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Speaker 1: Hello, Welcome to the Credit Edge Weekly Muket's podcasts. My

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Speaker 1: name is James Crumby. I'm as senior editor at Bloomberg.

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Speaker 2: Hello, my name is Arnold Kakuda, senior analyst at Bloomberg Intelligence.

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Speaker 2: This week, we're very pleased to welcome Dave Albricht, President

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Speaker 2: and CIO of new Fleet Asset Management.

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Speaker 3: How are you, Dave, I'm doing welve today. Thank you, guys.

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Speaker 2: Okay, great, great, so fun. Fact So, Dave is a

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Speaker 2: market veteran and he started his career before Gordon Gecko

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Speaker 2: was a household name. In addition to his executive responsibilities

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Speaker 2: at Newfleet, which has about seventeen billion of assets on

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Speaker 2: her management, he's a senior portfolio manager of several multisector

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Speaker 2: fixing some strategies and then in his role as CIO,

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Speaker 2: mister Albrich drives top down strategy for new Fleet's investment platform.

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Speaker 2: So basically, James, he knows everything. His knowledge is limitless,

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Speaker 2: and I think we've saved the best for last in

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Speaker 2: terms of podcasts for this year. So let me turn

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Speaker 2: it back back to you for the first Q.

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Speaker 1: Thanks great to have you on the show, Dave. So

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Speaker 1: your credit had has has had an extraordinary year, from

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Speaker 1: the April tariffs shop to the recent cut croaches outbreak,

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Speaker 1: But bond spreads are finishing up pretty much where they started.

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Speaker 1: Everyone sounds so upbeat about next year. The low level

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Speaker 1: of defaults is being taken as a sign of health.

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Speaker 1: But is it really, Dave? Are we fooling ourselves that

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Speaker 1: the trouble's gone away?

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Speaker 3: Well? I think that, you know, if you look at

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Speaker 3: the investment great space, you look at the high yield space,

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Speaker 3: you look at leverage finance, I think a lot of

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Speaker 3: debt maturities have been pushed out, which is good. The

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Speaker 3: faults are down due to the abundance of liquidity in

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Speaker 3: the market, and I think private credit helped on that front.

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Speaker 3: So defaults are something that you know, are much lower

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Speaker 3: than the historical average. You've looked at high yield, the

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Speaker 3: faults right now are running much below the historic average.

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Speaker 3: I think we're at one point eight two in the

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Speaker 3: historic averages, somewhere in the mid rees. If you look

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Speaker 3: at bank loans, we're probably right around the historic average.

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Speaker 3: And then we really don't have a faults in investment grade.

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Speaker 3: I think, you know, the last time we actually had

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Speaker 3: a default in investment grade, not a downgrade, but a

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Speaker 3: default was back with Orange County, which was quite some

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Speaker 3: time ago. But faults typically don't happen in the investment

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Speaker 3: grade space. I think that we've only seen one default

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Speaker 3: in the last seven years, and that was fraud. And

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Speaker 3: if you went back, you know, years and years ago,

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Speaker 3: and you looked at Enron World Commadelphia, those are all fraud.

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Speaker 3: So I think we're in a good, good place right now.

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Speaker 3: I think, you know, if I look at three the

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Speaker 3: barometers I look at all in yields are still very attractive.

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Speaker 3: Where you get insurance companies, pension funds and institutional investors

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Speaker 3: excited about fixed income. When you get corporate bonds yielding

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Speaker 3: in the high fours, you get securitized yielding in the

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Speaker 3: five to six percent range, and then you still have

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Speaker 3: discount dollar prices, which if you do a good job

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Speaker 3: in credit selection, you're going to get a nice total

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Speaker 3: return in addition to that yield. Now you're exactly right.

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Speaker 3: Credit spreads are on the tight side without question. You know,

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Speaker 3: if you look at investment grade corporates are at seventy nine,

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Speaker 3: and you know seventy three was a twenty seven year low,

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Speaker 3: so we're not far from that high yield is you know,

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Speaker 3: approaching tights, even though we do have the highest credit

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Speaker 3: quality ever with the abundance of fallen angels that we've

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Speaker 3: seen there. But we're at somewhere around the two seventy level,

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Speaker 3: and then loans are again on the tighter side, so's

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Speaker 3: there's not a lot left. However, they could still grind tighter.

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Speaker 3: One of the areas that actually, you know, fixed income

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Speaker 3: in general had positive excess returns for last year, which

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Speaker 3: was good. If you look at you know, one of

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Speaker 3: the sectors that is outside of domestic credit, you look

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Speaker 3: at emerging markets. You did see significant spread tightening in

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Speaker 3: emerging markets fifty to sixty basis points, with the high

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Speaker 3: yield market tightening by over one hundred and thirty five

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Speaker 3: basis points. So you did see some meaningful spread tightening

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Speaker 3: to put to bring us to these levels, which are

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Speaker 3: I think pretty fully valued from a spread perspective.

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Speaker 2: So are we looking to buy right now? Are you

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Speaker 2: looking at tread credit less less versus cash or what

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Speaker 2: are your thoughts there?

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Speaker 3: Yeah, I mean, you know, I'm a bond guy, so

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Speaker 3: I'm always going to be fully invested in fixed income.

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Speaker 3: The nice thing about multisector is I have fourteen levers

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Speaker 3: to pull, so there's always something that seems exciting out there.

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Speaker 1: You know.

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Speaker 3: Some of the moves that we made this year, we're

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Speaker 3: selling bank loans. Obviously, as the FED was you know,

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Speaker 3: cutting rates in a you know, a rate cutting mode,

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Speaker 3: bought agency mortgage backs, which for the first time in years,

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Speaker 3: we saw the yield of corporate bonds and the yield

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Speaker 3: of agency mortgage backs on top of each other. They

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Speaker 3: were right around four eighty six four eighty seven. Typically

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Speaker 3: you're getting fifty three additional basis points when you're in

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Speaker 3: an investment grade corporate, but they were on top of

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Speaker 3: each other. So we felt it a good entry point

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Speaker 3: to start buying agency mortgage backs. And they've had a

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Speaker 3: great return. Agency mortgage backs are up right around eight

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Speaker 3: percent this year, so a nice total return, but a

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Speaker 3: lot of the dislocation in the market, and that's when

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Speaker 3: we get excited. When you start to see the market

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Speaker 3: dislocate and something that's cheap, the dislocations are much narrower

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Speaker 3: and much quicker to rebound. You know. We we went

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Speaker 3: back we had the Enkerry trade, where the dislocation and

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Speaker 3: the leverage finance markets were about five weeks, so it

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Speaker 3: was very short lived. We had some of the elections

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Speaker 3: in Europe and then the stamp election in France, which

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Speaker 3: was another five week dislocation, and then you know, as

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Speaker 3: you guys had just mentioned earlier in the call, we

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Speaker 3: had Liberation Day where we saw a dislocation for about

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Speaker 3: eight weeks. But they're nowhere near what they used to be.

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Speaker 3: I would just say, we get excited about high yield

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Speaker 3: when you know spreads get to six fifty seven hundred.

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Speaker 3: We didn't see that. We had spreads get to four fifty,

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Speaker 3: and then a bunch of money came in and spreads

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Speaker 3: tightened back up inside of three hundred. So you have

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Speaker 3: to be much more quick, you have to be much

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Speaker 3: more tactical, and you got to do it quickly. I

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Speaker 3: think derivatives market has allowed us to execute efficiently and

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Speaker 3: then fill out those trades in the cash markets. So

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Speaker 3: it's much more efficient that we can get exposure immediately.

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Speaker 3: And again when they're short lived, when there's so much

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Speaker 3: cash on the sidelines, when you have seven trillion in

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Speaker 3: money market waiting for that opportunity to get involved in

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Speaker 3: the markets, you got to be quick, and you got

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Speaker 3: to be tactical.

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Speaker 2: Maybe some of the banks might be stepping in a

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Speaker 2: little bit bit more with the rate cuts. And then

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Speaker 2: also I think we saw an article in terms of

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Speaker 2: Fanny Freddy they're kind of bulking up their portfolios but

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Speaker 2: perhaps kind of limiting the supply of agency mbs. So

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Speaker 2: is that a sector that you're kind of really more favoring,

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Speaker 2: continuing to favor more into twenty twenty six.

