,840 Speaker 1: but it's the speed of the volatility in such a 381 00:22:12,840 --> 00:22:16,760 Speaker 1: short period of time that's been it's obliterated so many positions. 382 00:22:17,080 --> 00:22:21,119 Speaker 1: I'm curious, sort of this might be a silly question, 383 00:22:21,200 --> 00:22:23,560 Speaker 1: but you know, when we're talking about all these products, 384 00:22:23,560 --> 00:22:27,359 Speaker 1: whether it's just the products sold to the retail the 385 00:22:27,400 --> 00:22:31,560 Speaker 1: retail client maybe in Korea, or some of these more 386 00:22:32,119 --> 00:22:34,760 Speaker 1: esoteric products that are sold by the dealers to the 387 00:22:34,800 --> 00:22:37,560 Speaker 1: hedge funds or in the inter dealer market, what is 388 00:22:37,880 --> 00:22:40,800 Speaker 1: the how do you track these because it doesn't seem 389 00:22:40,800 --> 00:22:43,040 Speaker 1: like there's some like obvious like quote you just look 390 00:22:43,119 --> 00:22:45,240 Speaker 1: up and see where they're pricing. So when you're trying 391 00:22:45,240 --> 00:22:47,600 Speaker 1: to get a sense of where the overall market is, 392 00:22:47,720 --> 00:22:49,760 Speaker 1: or even like a sense of where the state of 393 00:22:49,840 --> 00:22:52,600 Speaker 1: Korean structured note markets or how many of them have 394 00:22:52,720 --> 00:22:55,359 Speaker 1: been uh, you know knocked in. How do you like 395 00:22:55,440 --> 00:22:58,000 Speaker 1: sort of get your hand around the size of this 396 00:22:58,200 --> 00:23:01,480 Speaker 1: universe and the state of this universe. Sure, so let's 397 00:23:01,480 --> 00:23:04,560 Speaker 1: start with the Korean autocoll market for example. So this 398 00:23:04,640 --> 00:23:07,280 Speaker 1: is the kind of thing where you know, many of 399 00:23:07,320 --> 00:23:11,480 Speaker 1: the large banks are heavily involved in this business. They 400 00:23:11,520 --> 00:23:14,520 Speaker 1: most of them have very detailed research reports that they 401 00:23:14,560 --> 00:23:17,520 Speaker 1: put out that aggregate you know, everything that they know 402 00:23:17,840 --> 00:23:20,200 Speaker 1: from a lot of this data is public because these 403 00:23:20,240 --> 00:23:22,840 Speaker 1: things go up for you know, the products themselves go 404 00:23:23,000 --> 00:23:25,760 Speaker 1: up for you know, for OURFQ you know, out of 405 00:23:26,040 --> 00:23:29,800 Speaker 1: private banks and so forth, right, and so the dealers then, 406 00:23:30,320 --> 00:23:32,880 Speaker 1: you know, ingest all that data, they model the risk 407 00:23:33,040 --> 00:23:35,480 Speaker 1: components of all these different products, and they'll and they'll 408 00:23:35,520 --> 00:23:37,560 Speaker 1: publish that type of information. That's the kind of thing 409 00:23:37,560 --> 00:23:40,600 Speaker 1: that you know, it's really that is the source of 410 00:23:40,640 --> 00:23:42,199 Speaker 1: the data. It's not the kind of thing that you 411 00:23:42,240 --> 00:23:44,240 Speaker 1: can like go out and you know, build your own 412 00:23:44,359 --> 00:23:47,399 Speaker 1: database in some direct kind of way, because you know 413 00:23:47,440 --> 00:23:50,879 Speaker 1: that you're talking about you know, many many thousands of 414 00:23:50,920 --> 00:23:54,760 Speaker 1: outstanding notes with all different characteristics and so forth. On 415 00:23:54,960 --> 00:23:57,960 Speaker 1: the On the the A R T side, again, it's 416 00:23:58,040 --> 00:24:00,720 Speaker 1: it's very much so. The way you know where new 417 00:24:00,760 --> 00:24:03,199 Speaker 1: prices are trading in that stuff, of course, is that 418 00:24:03,280 --> 00:24:06,520 Speaker 1: you're you know, your your participant in these markets. Probably 419 00:24:06,600 --> 00:24:08,719 Speaker 1: not you know, in