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Speaker 3: I would say that it was a great opportunity. Last

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Speaker 3: year they had a great return. You had that anomaly

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Speaker 3: where they traded on top of corporate bonds. Now they're

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Speaker 3: back to pretty much fair value. So I mean we

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Speaker 3: like the non agency space a little better. We think

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Speaker 3: that has underperformed versus agencies. You know, if you look

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Speaker 3: at the metrics, you know, if I look at you know, both,

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Speaker 3: I think we like the housing market in general. I

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Speaker 3: think good underwriting, very strong, credit supply is down dramatically,

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Speaker 3: good structures, low inventory. You know, if you go back

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Speaker 3: to two thousand and seven, they were building about a

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Speaker 3: million houses per year. Two thousand and nine and after

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Speaker 3: was about two hundred and fifty thousands. So the shortage

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Speaker 3: of housing has been about seven hundred thousand per year

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Speaker 3: going all the way back to nine. So there's insational

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Speaker 3: demand that it really provides a nice floor for the market.

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Speaker 3: One of the other reasons I think I talk about

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Speaker 3: this that I think we could we avoided a recession

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Speaker 3: in the US. If you went to Europe, about eighty

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Speaker 3: plus percent of their mortgages are floating rate, So when

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Speaker 3: rates got the seven percent, you know, your mortgage payment

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Speaker 3: went up threefold. That's very, very painful. In the US,

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Speaker 3: sixty four percent of mortgages are at three and a

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Speaker 3: half percent or lower. So mortgage rates go to seven percent,

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Speaker 3: your life doesn't change. You're probably not selling your home.

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Speaker 3: You've locked in a nice equity build up. But I

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Speaker 3: think that avoided, you know, helped us avoid a recession.

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Speaker 3: So I think there's a lot of metrics that are

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Speaker 3: working for us. We do like the mortgage market. Think

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Speaker 3: going forward from a value perspective right now, I think

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Speaker 3: non agencies percent a better opportunity.

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Speaker 1: Going back to the credit cycle, Dave and the default

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Speaker 1: cycle in particular, I mean, people are telling us across

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Speaker 1: the board that we're late cycle, you know, with seventh

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Speaker 1: eighth innings in terms of you know, what's going to happen.

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Speaker 1: And you know, there are a lot of companies that

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Speaker 1: did borrow way too much when rates were near zero

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Speaker 1: and they just keep you know, kicking the can. There's

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Speaker 1: been a lot of liability management exercises, has been a

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Speaker 1: lot of you know, private credit has helped some. But

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Speaker 1: are we just delaying the inevitable here or has all

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Speaker 1: the problems? Have all the problems gone away?

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Speaker 3: Well, ill on me. It is definitely a problem in

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Speaker 3: the bank on the market. We're watching that very very closely.

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Speaker 3: Those that you know, it's guys like us that lose

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Speaker 3: rights to you know, go after the collateral and it

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Speaker 3: becomes a problem. So that's something you have to be

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Speaker 3: very cognizant of. So our bias has been up in

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Speaker 3: quality in the loan market, but we've been better sellers

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Speaker 3: due to the fact that the Fed's been cutting rates

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Speaker 3: and liboard has been going down, and obviously the yield

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Speaker 3: that you get has been much less. Going forward, if

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Speaker 3: you believe that we're at the end of the rate

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Speaker 3: cut cycle, which possibly there's possibly one or two more

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Speaker 3: cuts to come, I think the loan market becomes a

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Speaker 3: good avenue of for investment. You know, if you look

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Speaker 3: at a lot of the finance in the area has

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Speaker 3: been refinancing and repayments. It's been almost three quarters of

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Speaker 3: what's been going on, which provides a nice fundamental backdrop.

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Speaker 3: If you went back to the last time the loan

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Speaker 3: market imploded, it was back in the global financial crisis,

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Speaker 3: when probably about thirty to forty percent was retail. Now

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Speaker 3: only seven percent of that market is retail. The big

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Speaker 3: portion of that market is clos which you know probably

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Speaker 3: are about seventy percent of that market, which is really

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Speaker 3: much a buy and hold as opposed to the emotional

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Speaker 3: investor in the retail space. So we're looking at loans

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Speaker 3: once the FED stops cutting rates as an opportunity to

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Speaker 3: get back in. You have a very high current yield

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Speaker 3: right around eight percent, you know, very good technicals. You've

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Speaker 3: had seventeen billion of flows into that market. We think

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Speaker 3: that makes sense a little less concerning when I look

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Speaker 3: at the high yield market. You know, the high market

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Speaker 3: is the highest credit quality ever. You had about two

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Speaker 3: hundred and eighty four billion of downgrades. Some of the

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Speaker 3: fallen angels, occidental craft times for Twitter, NORDG froms cement

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Speaker 3: in a few which has actually improved the overall credit

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Speaker 3: quality of that market. So at two seventy, with the

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Speaker 3: faults at one eighty two, I feel a little more comfortable.

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Speaker 3: We're more market like and exposure there, and again I

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Speaker 3: think we're defensively postured. You would ask this question before

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Speaker 3: it defensively postured and a dip buyer. But as I

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Speaker 3: had mentioned, the dips are shorter and you have to

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Speaker 3: be much quicker and much more tactical. So you know,

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Speaker 3: as we see opportunity, we will buy in both those markets,

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Speaker 3: both in the loan market and the high yield market.

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Speaker 3: You have to be very, very cautious of being in

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Speaker 3: late innings. I've heard that for the last three or

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Speaker 3: four years, and it keeps on getting extended out, so

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Speaker 3: we'll watch it closely. We're cognizant of l me risk,

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Speaker 3: We're cognizant of being higher quality in the high yield market,

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Speaker 3: and you know, something that will take into consideration when

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Speaker 3: we look to add exposure in the future.

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Speaker 1: But do the problems then ultimately end up in twenty

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Speaker 1: twenty seven, twenty twenty eight. I mean, we're going to

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Speaker 1: have a good year next year, but but then we'll

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Speaker 1: hit the wall after that well.

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Speaker 3: We're starting to see some of the cracks, you know,

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Speaker 3: and you talk about, you know, some of the things

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Speaker 3: that we've seen. We've seen, you know, fraud with Tricolor

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Speaker 3: and First Brands. We saw some of the bankruptcies in

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Speaker 3: private credit, Zip, car Wash and Renova Home Partners. You know,

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Speaker 3: do you know do the fact that they're only priced

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Speaker 3: on either a monthly or quarterly basis and prices dropped

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Speaker 3: pretty quickly. That's something we have to watch very very closely.

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Speaker 3: When I look at the private capital markets, private credit,

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Speaker 3: that market has grown to one point seventy five trillion.

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Speaker 3: It's a it's a good sized market. About one and

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Speaker 3: a quarter trillion are invested. Five hundred plus billion is

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Speaker 3: waiting to be invested. Provided great liquidity and alternative financing

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Speaker 3: in the markets. It started out coming to weak single

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Speaker 3: bees that we're going to default. And you know, some

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Speaker 3: of the best news that we would hear as my

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Speaker 3: loan manager would walk in my office and you say, hey,

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Speaker 3: that deal that was trading an eight cents to the dollar,

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Speaker 3: we thought was going to default. You know, one of

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Speaker 3: the BDCs took us out at one hundred cents on

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Speaker 3: the dollar. We're like we'd love you guys. In private credit.

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Speaker 3: That's changed. It's now there's such an abundance of money.

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Speaker 3: It's providing liquidity at every tier. You know, a lot

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Speaker 3: of companies that we thought, you know, that needed to

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Speaker 3: finance in the private credit markets were able to get financing,

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Speaker 3: they got their financial house in order. Then they were

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Speaker 3: able to go back and refinance into the public market

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Speaker 3: set you know, a much lower rate. So it provided

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Speaker 3: a nice source of capital. And there's still plenty of liquidity.

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Speaker 3: There's still five hundred billion looking to be invested in

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Speaker 3: that market. So I think that's helped pushed out the

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Speaker 3: default cycle. That's helped with liquidity in the overall market,

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Speaker 3: and it's something we're watching very very closely. It starts

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Speaker 3: to be a little concerning when a lot of the

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Speaker 3: companies are doing pay in kind. They're not actually generating

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Speaker 3: cash flow, they're actually accumulating more debt. That starts to

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Speaker 3: get me worried. And a lot of dollars are invested,

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Speaker 3: you know, And it's it's when a lot of people

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Speaker 3: are telling me how great of a market it is.

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Speaker 3: I mean, the spread between public and private has compressed.

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Speaker 3: It used to be about three to four hundred basis

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Speaker 3: points now it's inside of one hundred. So and then

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Speaker 3: two other things that I when I look at private credit,

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Speaker 3: you have a concentration in commercial service and software. It's

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Speaker 3: about forty percent. You compare that to the public leverage

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Speaker 3: loan market, they're only about twenty percent. So they're overexposed

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Speaker 3: to AI disruptions and we have to watch that closely.

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Speaker 3: And also i'd say they're heavily skewed to lower credit

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Speaker 3: ratings B three in triple c's versus the public loan market.

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Speaker 3: So again, I think it's provided great liquidity, it's done

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Speaker 3: its job. You have to be very very cautious and

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Speaker 3: could there be hiccups in the future. Let's see what

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Speaker 3: four negative quarters of GDP due to these markets. You know,

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Speaker 3: we haven't seen that. We've seen a pretty much a

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Speaker 3: bull market, right private credit, the bulk of it has

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Speaker 3: come out in the last five years. It's been a

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Speaker 3: bull market. We've had pretty positive fundamental backdrop. We'll have

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Speaker 3: to wait and see if we do start to see

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Speaker 3: a dislocation or slow down the economy, you know, we'll

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Speaker 3: take that the consideration. We'll go up in quality, we'll

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Speaker 3: hold you know, higher quality assets looking for an entry point.

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Speaker 1: Dave, on the point you made about the difference in

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Speaker 1: pricing between public and private, you're saying that it was

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Speaker 1: three to four hundred basis points over let's say, for

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Speaker 1: a private loan over the public equivalent, and now it's

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Speaker 1: gone below one hundred.

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Speaker 3: It's gotten much more competitive due to the fact that

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Speaker 3: you've had so much cash come into the market and

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Speaker 3: you still have about four hundred I'm sorry, five hundred

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Speaker 3: and fifty fourteen billion waiting to be invested.

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Speaker 1: Yes, at one hundred, though, does it even make sense?

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Speaker 1: Is that compensate you for the lack of liquidity.

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Speaker 3: Again, that's you know, that's sort of your choice. There's

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Speaker 3: there is positive to it where you only you know,

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Speaker 3: you know, I have to disclose your financials to more

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Speaker 3: than one or two brokers. There's things that are positive

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Speaker 3: for me. You know, I invest in the public markets.

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Speaker 3: I don't. We don't invest in private credit. I do

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Speaker 3: have private credit exposure through the BBC's that's how we

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Speaker 3: sort of get our private exposure. You know, business development

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Speaker 3: companies are larger liquid companies, so you know, we we

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Speaker 3: sort of lack the transparency there. However, I feel very

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Speaker 3: well about the large, well capitalized issuers like a Blackstone,

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Speaker 3: Apollo and areas. That's why I can get exposure to

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Speaker 3: private credit. I'm not actually buying the individual transactions, but yes,

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Speaker 3: that that premium has narrowed pretty dramatically. And you've gotten

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Speaker 3: great performance. You know, you've defaults have been limited. Performance

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Speaker 3: has been good, but you've also been in a bull market.

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Speaker 2: You talk about, you know, the liquidity that all the

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Speaker 2: private credit, you know, alternative asset managers have provided. What

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Speaker 2: do you think will make this kind of music stop?

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Speaker 3: Well, I think you know, when you start to see,

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Speaker 3: you know, some of the problem problems with credits, you

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Speaker 3: start to see some defaults, you start to see when

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Speaker 3: you start to see the market have cracks, that that

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Speaker 3: would be my thing. When you start to see the

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Speaker 3: market have cracks is sort of the top of the market.

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Speaker 3: You've you've had a nice run. You know, I own

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Speaker 3: it personally. I think it's made sense me personally. I'm

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Speaker 3: taking some profits. I think it makes sense to take

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Speaker 3: profits now. You've had a great run. You pretty much

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Speaker 3: have haven't had many credit impairments. You know, you've got

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Speaker 3: a very strong backdrop. You look at, uh, you know

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Speaker 3: the economy has been chugging along in the two to

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Speaker 3: three percent range. Defaults even you know, are much more

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Speaker 3: manageable right now. Leverage is lower than historical averages. You know,

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Speaker 3: earnings have been relatively strong. Those are all those are

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Speaker 3: all very good backdrops to have, you know, right now.

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Speaker 3: So we're taking a hard look at that. If that

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Speaker 3: starts to change, then I'd be a little more cautious.

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Speaker 2: Got it. And so I guess some of these recent

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Speaker 2: things that have popped up in I guess the past

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Speaker 2: few weeks months, little cockroaches. I guess that that Jamie

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Speaker 2: Diamond has said, those you've view as kind of more

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Speaker 2: as one offs versus like canaries in the coal mine.

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Speaker 3: In terms of ask a question again, No, that's a

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Speaker 3: that's a really good question. I mean, I think Tricolor

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Speaker 3: and first brands, when you have fraud, I mean those

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Speaker 3: are few and far between us something that you can't

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Speaker 3: really detect. You know, fraud is fraud. When you have bankruptcies,

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Speaker 3: that's something that you can detect. And you know, obviously

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Speaker 3: you have to do credit work, and credit work is

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Speaker 3: part of the exercise. You know, it's I don't want

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Speaker 3: to buy an indexed etf. You know, without knowing what

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Speaker 3: the underlying credits are, especially if we're that late in

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Speaker 3: the cycle. The point you made, I want to make

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Speaker 3: sure I'm doing independent credit research. I feel very good

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Speaker 3: about the underlying credits, and I want to know what

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Speaker 3: I own. So I would say that fundamental credit work

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Speaker 3: is of utmost importance, especially as we get towards the

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Speaker 3: end of the cycle.

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Speaker 1: Other than private credit, which is what everyone wants to

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Speaker 1: talk about, AI has taken over the discussion and the

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Speaker 1: amount of money that is being borrowed to fund the

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Speaker 1: build out, not just on the AI specific but also

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Speaker 1: the associated infrastructure, the power, the utilities, everything else around it.

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Speaker 1: It's going to be you know, three trillion dollars of funding.

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Speaker 1: A lot of that that's going to hit the public markets.

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Speaker 1: But what does that say to you, Dave? I mean,

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Speaker 1: you know, you've been around quite a long time. We've

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Speaker 1: seen these euphoria moments about certain you know, new things

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Speaker 1: that come along and everyone's borrowing furiously to get in there.

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Speaker 1: But is that really a great opportunity to think for

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Speaker 1: credit investors?

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Speaker 3: So, you know, I call it one of the one

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Speaker 3: of the headwinds is the leverage in the tech space.

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Speaker 3: You know, if you look at on an issuance basis,

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Speaker 3: it was about two percent about six months ago. That's

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Speaker 3: grown to ten percent. You've seen the issuance of companies

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Speaker 3: like Amazon, Medica, I'm sorry, Meta, Oracle, Google, Netflix, and

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Speaker 3: then you've seen the poster child I'd call it, you know, Oracle,

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Speaker 3: you know, have negative ratings impact. I think now they're

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Speaker 3: a mid triple B. We do not believe that it's

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Speaker 3: realistic to believe in the near term they're going to

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Speaker 3: go to junk. But they're issuing a lot of debt.

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Speaker 3: You know, they currently have I think about one hundred

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Speaker 3: billion of index eligible bonds. We expect this to grow

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Speaker 3: to somewhere in one hundred and fifty billion dollar range

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Speaker 3: over the next two to three years. You know, if

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Speaker 3: it was to fall into the high yield market at

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Speaker 3: one point five trillion, to be ten percent of the

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Speaker 3: high yield index, which would be scary. So you know,

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Speaker 3: we don't think that's going to happen. We're not. We

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Speaker 3: think would be reckless if they did that. I'm just

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Speaker 3: making the point that it's massive issuance. I think the

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Speaker 3: best way to categorize it is is that you have

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Speaker 3: investment grade companies taking on debt to finance equity like risks.

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Speaker 3: And I stole that from Howard Marks. That's not my

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Speaker 3: two cents, but Hard Marks said that, and I think

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Speaker 3: that's spot on. You want to be cognizant of what

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Speaker 3: they're doing, what the investment is, and what risk that

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Speaker 3: it entails. And it is these big, well capitalized companies,

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Speaker 3: unlike the dot com bubble, which were over levered, you know,

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Speaker 3: weak companies that were issuing debt before they even put

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Speaker 3: fiber optic cable in the ground. It came with three

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Speaker 3: deals and then defaulted. These are much better capitalized companies,

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Speaker 3: but it is equity like risk that you're financing.