our in our case, not you know, 420 00:24:08,800 --> 00:24:12,080 Speaker 1: literally trading those products. But but you know, we are 421 00:24:12,720 --> 00:24:16,879 Speaker 1: cover you know, large large institutional derivatives UM. You know, 422 00:24:16,960 --> 00:24:20,960 Speaker 1: managers and traders are are covered by the UM, the 423 00:24:21,040 --> 00:24:24,760 Speaker 1: large investment bank salesforces and speak with the traders and 424 00:24:24,760 --> 00:24:27,199 Speaker 1: and track all of these things very closely. Right, So 425 00:24:27,280 --> 00:24:30,000 Speaker 1: what are the you know, where are things pricing currently, 426 00:24:30,240 --> 00:24:32,840 Speaker 1: what are the how much has been trading you know where? 427 00:24:33,000 --> 00:24:35,200 Speaker 1: What type of accounts Because it's the kind of thing 428 00:24:35,320 --> 00:24:39,680 Speaker 1: that you know, again, it's not something that I think, uh, 429 00:24:39,760 --> 00:24:42,760 Speaker 1: there's only a certain subset of people who would actually 430 00:24:42,840 --> 00:24:46,640 Speaker 1: be selling this stuff. But as a as a derivatives investor, 431 00:24:46,720 --> 00:24:48,800 Speaker 1: you need to know where the risks are in the marketplace, 432 00:24:48,920 --> 00:24:51,080 Speaker 1: and you have to understand, you know, who has these 433 00:24:51,119 --> 00:24:53,760 Speaker 1: kind of positions and what the daisy chain effects could be. 434 00:24:55,640 --> 00:24:58,920 Speaker 1: I have a sort of broader question, but a lot 435 00:24:58,960 --> 00:25:02,119 Speaker 1: of what we're talking about here is this notion of 436 00:25:02,320 --> 00:25:07,040 Speaker 1: risk having migrated from the banking system to the buy side. 437 00:25:07,720 --> 00:25:11,439 Speaker 1: Is that vindication for regulators? Did they basically get this 438 00:25:11,480 --> 00:25:15,720 Speaker 1: one right? Uh? Should they be satisfied with the outcome 439 00:25:15,760 --> 00:25:17,679 Speaker 1: that we've seen over the past few weeks, which is 440 00:25:17,760 --> 00:25:22,040 Speaker 1: banks doing reasonably well on their derivatives portfolios, but some 441 00:25:22,720 --> 00:25:27,119 Speaker 1: hedge funds and maybe some other investors getting hit on 442 00:25:27,320 --> 00:25:31,400 Speaker 1: variant swaps and other volatility products. Was this the desired goal? 443 00:25:33,200 --> 00:25:36,520 Speaker 1: It's a great question, Tracy. Um, I think very much 444 00:25:37,440 --> 00:25:39,560 Speaker 1: there are two, very much two sides to that, and 445 00:25:39,640 --> 00:25:42,199 Speaker 1: the regulators will will tell you exactly this, and you 446 00:25:42,240 --> 00:25:45,600 Speaker 1: can read exactly this into their their actions over the 447 00:25:45,680 --> 00:25:48,480 Speaker 1: last three or four weeks. Right. So, on the one hand, 448 00:25:49,040 --> 00:25:54,159 Speaker 1: from a systemic risk perspective within the banking system and 449 00:25:54,280 --> 00:25:58,199 Speaker 1: resilience of the banking system to know market shocks that 450 00:25:58,440 --> 00:26:01,800 Speaker 1: might come from different unpredicted angles, this was a big win, 451 00:26:02,080 --> 00:26:05,400 Speaker 1: right exactly as you said, um, you know, in two 452 00:26:05,440 --> 00:26:07,320 Speaker 1: thousand and eight we were talking about what the next 453 00:26:07,320 --> 00:26:10,360 Speaker 1: bank to go bankrupt was. There are people who talk 454 00:26:10,400 --> 00:26:12,560 Speaker 1: about that sort of thing that you know, read zero hitge. 