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Speaker 1: With that say, Oracle doesn't really want to be junk,

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Speaker 1: and they have said that they want to defend their

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Speaker 1: investment grade ratings, but they may not have a choice.

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Speaker 1: And they are trading. Some of their bonds are trading,

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Speaker 1: you know, with double b yields at this point, and

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Speaker 1: the CDs is blown out, so the market is sort

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Speaker 1: of telling us something else. I'm curious, you know, as

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Speaker 1: someone who could look at either you know, if that

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Speaker 1: big capital structure of one hundred billion dollars of debt,

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Speaker 1: you know, jumps into the high yield market. Is that

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Speaker 1: posentially more of an opportunity for you.

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Speaker 3: So I'd say that during the pandemic, when we saw

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Speaker 3: two hundred andy four billion of fallen angels, that was

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Speaker 3: right in our wheelhouse. When you have pension funds that

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Speaker 3: are insurance companies that are forced to sell because a

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Speaker 3: company goes from investment grade to blow investment grade and

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Speaker 3: then it falls into the high yield category. He had

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Speaker 3: forward with thirty year bonds. I mean, typically you're seeing

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Speaker 3: five and seven year issues in the high yield market.

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Speaker 3: Now you have thirty year bullet paper available, they become

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Speaker 3: some of the best performers occidental craft times as I

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Speaker 3: had mentioned, you know for Twitter, nor Trum's just mentioned

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Speaker 3: a few those were great opportunities. Now, Oracle, I never

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Speaker 3: said they're going to junk. They're a solid, solid, you know,

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Speaker 3: mid triple B. But you know it's an investment that

430
00:20:19,960 --> 00:20:21,640
Speaker 3: we're looking at. You know, we're not going to position

431
00:20:21,720 --> 00:20:24,800
Speaker 3: too aggressively. But I just say the current sell off

432
00:20:24,840 --> 00:20:27,040
Speaker 3: has this feeling like the risks are starting to be

433
00:20:27,080 --> 00:20:29,560
Speaker 3: priced in, so it may be starting to look a

434
00:20:29,640 --> 00:20:32,440
Speaker 3: lot more attractive to us. So something that we're falling

435
00:20:32,520 --> 00:20:35,240
Speaker 3: very very closely in our investment grades with our investment

436
00:20:35,240 --> 00:20:35,640
Speaker 3: grade team.

437
00:20:36,000 --> 00:20:38,760
Speaker 2: Let's go move on to other kind of AI uh,

438
00:20:39,000 --> 00:20:41,320
Speaker 2: the more single A double A you know, ones that

439
00:20:41,359 --> 00:20:43,800
Speaker 2: are kind of right raising a lot of debt but

440
00:20:43,880 --> 00:20:47,800
Speaker 2: also in in in special kind of SPV type form.

441
00:20:47,920 --> 00:20:49,639
Speaker 2: So what are some of your thoughts, like, what's the

442
00:20:49,640 --> 00:20:51,919
Speaker 2: best way to kind of play that space, right is it?

443
00:20:51,960 --> 00:20:54,399
Speaker 2: Is it through the public markets or like you know,

444
00:20:54,600 --> 00:20:57,800
Speaker 2: at the company level or at these special entities or

445
00:20:57,840 --> 00:20:59,480
Speaker 2: you know, what do you think the best bank for

446
00:20:59,520 --> 00:20:59,960
Speaker 2: the buck is?

447
00:21:01,200 --> 00:21:02,920
Speaker 3: I mean, you know, for us, it would be playing

448
00:21:02,960 --> 00:21:04,919
Speaker 3: it at the company level. That's just that's just our

449
00:21:05,040 --> 00:21:08,000
Speaker 3: our forte. So I would say that looking at the

450
00:21:08,000 --> 00:21:11,320
Speaker 3: companies evaluating what they're doing, we haven't jumped in with

451
00:21:11,359 --> 00:21:13,600
Speaker 3: both feet. We've sort of been a little hesitant and

452
00:21:13,880 --> 00:21:15,880
Speaker 3: wait and see, sort of a wait and see mode.

453
00:21:15,880 --> 00:21:18,080
Speaker 3: But we have been reviewing it and we actually just

454
00:21:18,119 --> 00:21:21,240
Speaker 3: did an industry review today. So something we're talking about

455
00:21:21,280 --> 00:21:23,679
Speaker 3: and we're falling very closely, but haven't jumped in with

456
00:21:23,720 --> 00:21:24,600
Speaker 3: both feet as of yet.

457
00:21:25,280 --> 00:21:28,800
Speaker 1: Do you wonder about the rationale for long dated debt?

458
00:21:28,800 --> 00:21:31,679
Speaker 1: I mean you talked about equity like dreams for you know,

459
00:21:32,000 --> 00:21:34,520
Speaker 1: credit risk. You know, you're funding something for forty years

460
00:21:34,560 --> 00:21:37,560
Speaker 1: that could be obsolete in you know, much much less time.

461
00:21:37,680 --> 00:21:40,919
Speaker 1: Given the change in technologies and the way you know,

462
00:21:41,040 --> 00:21:43,879
Speaker 1: things are rapidly evolving. Would it make Does it make

463
00:21:43,960 --> 00:21:45,879
Speaker 1: sense for a credit invested by forty year bonds from

464
00:21:45,920 --> 00:21:46,720
Speaker 1: a tech company?

465
00:21:46,880 --> 00:21:50,840
Speaker 3: Absolutely not. I mean unless you're so comfortable that it's

466
00:21:50,840 --> 00:21:53,400
Speaker 3: going to be the right investment. Now, I think it's

467
00:21:53,440 --> 00:21:55,920
Speaker 3: it's a it's a big risk. That's that's that's that's

468
00:21:56,000 --> 00:21:58,840
Speaker 3: probably the biggest risk out there is you know, investing

469
00:21:59,000 --> 00:22:02,080
Speaker 3: you know, in debt for something that may go away

470
00:22:02,119 --> 00:22:05,520
Speaker 3: in three to four years with forty year maturity. So no,

471
00:22:05,640 --> 00:22:07,560
Speaker 3: that's something we're definitely considering, and it's it's one of

472
00:22:07,600 --> 00:22:10,199
Speaker 3: the biggest risks out there. So something you have to

473
00:22:10,200 --> 00:22:13,120
Speaker 3: evaluate when something seems too good to be true. There's

474
00:22:13,160 --> 00:22:15,360
Speaker 3: no free lunch in the bond market. That's why, that's

475
00:22:15,359 --> 00:22:16,919
Speaker 3: the why I was that's why I was brought up

476
00:22:16,920 --> 00:22:19,320
Speaker 3: in investing. Anything looks too good to be true, it

477
00:22:19,320 --> 00:22:22,840
Speaker 3: probably is to be careful. And you know, obviously, you know,

478
00:22:23,000 --> 00:22:24,600
Speaker 3: we want to have we want to have diversification, we

479
00:22:24,640 --> 00:22:26,560
Speaker 3: want to be safe. If we did it, it would

480
00:22:26,560 --> 00:22:30,080
Speaker 3: be you know, smaller investment sizes, we'd be extremely well diversified.

481
00:22:30,400 --> 00:22:31,720
Speaker 3: So it's something we're evaluating.

482
00:22:31,800 --> 00:22:33,480
Speaker 1: Does it remind you of anything else you've seen? Was

483
00:22:33,520 --> 00:22:35,760
Speaker 1: it like the dot com bubble or the mid mid

484
00:22:35,800 --> 00:22:38,000
Speaker 1: two thousand's housing expansion or anything else like that?

485
00:22:39,400 --> 00:22:42,880
Speaker 3: Those were you know, those were definitely things that were

486
00:22:42,960 --> 00:22:46,359
Speaker 3: a little crazy. I mean I started in nineteen ninety

487
00:22:46,400 --> 00:22:50,160
Speaker 3: for managing money. That was the year of seven rating pieces,

488
00:22:50,160 --> 00:22:53,040
Speaker 3: the Mexican pace of evaluation, and the end of the

489
00:22:53,080 --> 00:22:56,600
Speaker 3: high yield, the bacle. I remember, I remember getting a

490
00:22:56,640 --> 00:22:58,719
Speaker 3: call from Lipper and they told me that you were

491
00:22:58,800 --> 00:23:00,600
Speaker 3: ranked number one. I said, but I'm a short term

492
00:23:00,600 --> 00:23:03,520
Speaker 3: bond fund that's down one point eight percent, Like you

493
00:23:03,520 --> 00:23:05,320
Speaker 3: were number one out of one hundred. You won the

494
00:23:05,320 --> 00:23:08,280
Speaker 3: lip Award. I'm like, I'm not sure that's the objective.

495
00:23:08,280 --> 00:23:09,679
Speaker 3: It was short term bond fund to be down one

496
00:23:09,720 --> 00:23:12,400
Speaker 3: point eight percent. So we've I've lived through a lot

497
00:23:12,440 --> 00:23:14,200
Speaker 3: of that. We had nineteen ninety eight, which was the

498
00:23:14,840 --> 00:23:18,960
Speaker 3: we had the long term capital. Two thousand and two

499
00:23:19,240 --> 00:23:23,119
Speaker 3: was the telecom bubble of the faults. Two thousand and

500
00:23:23,160 --> 00:23:26,439
Speaker 3: eight was the long term capital crisis we had, you know,

501
00:23:26,520 --> 00:23:28,920
Speaker 3: obviously the downgrade of the US. We had some other

502
00:23:28,960 --> 00:23:33,280
Speaker 3: oil concerns China. I've been through a lot. This is

503
00:23:33,320 --> 00:23:36,320
Speaker 3: a little different because you have well capitalized, large companies,

504
00:23:37,000 --> 00:23:39,080
Speaker 3: but you have a lot of people jumping on the bandwagon.

505
00:23:39,119 --> 00:23:41,479
Speaker 3: So I want to just be cautious as we approach it.

506
00:23:41,520 --> 00:23:44,479
Speaker 3: And again we're taking everything to do with consideration and

507
00:23:44,520 --> 00:23:46,439
Speaker 3: we'll make a decision whether we want to allocate there

508
00:23:46,520 --> 00:23:46,720
Speaker 3: or not.

509
00:23:47,359 --> 00:23:49,400
Speaker 2: So if you had to put you know, obviously we're

510
00:23:49,440 --> 00:23:51,800
Speaker 2: not in you know, your forecast for twenty twenty six,

511
00:23:51,840 --> 00:23:54,840
Speaker 2: would you say it's it's the continuation of the AI

512
00:23:54,880 --> 00:23:57,399
Speaker 2: bubble or will it pop or we are not in

513
00:23:57,440 --> 00:23:59,440
Speaker 2: a bubble? Do you have any thoughts on that or.

514
00:24:00,760 --> 00:24:03,240
Speaker 3: You know, I just if I look at twenty twenty six,

515
00:24:03,280 --> 00:24:06,920
Speaker 3: I think the current backdrop will persist. I mean sort

516
00:24:06,920 --> 00:24:09,360
Speaker 3: of the tailwinds we had last year was an accommodative

517
00:24:09,359 --> 00:24:11,600
Speaker 3: FED there were cutting rates. We had a good economy,

518
00:24:12,440 --> 00:24:16,760
Speaker 3: decent consumer unemployment was low, earnings were good, leverage was

519
00:24:17,359 --> 00:24:19,480
Speaker 3: you know, below long term averages. As we had mentioned,

520
00:24:19,480 --> 00:24:22,480
Speaker 3: we had positive flows and you know, really strong returns

521
00:24:22,480 --> 00:24:25,600
Speaker 3: and fixed income. We talked about some of the headwinds

522
00:24:25,640 --> 00:24:29,400
Speaker 3: which tariff's uncertainty, tight spreads, as you guys had mentioned,

523
00:24:29,880 --> 00:24:33,760
Speaker 3: some geopolitical uncertainty, and then elevated inflation. We haven't got

524
00:24:33,800 --> 00:24:36,000
Speaker 3: to the Fed's target in four years of two percent,

525
00:24:36,520 --> 00:24:39,560
Speaker 3: and then some policy uncertainty. If I look at you know,

526
00:24:39,760 --> 00:24:44,199
Speaker 3: twenty twenty six, I think that current backdrop persists. You know,

527
00:24:44,200 --> 00:24:47,080
Speaker 3: the Fed's easy monetary policy and you know, yeah, they're

528
00:24:47,080 --> 00:24:49,159
Speaker 3: going to the rates by cuts will come to an end.

529
00:24:49,200 --> 00:24:53,239
Speaker 3: I don't see a recession, still see moderate growth, and

530
00:24:53,400 --> 00:24:55,520
Speaker 3: as I had mentioned before, I see you know, sort

531
00:24:55,560 --> 00:24:59,239
Speaker 3: of coupon plus type returns as a possibility. You know,

532
00:24:59,359 --> 00:25:02,439
Speaker 3: AI is only one of the areas that we're we're

533
00:25:02,520 --> 00:25:07,400
Speaker 3: considering for investment and could it, could it correct, absolutely,

534
00:25:07,840 --> 00:25:10,919
Speaker 3: Could it go on and run for a few years. Absolutely,

535
00:25:11,440 --> 00:25:13,919
Speaker 3: So we'll watch it very very closely. You know, if

536
00:25:13,960 --> 00:25:16,399
Speaker 3: I had to look at some of the other headwinds

537
00:25:16,440 --> 00:25:19,840
Speaker 3: going forward, we have midterm elections coming up, we still

538
00:25:19,840 --> 00:25:22,399
Speaker 3: have geopolitical risks, We still have the Middle East, we

539
00:25:22,520 --> 00:25:25,359
Speaker 3: still have Rushia, Ukraine which is now going on to

540
00:25:25,440 --> 00:25:28,800
Speaker 3: its fourth year, China, which is the second largest economy

541
00:25:28,800 --> 00:25:30,760
Speaker 3: in the world. You have to look at what are

542
00:25:30,800 --> 00:25:33,720
Speaker 3: the growth projections for China and you will continue to

543
00:25:33,720 --> 00:25:36,440
Speaker 3: grow it five percent. We talked about the leverage in

544
00:25:36,480 --> 00:25:39,560
Speaker 3: the tech space, which is definitely a concern. I'm not

545
00:25:39,640 --> 00:25:41,320
Speaker 3: saying it's going to blow up next year and not

546
00:25:41,400 --> 00:25:43,880
Speaker 3: saying you can't run for a little longer. And then

547
00:25:44,280 --> 00:25:46,400
Speaker 3: Fed policy, you know, we have to talk about FED policy.

548
00:25:46,920 --> 00:25:49,080
Speaker 3: Not only you know, you know what will they do?

549
00:25:49,119 --> 00:25:51,320
Speaker 3: Will they continue to cut rates? But what's the composition

550
00:25:51,400 --> 00:25:53,679
Speaker 3: that FED going to look like when Paul's term is

551
00:25:53,760 --> 00:25:56,600
Speaker 3: up in May? And you know, and how will the

552
00:25:56,600 --> 00:25:58,200
Speaker 3: how will the FED look and you know what will

553
00:25:58,240 --> 00:26:01,080
Speaker 3: the what will they do going forward? And then as

554
00:26:01,119 --> 00:26:03,679
Speaker 3: you guys well mentioned, we continue to be in a

555
00:26:03,680 --> 00:26:06,359
Speaker 3: tight spread environment and are we at the end of

556
00:26:06,400 --> 00:26:10,520
Speaker 3: the credit cycle is a big concern. So again, diversification

557
00:26:10,600 --> 00:26:13,840
Speaker 3: is very very important defensive posturing being up in quality,

558
00:26:14,400 --> 00:26:17,040
Speaker 3: having the ability to buy on dips when you know

559
00:26:17,320 --> 00:26:20,480
Speaker 3: the opportunity presents themselves and people start getting emotional about investments,

560
00:26:20,520 --> 00:26:22,800
Speaker 3: that's when we typically make our most money.

561
00:26:23,200 --> 00:26:24,960
Speaker 1: One of the defensive trades for this year that everyone

562
00:26:24,960 --> 00:26:27,159
Speaker 1: seems to love is banks, certainly the big banks, but

563
00:26:27,280 --> 00:26:30,120
Speaker 1: you also, Dave, you mentioned the like regional banks. Since

564
00:26:30,119 --> 00:26:32,480
Speaker 1: we have Vinyld here who also covers the banks, I'm

565
00:26:32,560 --> 00:26:35,240
Speaker 1: keen to get both your thoughts on those because there

566
00:26:35,280 --> 00:26:37,400
Speaker 1: still seems to be too many of them, and they

567
00:26:37,400 --> 00:26:39,879
Speaker 1: still seem to have a lot of real estate trouble

568
00:26:40,280 --> 00:26:42,720
Speaker 1: and they're exposed to the consumer which isn't doing great.