455 00:26:12,600 --> 00:26:16,680 Speaker 1: But in general, actually, um, as we talked about, the 456 00:26:16,680 --> 00:26:19,720 Speaker 1: banks are doing you know, pretty pretty reasonably at least 457 00:26:19,760 --> 00:26:22,320 Speaker 1: at this point, and then largely as a result of 458 00:26:22,520 --> 00:26:24,960 Speaker 1: you know, being very well hedged facing the by side 459 00:26:25,600 --> 00:26:29,480 Speaker 1: the and that and also not importantly not holding you know, 460 00:26:29,560 --> 00:26:33,280 Speaker 1: large inventory, not trading aggressively. But the flip side of 461 00:26:33,280 --> 00:26:37,879 Speaker 1: that is that the extent of the market dislocations that 462 00:26:37,960 --> 00:26:41,960 Speaker 1: we have seen, you know, is certainly the catalyst has 463 00:26:42,000 --> 00:26:45,280 Speaker 1: been you know, the very large and very real fundamental 464 00:26:45,320 --> 00:26:48,320 Speaker 1: economic shock of the sudden stop you know, across the 465 00:26:48,359 --> 00:26:51,640 Speaker 1: global economy induced by by coronavirus. Right, then that's really 466 00:26:51,720 --> 00:26:56,360 Speaker 1: very real. But the severity of some of the market dislocations, 467 00:26:56,400 --> 00:26:59,520 Speaker 1: the extent of you know, some of the daily moves 468 00:26:59,560 --> 00:27:03,080 Speaker 1: in the witty market and in you know, higeled an 469 00:27:03,119 --> 00:27:06,360 Speaker 1: investment grade credit et f s moving seven percent a day, 470 00:27:06,560 --> 00:27:09,280 Speaker 1: this is not fundamental, right, This was this was the 471 00:27:09,320 --> 00:27:15,600 Speaker 1: manifestation of markets under highly stressed circumstances where banks have 472 00:27:15,760 --> 00:27:19,000 Speaker 1: stepped back from risk taking, right and don't help and 473 00:27:19,080 --> 00:27:22,720 Speaker 1: don't hold inventories and are not facilitating and intermediating markets. 474 00:27:23,160 --> 00:27:26,080 Speaker 1: And that's the flip. They be sort of the other 475 00:27:26,119 --> 00:27:29,080 Speaker 1: side of the coin, right where um, we've made the 476 00:27:29,080 --> 00:27:32,800 Speaker 1: banking system a lot safer from from market shocks by 477 00:27:32,880 --> 00:27:35,520 Speaker 1: de risking, by taking tail risk out and by keeping 478 00:27:35,560 --> 00:27:38,040 Speaker 1: inventories and and risk taking out of the banking system. 479 00:27:38,080 --> 00:27:41,720 Speaker 1: But at the same time that's dramatically exacerbated the dislocations 480 00:27:41,760 --> 00:27:44,399 Speaker 1: that we see. And so when you look at the many, 481 00:27:44,440 --> 00:27:47,159 Speaker 1: many actions that the FED has been taking very aggressively, 482 00:27:47,160 --> 00:27:50,399 Speaker 1: and not just the FED, global central banks over the 483 00:27:50,440 --> 00:27:53,160 Speaker 1: last three weeks to a month, you know, there's there's 484 00:27:53,280 --> 00:27:56,359 Speaker 1: traditional monetary policy, lowering interest rates and so forth, but 485 00:27:56,400 --> 00:27:58,720 Speaker 1: that's not really been the interesting stuff, right. The interesting 486 00:27:58,720 --> 00:28:03,760 Speaker 1: stuff has been um, you know, very aggressive expansion of 487 00:28:03,760 --> 00:28:06,879 Speaker 1: of buying of different kinds of investment grade debt to 488 00:28:06,920 --> 00:28:10,679 Speaker 1: try to stabilize broken markets. But then also you know, 489 00:28:11,200 --> 00:28:14,719 Speaker 1: incremental steady rolling back and many of the types of 490 00:28:14,920 --> 00:28:20,520 Speaker 1: capital restrictions and UH and general you know. So so 491 00:28:20,640 --> 00:28:25,960 Speaker 1: for example, you know, cutting banks need to hold capital, 492 00:28:26,119 --> 00:28:29,760 Speaker 1: and you know the and C car stretch ratios, doing 493 00:28:30,440 --> 00:28:33,800 Speaker 1: a variety of things that look basically like rolling back 494 00:28:33,920 --> 00:28:37,439 Speaker 1: many features of dot frank on a temporary basis, right. 