569
00:26:42,800 --> 00:26:44,919
Speaker 1: So why do we like banks?

570
00:26:45,200 --> 00:26:48,040
Speaker 3: Yeah, I would say that, you know, in investment grade,

571
00:26:48,240 --> 00:26:50,800
Speaker 3: you know, I think the areas of focus US are

572
00:26:50,840 --> 00:26:53,639
Speaker 3: Triple D is number one at seventy five percent of

573
00:26:53,680 --> 00:26:58,960
Speaker 3: the investment grade marketplace is triple b's second. Financials is

574
00:26:59,000 --> 00:27:02,359
Speaker 3: another area that we focus on, and it would be

575
00:27:02,560 --> 00:27:06,119
Speaker 3: the regional banks. The better capitalized regional banks like a

576
00:27:06,160 --> 00:27:09,280
Speaker 3: fifth third of citizens a Huntington Bank Corp. Those that

577
00:27:09,280 --> 00:27:13,080
Speaker 3: are better capitalized, the g said banks. They all trade cheap,

578
00:27:13,160 --> 00:27:16,200
Speaker 3: they all have abundance of issuance. You know, we started

579
00:27:16,200 --> 00:27:19,359
Speaker 3: buying those when we had the Silicon Valley debacle and

580
00:27:19,480 --> 00:27:23,040
Speaker 3: you got, you know, some very cheap valuations. They're still cheap.

581
00:27:23,480 --> 00:27:25,760
Speaker 3: We still like, you know, capital goods. But you talked

582
00:27:25,760 --> 00:27:28,120
Speaker 3: about the banking segment. One of the things we're very

583
00:27:28,160 --> 00:27:31,560
Speaker 3: cognizant of is is the commercial real estate exposure, especially

584
00:27:31,600 --> 00:27:34,280
Speaker 3: hotel and office. A lot of those guys have you know,

585
00:27:34,320 --> 00:27:36,360
Speaker 3: twenty to forty percent of their balance sheet and commercial

586
00:27:36,359 --> 00:27:40,400
Speaker 3: real estate, as you had mentioned, consumer lower and consumers

587
00:27:40,400 --> 00:27:43,359
Speaker 3: starting to feel the bite of you know, higher defaults

588
00:27:43,359 --> 00:27:45,560
Speaker 3: and delinquencies, and that's something we have to be very

589
00:27:45,640 --> 00:27:48,879
Speaker 3: very cautious on. But for us it's been up, you know,

590
00:27:49,040 --> 00:27:52,520
Speaker 3: the higher quality bias, better capitalized. You know, we haven't

591
00:27:52,560 --> 00:27:56,560
Speaker 3: really dug down into the some of the questionable regionals,

592
00:27:56,720 --> 00:27:59,600
Speaker 3: So I think our bias has been the better well

593
00:27:59,600 --> 00:28:00,840
Speaker 3: capitalis regional.

594
00:28:00,560 --> 00:28:03,880
Speaker 2: Banks maybe I G and high yield are tight, but

595
00:28:04,000 --> 00:28:06,520
Speaker 2: you know, preferreds could be just right. So that's that's

596
00:28:06,560 --> 00:28:08,320
Speaker 2: you know, kind of going down the capital structure of

597
00:28:08,359 --> 00:28:10,920
Speaker 2: the banks. Uh and in the US, kind of going

598
00:28:10,920 --> 00:28:13,399
Speaker 2: down to the preferred level actually you know, might not

599
00:28:13,720 --> 00:28:15,879
Speaker 2: be a bad area kind of given you know, like

600
00:28:15,920 --> 00:28:19,320
Speaker 2: you said, the economy looks, you know, decent, right, and

601
00:28:19,359 --> 00:28:22,520
Speaker 2: then you know, with deregulation. You know, the thing that

602
00:28:22,560 --> 00:28:25,359
Speaker 2: I look at is, you know, with deregulation, yeah, you're

603
00:28:25,359 --> 00:28:26,720
Speaker 2: you might lose some of the a little bit of

604
00:28:26,760 --> 00:28:30,080
Speaker 2: the equity buffer that you have, but you know, the

605
00:28:30,119 --> 00:28:32,679
Speaker 2: debt requirements that that all these big banks have to

606
00:28:32,760 --> 00:28:36,400
Speaker 2: do that's actually going down as well. So again, big

607
00:28:36,440 --> 00:28:39,960
Speaker 2: banks are big issuers, but you know, hey, there their

608
00:28:40,000 --> 00:28:43,240
Speaker 2: issuance needs are going down, so you might see that

609
00:28:43,320 --> 00:28:45,520
Speaker 2: pair back a little bit, right, and you know, the

610
00:28:45,520 --> 00:28:49,320
Speaker 2: fundamentals look solid, and then potentially the technicals, right, might

611
00:28:49,360 --> 00:28:51,600
Speaker 2: be a little bit better next year. And then on

612
00:28:51,680 --> 00:28:54,520
Speaker 2: top of that, you contrast that with you know this

613
00:28:54,960 --> 00:28:57,640
Speaker 2: all the tech guys, you know, these hyperscalers issuing a

614
00:28:57,640 --> 00:29:00,280
Speaker 2: lot of extra debt. And then also you know with

615
00:29:00,440 --> 00:29:02,120
Speaker 2: M and A right, I don't think we've touched on

616
00:29:02,200 --> 00:29:04,080
Speaker 2: that too much today, but with M and A looking

617
00:29:04,080 --> 00:29:06,360
Speaker 2: to pick up right, and that's more of a you know,

618
00:29:06,440 --> 00:29:10,040
Speaker 2: non financial thing where where the risk might be, you know,

619
00:29:10,080 --> 00:29:12,520
Speaker 2: you might have some spread widening potentially with more M

620
00:29:12,520 --> 00:29:14,760
Speaker 2: and A back debt. So you know, we see the

621
00:29:14,760 --> 00:29:18,800
Speaker 2: financial space, which I think trades about flat overall to

622
00:29:18,920 --> 00:29:21,960
Speaker 2: the Corper Bond Index, but it used to trade about

623
00:29:22,000 --> 00:29:24,880
Speaker 2: ten tighter, right and back in twenty twenty one, so hey,

624
00:29:24,880 --> 00:29:28,040
Speaker 2: maybe that's that's something. You know, maybe spreads might widen

625
00:29:28,200 --> 00:29:30,920
Speaker 2: this year, right, But but on a relative basis, we

626
00:29:31,040 --> 00:29:34,200
Speaker 2: view financials as perhaps a little bit.

627
00:29:34,200 --> 00:29:36,960
Speaker 1: Cheap if we're worried about AI and the banks of

628
00:29:37,040 --> 00:29:39,120
Speaker 1: funding it, and you know, they're also at the same

629
00:29:39,120 --> 00:29:41,640
Speaker 1: time quietly trying to get this risk off their books

630
00:29:41,640 --> 00:29:43,960
Speaker 1: and the forms of SRTs and they're doing you know,

631
00:29:44,080 --> 00:29:46,680
Speaker 1: CDs and a bunch of other stuff. So they clearly,

632
00:29:46,800 --> 00:29:48,959
Speaker 1: you know, they see the risk. How much does that

633
00:29:49,000 --> 00:29:51,960
Speaker 1: filter through to the actual bank risk itself.

634
00:29:52,120 --> 00:29:54,120
Speaker 3: I mean, it's something that we're that we're definitely watching

635
00:29:54,240 --> 00:29:56,239
Speaker 3: very very closely. And you know, you obviously made some

636
00:29:56,280 --> 00:30:00,360
Speaker 3: great points on finance and the banks. You're exactly right.

637
00:30:00,400 --> 00:30:02,400
Speaker 3: I mean, the banks used to trade at you know,

638
00:30:02,680 --> 00:30:05,440
Speaker 3: at a much tighter spread than the overall index, and

639
00:30:06,000 --> 00:30:09,680
Speaker 3: Silicon Valley caused that to revert the other way, especially

640
00:30:09,760 --> 00:30:12,400
Speaker 3: the GISIB banks, and that's when we started getting involved,

641
00:30:12,400 --> 00:30:14,400
Speaker 3: and we did not only play in the debt, but

642
00:30:14,440 --> 00:30:16,720
Speaker 3: we also played in some of the preferreds and the

643
00:30:16,800 --> 00:30:20,920
Speaker 3: hybrid preferreds. We subsequently have taken profits there. We also

644
00:30:20,960 --> 00:30:22,719
Speaker 3: did that in some of the utility hybrids, which got

645
00:30:22,840 --> 00:30:24,880
Speaker 3: very very cheap at the end of last year. But

646
00:30:24,920 --> 00:30:26,720
Speaker 3: that's that's what some of the errors that we focus on.