495 00:28:37,520 --> 00:28:41,560 Speaker 1: And the reason that they're doing that is UH is 496 00:28:41,640 --> 00:28:45,000 Speaker 1: to get banks lending, you know, to make sure the 497 00:28:45,000 --> 00:28:48,440 Speaker 1: banks keep lending to small businesses, to get banks involved 498 00:28:48,440 --> 00:28:52,400 Speaker 1: taking risks and holding more inventory and stabilizing market conditions 499 00:28:52,400 --> 00:28:54,800 Speaker 1: and fixing some of the crazy disruptions that we see, 500 00:28:55,320 --> 00:28:58,160 Speaker 1: right And I think the recognition that you're seeing, or 501 00:28:58,200 --> 00:28:59,880 Speaker 1: the what you know, what you have to read between 502 00:28:59,880 --> 00:29:03,040 Speaker 1: the lines is that, you know, the regulators are realizing 503 00:29:03,480 --> 00:29:05,760 Speaker 1: that many of the things that you know, some people 504 00:29:05,760 --> 00:29:07,479 Speaker 1: on the buy side that have been pointing out over 505 00:29:07,520 --> 00:29:11,000 Speaker 1: the last several years that the inhibiting the level of 506 00:29:11,040 --> 00:29:13,440 Speaker 1: banquet was taken to the extent that we did, you know, 507 00:29:13,800 --> 00:29:17,040 Speaker 1: can really cause large liquidity problems under stress. And I 508 00:29:17,040 --> 00:29:19,440 Speaker 1: think we've seen that, and I think regulators are acknowledging that. 509 00:29:19,600 --> 00:29:22,960 Speaker 1: So the question really over the next over the short 510 00:29:23,080 --> 00:29:24,960 Speaker 1: term and then the medium term is going to be, 511 00:29:25,080 --> 00:29:27,200 Speaker 1: you know, how do they find where do we end up? 512 00:29:27,240 --> 00:29:30,360 Speaker 1: How do they find that happy medium right where where 513 00:29:30,760 --> 00:29:35,280 Speaker 1: the regulatory framework is maintaining the right controls around system 514 00:29:35,360 --> 00:29:40,440 Speaker 1: systemic risk but also allowing banks to intermediate financial markets 515 00:29:40,440 --> 00:29:43,880 Speaker 1: in a meaningful way and take risk. So we obviously 516 00:29:43,920 --> 00:29:48,080 Speaker 1: saw this extraordinary explosion and volatility. It's come down quite 517 00:29:48,200 --> 00:29:50,360 Speaker 1: a bit um you know, the vix had gone above 518 00:29:50,400 --> 00:29:53,880 Speaker 1: a d as of this most recent Friday. I get 519 00:29:54,000 --> 00:29:55,560 Speaker 1: by the way, I guess this is the point of 520 00:29:55,600 --> 00:29:58,080 Speaker 1: the show where I remind people what date we're recording 521 00:29:58,240 --> 00:30:01,480 Speaker 1: this distinction the world has changed ranged since are you 522 00:30:01,520 --> 00:30:03,520 Speaker 1: going to do the hour to job? Yeah, it is 523 00:30:03,920 --> 00:30:07,520 Speaker 1: right now. It is nine am East Coast time on 524 00:30:07,680 --> 00:30:10,760 Speaker 1: April five. So bear that in mind when you listen 525 00:30:10,840 --> 00:30:12,640 Speaker 1: to this, because who knows what the world will look 526 00:30:12,680 --> 00:30:14,880 Speaker 1: like by the time you're actually listening to this. But 527 00:30:15,040 --> 00:30:18,400 Speaker 1: at the time we're recording this, the VIX is below fifty. 528 00:30:18,440 --> 00:30:21,200 Speaker 1: And as you mentioned, the fan has done multiple things 529 00:30:21,280 --> 00:30:24,160 Speaker 1: both in terms of the stepping into market standpoint and 530 00:30:24,600 --> 00:30:30,440 Speaker 1: regulatory tweaks and so forth, without necessarily predicting the future 531 00:30:30,520 --> 00:30:35,240 Speaker 1: of what the market holds. Between all these washouts and moves, 532 00:30:36,280 --> 00:30:39,640 Speaker 1: is there much uh? You know, is it reasonable to 533 00:30:39,720 --> 00:30:42,080 Speaker 1: think that, like we've seen the worst, not necessarily in 534 00:30:42,120 --> 00:30:45,560 Speaker 1: the X levels of the economic crisis, but that the 535 00:30:45,640 --> 00:30:49,480 Speaker 1: washout from a sort of pure volatility I liquidity standpoint, 536 00:30:49,880 --> 00:30:52,440 Speaker 1: we saw the worst of it. Or what kind of 537 00:30:52,440 --> 00:30:56,480 Speaker 1: potential triggers could there still be out there? Yeah, that's 538 00:30:56,480 --> 00:31:03,000 Speaker 1: a great question. I think that within the um, especially 539 00:31:03,160 --> 00:31:10,040 Speaker 1: equity volatility and probably interest rates volatility markets on the 540 00:31:10,080 --> 00:31:14,800 Speaker 1: public market side, I think that's probably a fair guess 541 00:31:14,920 --> 00:31:19,239 Speaker 1: is that the craziest of the of the moves is 542 00:31:19,280 --> 00:31:23,200 Speaker 1: past us. The reason being all of the highly over 543 00:31:23,320 --> 00:31:27,640 Speaker 1: leveraged speculative risky positioning in you know, short tail risk 544 00:31:27,680 --> 00:31:31,880 Speaker 1: on the hedge fund side, um that those folks blew up, 545 00:31:31,920 --> 00:31:35,720 Speaker 1: and that positioning has been largely cleaned up. There's still 546 00:31:36,320 --> 00:31:39,640 Speaker 1: you know, some of it in deeper pockets, but generally speaking, 547 00:31:40,880 --> 00:31:44,320 Speaker 1: generally speaking, the worst of you know, people who were 548 00:31:44,320 --> 00:31:46,240 Speaker 1: short a ton of variants or short a ton of 549 00:31:46,240 --> 00:31:50,520 Speaker 1: fixed calls, they've been liquidated, and so that the acceleration 550 00:31:50,680 --> 00:31:54,320 Speaker 1: factor that has gone also on the on the fixed 551 00:31:54,360 --> 00:31:57,400 Speaker 1: income side, you know, the FED and global central banks 552 00:31:57,400 --> 00:32:00,040 Speaker 1: again are being very aggressive in terms of trying to 553 00:32:00,120 --> 00:32:03,240 Speaker 1: restore basic functionality of those of those markets. You've already 554 00:32:03,280 --> 00:32:06,480 Speaker 1: seen the liquidation in many of the leveraged mutual funds 555 00:32:06,480 --> 00:32:10,040 Speaker 1: in the community space and and MBS space and so forth. 556 00:32:10,080 --> 00:32:13,880 Speaker 1: So I think that the most disorderly market behavior on 557 00:32:13,960 --> 00:32:19,080 Speaker 1: the public side is probably over um. The you know, 558 00:32:20,120 --> 00:32:22,720 Speaker 1: to your point, very hard to say about, you know, 559 00:32:22,760 --> 00:32:25,000 Speaker 1: index levels and so forth. You know, this is going 560 00:32:25,040 --> 00:32:28,160 Speaker 1: to be a very this is a very real, very 561 00:32:28,240 --> 00:32:31,760 Speaker 1: large fundamental economic shock, and it's likely to take quite 562 00:32:31,760 --> 00:32:33,560 Speaker 1: a while to work through the system, and you know, 563 00:32:33,640 --> 00:32:36,239 Speaker 1: it would be easy to see scenarios where you know, 564 00:32:36,320 --> 00:32:40,320 Speaker 1: asset price levels are significantly lower even but I think 565 00:32:40,360 --> 00:32:44,080 Speaker 1: that the place where we've probably only begun to see, 566 00:32:44,520 --> 00:32:46,800 Speaker 1: you know, little inklings of the beginning is more on 567 00:32:46,840 --> 00:32:50,680 Speaker 1: the private market side. Right, So just think about private credit. 