647
00:30:26,720 --> 00:30:29,600
Speaker 3: But you're you're exactly right, they're offloading risks they're trying

648
00:30:29,640 --> 00:30:32,560
Speaker 3: to get diversified. You know, they they want to be

649
00:30:32,600 --> 00:30:34,280
Speaker 3: in the AI game, but they also don't want to

650
00:30:34,280 --> 00:30:36,360
Speaker 3: have all that risk on their balance sheets. So again

651
00:30:36,400 --> 00:30:38,280
Speaker 3: it's a case by case basis. We'll look at the

652
00:30:38,440 --> 00:30:40,520
Speaker 3: underlying bank, we'll look at the fundamentals, and it comes

653
00:30:40,520 --> 00:30:42,920
Speaker 3: back to you know, independent credit research.

654
00:30:43,080 --> 00:30:47,160
Speaker 2: James so on the AI kind of risk hedging. Right,

655
00:30:47,200 --> 00:30:49,560
Speaker 2: I think you know the bank to look at there

656
00:30:49,680 --> 00:30:52,160
Speaker 2: is Morgan Stanley and what they're doing kind of given

657
00:30:52,680 --> 00:30:55,880
Speaker 2: right at some articles out on saying that they've taken

658
00:30:55,880 --> 00:30:59,920
Speaker 2: the lead on you know, tech AI related issue ince

659
00:31:00,040 --> 00:31:02,440
Speaker 2: So if they're looking to you know, kind of offload

660
00:31:02,520 --> 00:31:04,880
Speaker 2: risk and you know, I think the thing that helps them.

661
00:31:05,000 --> 00:31:06,520
Speaker 2: You know, in the US we have a great capital

662
00:31:06,560 --> 00:31:09,520
Speaker 2: market system. It's great that all these guys looking at

663
00:31:09,560 --> 00:31:12,280
Speaker 2: issue at are you know, really high grade companies and

664
00:31:12,640 --> 00:31:15,200
Speaker 2: then the investors will handle it. But right I think

665
00:31:15,200 --> 00:31:16,880
Speaker 2: there's still going to be a portion that you know,

666
00:31:16,960 --> 00:31:18,959
Speaker 2: the banks might need to you know, it can come

667
00:31:19,000 --> 00:31:21,120
Speaker 2: in loan format, right, so that the banks might have

668
00:31:21,160 --> 00:31:23,560
Speaker 2: some risks. So if they're looking to do hearties on

669
00:31:23,600 --> 00:31:26,320
Speaker 2: this stuff, yeah, it's saying something right where you know,

670
00:31:26,480 --> 00:31:29,320
Speaker 2: again we might have a lot of record issues potentially,

671
00:31:29,360 --> 00:31:32,240
Speaker 2: and I corporate bond land, you know how much will

672
00:31:32,240 --> 00:31:35,720
Speaker 2: come there versus you know, special vehicles, right, but still

673
00:31:35,760 --> 00:31:37,600
Speaker 2: you know some of that might end up on bank

674
00:31:37,640 --> 00:31:39,760
Speaker 2: bound sheets. And for them to be looking at hedge,

675
00:31:39,800 --> 00:31:42,040
Speaker 2: I think it tells you something that, yeah, you know

676
00:31:42,280 --> 00:31:45,840
Speaker 2: we're hearing what multiple trillions right of potentral issuesrillion views.

677
00:31:46,560 --> 00:31:49,360
Speaker 1: But on issuance generally, I mean I have looked at

678
00:31:49,840 --> 00:31:52,280
Speaker 1: net issuance being very very low over the last few years,

679
00:31:52,520 --> 00:31:54,160
Speaker 1: and that is part of the reason I think why

680
00:31:54,160 --> 00:31:56,720
Speaker 1: spreads have been so tight, because there aren't enough bonds

681
00:31:56,760 --> 00:31:59,320
Speaker 1: to supply all the demand for that yield bid that

682
00:31:59,360 --> 00:32:02,200
Speaker 1: you talked about earlier on. I'm wondering when we go

683
00:32:02,240 --> 00:32:04,560
Speaker 1: into next year, when there is expected to be a

684
00:32:04,600 --> 00:32:07,840
Speaker 1: significant increase in net supply of issuance, you know, Morgan

685
00:32:07,880 --> 00:32:11,000
Speaker 1: Sandy not to keep naming them, but they did say

686
00:32:11,000 --> 00:32:13,320
Speaker 1: that there'd be a trillion dollars in net new supply

687
00:32:13,400 --> 00:32:15,640
Speaker 1: of IG debt, which we've never seen before. I think

688
00:32:15,640 --> 00:32:17,640
Speaker 1: maybe had a big year in twenty twenty, but not

689
00:32:17,960 --> 00:32:20,360
Speaker 1: a big year you know, like that for a long time.

690
00:32:20,400 --> 00:32:23,400
Speaker 1: So how does the market absorble that debt DAVE without

691
00:32:23,440 --> 00:32:24,360
Speaker 1: spreads blowing.

692
00:32:24,080 --> 00:32:26,400
Speaker 3: Out, well, I think number one, it could be painful,

693
00:32:26,400 --> 00:32:28,840
Speaker 3: and I think you could see spreads widen. But when

694
00:32:28,880 --> 00:32:32,120
Speaker 3: I start looking at us versus some of our you know,

695
00:32:32,160 --> 00:32:34,000
Speaker 3: some of the other areas. You know, right now we're

696
00:32:34,040 --> 00:32:36,920
Speaker 3: yielding for eighty seven, Europe is yielding three twenty one,

697
00:32:36,960 --> 00:32:39,880
Speaker 3: and ages yielding three seventy five. We're still the best

698
00:32:39,920 --> 00:32:42,240
Speaker 3: game in town. So I think we'll still be attractive.

699
00:32:42,600 --> 00:32:45,120
Speaker 3: If you see spreads widen for us, that's when we

700
00:32:45,160 --> 00:32:47,360
Speaker 3: get interested. You know, if we start to get back

701
00:32:47,400 --> 00:32:49,320
Speaker 3: to the right now we're at seventy nine, if we

702
00:32:49,320 --> 00:32:51,520
Speaker 3: start to get back to the eighties nineties up to

703
00:32:51,520 --> 00:32:54,640
Speaker 3: one hundred off, for me, that's a you know, something

704
00:32:54,760 --> 00:32:58,320
Speaker 3: I'd look at very very, you know, closely to reallocate

705
00:32:58,360 --> 00:33:00,920
Speaker 3: to that sector. So I don't have a problem with

706
00:33:01,000 --> 00:33:04,480
Speaker 3: spreads widen. If we see an abundance of issuance, fields

707
00:33:04,480 --> 00:33:07,200
Speaker 3: go higher and there's opportunities, and again it will be

708
00:33:07,280 --> 00:33:10,640
Speaker 3: obviously a case by case basis.

709
00:33:10,400 --> 00:33:11,840
Speaker 1: And you don't think that's going to be a problem

710
00:33:11,840 --> 00:33:14,680
Speaker 1: with demand. Do you think they'll be an ample bid

711
00:33:14,760 --> 00:33:16,880
Speaker 1: for all that extra new supply?

712
00:33:18,360 --> 00:33:20,480
Speaker 3: I think you know, this year, I think you had

713
00:33:20,560 --> 00:33:23,080
Speaker 3: net supply was actually down from last year because a

714
00:33:23,120 --> 00:33:25,800
Speaker 3: lot of it was refinancing of existing debt. I think

715
00:33:25,800 --> 00:33:28,240
Speaker 3: if net new supply comes out, we'll have to wait

716
00:33:28,240 --> 00:33:30,719
Speaker 3: and see and see if they're still demand for it.