568 00:32:50,760 --> 00:32:52,960 Speaker 1: You know, things that aren't market to market and you 569 00:32:53,000 --> 00:32:55,320 Speaker 1: know aren't don't get unwound in a messy way on 570 00:32:55,360 --> 00:32:59,680 Speaker 1: the first big leg down, right. So private credit over 571 00:32:59,800 --> 00:33:04,640 Speaker 1: level is private equity assets that are held probably at 572 00:33:04,720 --> 00:33:08,240 Speaker 1: very inflated valuations and that are very sensitive to you know, 573 00:33:08,280 --> 00:33:11,480 Speaker 1: the performance of small cat businesses that you know are 574 00:33:11,520 --> 00:33:14,080 Speaker 1: seeing their you know, their revenues fall dramatically and their 575 00:33:14,120 --> 00:33:18,080 Speaker 1: basic ability to uh to run their businesses, um, you know, 576 00:33:18,120 --> 00:33:23,120 Speaker 1: potentially gone under quarantine. Right. And I think that you know, 577 00:33:23,200 --> 00:33:27,040 Speaker 1: and it's not this is not my wheelhouse, very very directly, 578 00:33:27,040 --> 00:33:29,560 Speaker 1: and so I'm not gonna make a bunch of specific 579 00:33:29,720 --> 00:33:31,680 Speaker 1: predictions of any sort. But I think that if you 580 00:33:31,720 --> 00:33:35,000 Speaker 1: were to look at places where the worst is probably 581 00:33:35,040 --> 00:33:36,800 Speaker 1: not over, and you'll see a lot of bodies start 582 00:33:36,840 --> 00:33:39,520 Speaker 1: to float to the surface, I think that's probably over 583 00:33:39,560 --> 00:33:42,200 Speaker 1: the next three to six months, that's probably the place 584 00:33:42,240 --> 00:33:47,680 Speaker 1: to look, right, Ben Effort, really appreciate you rejoining us. 585 00:33:47,840 --> 00:33:49,840 Speaker 1: As as I mentioned, there are a lot of people 586 00:33:50,000 --> 00:33:54,480 Speaker 1: are constantly asking for a sequel to your January episodes 587 00:33:54,520 --> 00:33:56,640 Speaker 1: and light of everything we've seen, and so I think 588 00:33:56,640 --> 00:34:00,000 Speaker 1: they'll be very excited to have listened to your perspective 589 00:34:00,000 --> 00:34:02,880 Speaker 1: of now that much of what we talked about Ben 590 00:34:03,440 --> 00:34:06,160 Speaker 1: is really playing out. Hey, guys, thanks for having a 591 00:34:06,160 --> 00:34:25,799 Speaker 1: lot of fun than Thanks great as always, Tracy, I 592 00:34:25,840 --> 00:34:29,080 Speaker 1: love talking to Ben because I feel like there's almost 593 00:34:29,320 --> 00:34:32,000 Speaker 1: no one who does as good of a job taking 594 00:34:32,640 --> 00:34:37,280 Speaker 1: some pretty our cane difficult to wrap your head around 595 00:34:37,719 --> 00:34:42,880 Speaker 1: concepts and coming pretty close to putting them in English 596 00:34:42,920 --> 00:34:48,040 Speaker 1: that even I can understand. Yeah, I definitely think sometimes 597 00:34:48,040 --> 00:34:50,440 Speaker 1: you need to listen to these episodes a couple of times, 598 00:34:50,560 --> 00:34:54,319 Speaker 1: but you definitely learned something from them. And to me, 599 00:34:54,440 --> 00:34:57,399 Speaker 1: there are sort of two broad themes that stand out. 600 00:34:57,719 --> 00:35:01,239 Speaker 1: One is that we do get these feedback loops in 601 00:35:01,280 --> 00:35:04,279 Speaker 1: the market, um because of the way hedging and things 602 00:35:04,320 --> 00:35:07,640 Speaker 1: like that work, where you can see moves to the 603 00:35:07,680 --> 00:35:11,800 Speaker 1: downside or sometimes to the upside really exacerbated. Um because 604 00:35:11,800 --> 00:35:13,840 Speaker 1: of all these things that are sort of happening in 605 00:35:13,880 --> 00:35:18,040 Speaker 1: the background between dealers and investors. And the second big 606 00:35:18,080 --> 00:35:20,759 Speaker 1: theme is what Ben was talking about. When it comes 607 00:35:20,760 --> 00:35:25,319 Speaker 1: to de risking the banks, risk never disappears, as we know, 608 00:35:25,480 --> 00:35:28,839 Speaker 1: it always moves somewhere else. In this particular case, it's 609 00:35:28,880 --> 00:35:31,240 Speaker 1: moved over to the buy side, to the hedge funds 610 00:35:31,360 --> 00:35:35,400 Speaker 1: some other investors. And I guess the question is whether 611 00:35:35,520 --> 00:35:38,080 Speaker 1: or not that was the right thing to do, has 612 00:35:38,160 --> 00:35:42,279 Speaker 1: Ben pointed out, there are some downsides again getting much 613 00:35:42,320 --> 00:35:46,000 Speaker 1: bigger market moves than you might otherwise expect when banks 614 00:35:46,000 --> 00:35:49,080 Speaker 1: still had the risk appetite or the ability to come 615 00:35:49,080 --> 00:35:51,520 Speaker 1: in and sort of cushi in the market. Um. But 616 00:35:51,600 --> 00:35:54,279 Speaker 1: on the other hand, you have financial stability. So it's 617 00:35:54,280 --> 00:35:57,640 Speaker 1: a really interesting question. And sorry, I'm going to keep going. 618 00:35:58,640 --> 00:36:01,560 Speaker 1: But the other thing UH to think about right now 619 00:36:01,640 --> 00:36:04,680 Speaker 1: is we have seen some talk from the US about 620 00:36:04,800 --> 00:36:08,640 Speaker 1: rolling back parts of Dodd Frank, things like the vocal rule, 621 00:36:08,719 --> 00:36:11,840 Speaker 1: as they're trying to get banks to be more helpful 622 00:36:11,920 --> 00:36:14,200 Speaker 1: to the wider economy. And I guess the question is 623 00:36:14,200 --> 00:36:17,560 Speaker 1: whether we're now going to go too far when it 624 00:36:17,640 --> 00:36:23,000 Speaker 1: comes to undoing all this post financial crisis regulation. Yeah, 625 00:36:23,000 --> 00:36:26,760 Speaker 1: I mean, it'll be really interesting to see where they 626 00:36:26,880 --> 00:36:30,319 Speaker 1: land ultimately. But I think, like, but I think, you know, 627 00:36:31,080 --> 00:36:35,160 Speaker 1: I feel very anxious about saying anything like DoD Frank 628 00:36:35,239 --> 00:36:38,799 Speaker 1: vindicated or the banks proved to be safe. It's like, 629 00:36:38,800 --> 00:36:40,880 Speaker 1: I kind of want to wait a few months before 630 00:36:40,920 --> 00:36:43,920 Speaker 1: I started saying like it all worked, because everybody is 631 00:36:44,000 --> 00:36:47,600 Speaker 1: just so tense right now. But if you think about, like, Okay, 632 00:36:47,960 --> 00:36:50,919 Speaker 1: what is it the core I purpose of a bank 633 00:36:51,080 --> 00:36:53,319 Speaker 1: is most people know it a place to sort of 634 00:36:53,320 --> 00:36:57,279 Speaker 1: hold your money. It's good on some level that where 635 00:36:57,320 --> 00:37:00,760 Speaker 1: we've seen the blow ups so far, see, it seems 636 00:37:00,760 --> 00:37:02,680 Speaker 1: to me it's good that on some level where we've 637 00:37:02,680 --> 00:37:04,920 Speaker 1: seen the blow ups on so far have not been 638 00:37:04,920 --> 00:37:06,960 Speaker 1: that Now. There's also the other factor, which is that 639 00:37:07,280 --> 00:37:10,320 Speaker 1: this crisis really started as a sort of real economy 640 00:37:10,480 --> 00:37:13,920 Speaker 1: shock or an exologenous shot, and it will be interesting, 641 00:37:14,040 --> 00:37:16,960 Speaker 1: and it's sort of been alluded to it at the 642 00:37:17,080 --> 00:37:21,000 Speaker 1: end what happens to sort of you know, at some 643 00:37:21,040 --> 00:37:23,520 Speaker 1: point people just can't keep paying their bill, alright, I 644 00:37:23,520 --> 00:37:25,319 Speaker 1: mean we've already seen that. I mean we started with 645 00:37:25,400 --> 00:37:28,560 Speaker 1: April one, and rent and mortgage checks do because of 646 00:37:28,600 --> 00:37:32,000 Speaker 1: the extraordinary sort of human told layoffs that we saw 647 00:37:32,160 --> 00:37:36,360 Speaker 1: in March. What keeps happening to sort of assets that 648 00:37:36,400 --> 00:37:40,480 Speaker 1: were presumed to be extremely safe as this drags on, 649 00:37:40,760 --> 00:37:44,560 Speaker 1: as the health crisis continues, as the real economic crisis continues, 650 00:37:44,960 --> 00:37:48,080 Speaker 1: at some point, it just sort of keeps eating deeper 651 00:37:48,120 --> 00:37:51,400 Speaker 1: and deeper into assets that people thought were safe. And 652 00:37:51,400 --> 00:37:55,640 Speaker 1: it's been alluded to in which I get and you know, 653 00:37:55,680 --> 00:38:00,160 Speaker 1: a recent interview with Tom Barrick uh discussed this and 654 00:38:00,200 --> 00:38:03,920 Speaker 1: so forth. What happens in the world of sort of 655 00:38:03,960 --> 00:38:08,319 Speaker 1: private credit, private equity, other assets that are just sort 656 00:38:08,320 --> 00:38:10,799 Speaker 1: of premised on the idea that you can take a lot, 657 00:38:10,920 --> 00:38:13,279 Speaker 1: take on a lot of debt or any debt to 658 00:38:13,360 --> 00:38:16,200 Speaker 1: own a very stable piece of the economy. When the 659 00:38:16,200 --> 00:38:20,200 Speaker 1: economy comes to a halt, feels like a story that 660 00:38:20,600 --> 00:38:23,680 Speaker 1: we have not yet seen the washout that we have 661 00:38:23,800 --> 00:38:27,880 Speaker 1: seen in perhaps were in public u in sort of 662 00:38:28,040 --> 00:38:32,200 Speaker 1: publicly traded instruments. Absolutely, we should be careful about saying 663 00:38:32,239 --> 00:38:35,839 Speaker 1: that the banks are completely in the clear, and as 664 00:38:35,880 --> 00:38:38,520 Speaker 1: you point out, on the safe asset side, at the 665 00:38:38,560 --> 00:38:42,440 Speaker 1: same time, we have this question over what happens to 666 00:38:42,520 --> 00:38:46,920 Speaker 1: those assets in what's really an unprecedented economic downturn. In 667 00:38:46,960 --> 00:38:50,280 Speaker 1: many ways, we are seeing the regulators start to ease 668 00:38:50,400 --> 00:38:55,480 Speaker 1: back on those capital constraints, so banks are now allowed, 669 00:38:55,600 --> 00:38:58,959 Speaker 1: for instance, not to hold as much money against things 670 00:38:59,080 --> 00:39:01,360 Speaker 1: like US treasure US. The regulators are doing that to 671 00:39:01,440 --> 00:39:04,520 Speaker 1: try to improve liquidity in the market. But again the 672 00:39:04,600 --> 00:39:08,480 Speaker 1: question is if something were to happen in the U. S. 673 00:39:08,520 --> 00:39:12,040 Speaker 1: Treasury market, would that then backfire and banks might actually 674 00:39:12,280 --> 00:39:16,600 Speaker 1: suffer some losses. So big questions for the economy and 675 00:39:16,640 --> 00:39:19,800 Speaker 1: the financial system. Yeah, well, I think we have many 676 00:39:19,840 --> 00:39:24,200 Speaker 1: more episodes. We're going to have episodes for years on this, 677 00:39:24,440 --> 00:39:28,200 Speaker 1: so I think we're just getting started. Yeah, absolutely, all right, 678 00:39:28,320 --> 00:39:31,520 Speaker 1: Well this has been one of those episodes. I guess 679 00:39:31,840 --> 00:39:34,560 Speaker 1: I'm Tracy Ellowhit. You can follow me on Twitter at 680 00:39:34,560 --> 00:39:38,240 Speaker 1: Tracy Ellowoit and I'm Joe wi Isn'tal. You can follow 681 00:39:38,280 --> 00:39:41,760 Speaker 1: me on Twitter at the Stalwart. And you should definitely 682 00:39:41,800 --> 00:39:46,319 Speaker 1: follow our guests on Twitter. Ben Effort really put up 683 00:39:46,480 --> 00:39:51,480 Speaker 1: high value, high information stream these Ben with two ends 684 00:39:51,640 --> 00:39:55,440 Speaker 1: p Effort Ben Effort. And you should follow our producer 685 00:39:55,560 --> 00:39:59,360 Speaker 1: on Twitter, Laura Carlson. She's at Laura M. Carlson. Be 686 00:39:59,440 --> 00:40:02,920 Speaker 1: sure to follow the Bloomberg head of Podcasts, Francesca Leavi, 687 00:40:03,160 --> 00:40:06,399 Speaker 1: under the handle at Francesca Today and check out all 688 00:40:06,480 --> 00:40:10,719 Speaker 1: of our podcast at Bloomberg under the handle at podcasts. 689 00:40:10,920 --> 00:40:11,720 Speaker 1: Thanks for listening.