717
00:33:30,760 --> 00:33:34,320
Speaker 3: But as it cheapens up, you know, and you get

718
00:33:34,360 --> 00:33:39,280
Speaker 3: some decent valuations again, you know, you get five plus

719
00:33:39,320 --> 00:33:43,360
Speaker 3: percent on corporate debt. That's when you know pension funds

720
00:33:43,360 --> 00:33:45,840
Speaker 3: and insurance companies can meet their liability payments and they

721
00:33:45,840 --> 00:33:48,760
Speaker 3: get excited about it. So I think it you know, again,

722
00:33:48,880 --> 00:33:50,600
Speaker 3: it depends on the context of the rest of the

723
00:33:50,600 --> 00:33:52,840
Speaker 3: market and what happens. But if you start to see

724
00:33:52,840 --> 00:33:55,520
Speaker 3: spreads widen here and it becomes a better investment opportunity

725
00:33:55,520 --> 00:33:58,560
Speaker 3: and you get overall yields in excess of five percent,

726
00:33:58,760 --> 00:33:59,959
Speaker 3: I think that could be very interesting.

727
00:34:00,160 --> 00:34:03,840
Speaker 2: Do you prefer IG or high yield? And then within that,

728
00:34:03,960 --> 00:34:05,640
Speaker 2: you know, what are some of your picks and pans

729
00:34:05,680 --> 00:34:08,240
Speaker 2: within both of those segments.

730
00:34:08,960 --> 00:34:13,040
Speaker 3: Yeah, I would say that, you know, IG were probably

731
00:34:13,320 --> 00:34:15,960
Speaker 3: underweight to what we've been historically, just due to the

732
00:34:16,000 --> 00:34:19,960
Speaker 3: fact that securitized has really good value in the IG space.

733
00:34:20,000 --> 00:34:21,680
Speaker 3: If I look at you know, some of the other

734
00:34:21,719 --> 00:34:24,279
Speaker 3: things we invest in I throughout you know, we talked

735
00:34:24,280 --> 00:34:27,040
Speaker 3: about the mortgage market. That's one we had been doing agencies,

736
00:34:27,239 --> 00:34:30,040
Speaker 3: and we still like the non agency market. But asset

737
00:34:30,040 --> 00:34:32,920
Speaker 3: backed securities you look at tap of the top of

738
00:34:32,960 --> 00:34:35,759
Speaker 3: the capital stack from part of the curve, very solid underwriting.

739
00:34:36,160 --> 00:34:39,959
Speaker 3: You know, we do stuff there like franchise, franchise least receivables.

740
00:34:40,760 --> 00:34:43,640
Speaker 3: If you own a Jersey Mics, a Dunkin Donuts, a Domino's,

741
00:34:43,880 --> 00:34:47,720
Speaker 3: you know, Domino's Pizza, Carl Juniors, you make a payment

742
00:34:47,760 --> 00:34:51,000
Speaker 3: to the parent for using their name. They turn around

743
00:34:51,080 --> 00:34:53,279
Speaker 3: and securitize that and sell it to a guy like me.

744
00:34:53,560 --> 00:34:57,120
Speaker 3: Very short paper that deliverges very quickly, and they take

745
00:34:57,160 --> 00:34:59,120
Speaker 3: the proceeds and build more properties. Those have been an

746
00:34:59,120 --> 00:35:02,960
Speaker 3: absolute home run. Right now, you're getting somewhere in the

747
00:35:03,040 --> 00:35:06,680
Speaker 3: upper fours for two year paper double A three type ratings.

748
00:35:07,239 --> 00:35:09,520
Speaker 3: We think that that's much more attractive than corporate bonds

749
00:35:09,520 --> 00:35:12,399
Speaker 3: in the front end. And another one that's been good.

750
00:35:12,440 --> 00:35:15,919
Speaker 3: I told you were a little cautious on hotel and

751
00:35:16,080 --> 00:35:19,640
Speaker 3: office building single atset single bar ordeals in the commercial

752
00:35:19,640 --> 00:35:24,080
Speaker 3: mortgage market, rule office data centers, industrial warehouses, some trophy

753
00:35:24,120 --> 00:35:26,759
Speaker 3: properties like the Bellagio, Willis Toller, some of the sixth

754
00:35:26,800 --> 00:35:29,200
Speaker 3: Avenue properties in New York City that are fully occupied.

755
00:35:29,520 --> 00:35:31,600
Speaker 3: It's giving you a great return this year, seven point

756
00:35:31,600 --> 00:35:35,560
Speaker 3: four percent on you know, things that are very very attractive.

757
00:35:35,960 --> 00:35:37,880
Speaker 3: You know, we talked about that maturity wall of one

758
00:35:37,960 --> 00:35:40,359
Speaker 3: hundred and ten billion coming due. I used to call

759
00:35:40,400 --> 00:35:43,120
Speaker 3: it survive till twenty five. Now it's survived till twenty six,

760
00:35:44,239 --> 00:35:47,880
Speaker 3: especially in the office market and the data center market,

761
00:35:47,880 --> 00:35:50,760
Speaker 3: where you know the recoveries on some of these properties.

762
00:35:50,760 --> 00:35:53,440
Speaker 3: I'm looking at the United Healthcare building out my window.

763
00:35:53,440 --> 00:35:55,600
Speaker 3: They had a one hundred and twenty million dollar mortgage

764
00:35:55,640 --> 00:35:58,040
Speaker 3: on that building. United Healthcare left and it's sold for

765
00:35:58,480 --> 00:36:01,480
Speaker 3: in the twenties. You've got to be very very cautious

766
00:36:01,520 --> 00:36:05,080
Speaker 3: of write downs. But being selected with single acid, single barrower,

767
00:36:05,239 --> 00:36:09,560
Speaker 3: it's been very very rewarding, especially getting into some of

768
00:36:09,560 --> 00:36:12,799
Speaker 3: the office properties that are in high demand. So that's

769
00:36:12,800 --> 00:36:15,200
Speaker 3: been supplementing us, and we've been taking some of our

770
00:36:15,200 --> 00:36:17,799
Speaker 3: assets out of IG and putting them there. If we

771
00:36:17,840 --> 00:36:20,799
Speaker 3: do see that dynamic where IG starts getting a lot

772
00:36:20,840 --> 00:36:23,719
Speaker 3: wider and yields get a lot higher, we'll reallocate back

773
00:36:23,719 --> 00:36:27,600
Speaker 3: into the IG market high yield. I would just say that,

774
00:36:28,160 --> 00:36:30,400
Speaker 3: you know, spreads have moved pretty dramatically. You're up a

775
00:36:30,440 --> 00:36:32,520
Speaker 3: little over eight percent. You're up about eight point one

776
00:36:32,560 --> 00:36:35,520
Speaker 3: percent this year. You've got a big move. Our bias

777
00:36:35,600 --> 00:36:39,120
Speaker 3: there has been you know, number one, you've had very

778
00:36:39,120 --> 00:36:43,440
Speaker 3: good flows, supportive technicals, very good fundamentals. Maturity wall has

779
00:36:43,440 --> 00:36:46,000
Speaker 3: been pushed out. Earnings are good. As we had talked

780
00:36:46,040 --> 00:36:48,799
Speaker 3: about before, leverage is low when you look at long

781
00:36:48,840 --> 00:36:51,880
Speaker 3: term historical averages, and we mentioned defaults being below the

782
00:36:52,000 --> 00:36:55,080
Speaker 3: historical average. We have a market like exposure here, and

783
00:36:55,080 --> 00:36:57,200
Speaker 3: we're a better buyer on depths. Like I said, if

784
00:36:57,239 --> 00:36:59,560
Speaker 3: we see a sell off and it's not going to

785
00:36:59,560 --> 00:37:01,440
Speaker 3: get to say fifty or eight fifty off, it may

786
00:37:01,480 --> 00:37:03,200
Speaker 3: be a sell off that gets you to four hundred.

787
00:37:03,680 --> 00:37:05,879
Speaker 3: Right now, we're at two seventy. That's where we start

788
00:37:05,920 --> 00:37:09,680
Speaker 3: adding exposure, and it's pretty much diversified. You know, our

789
00:37:09,719 --> 00:37:13,239
Speaker 3: focus there is pretty much market like type exposure. So

790
00:37:13,960 --> 00:37:17,319
Speaker 3: no one sector we're jumping up and down about just

791
00:37:17,840 --> 00:37:20,120
Speaker 3: you know, getting a market like exposure.

792
00:37:20,040 --> 00:37:21,960
Speaker 1: On the asset back security today. I mean, I know

793
00:37:22,000 --> 00:37:24,680
Speaker 1: this is nearly a holiday shown and I shouldn't be

794
00:37:24,760 --> 00:37:29,960
Speaker 1: so down, but I'm worried about the just massive increase

795
00:37:30,000 --> 00:37:32,720
Speaker 1: in supply we're seeing across the board in asset backs,

796
00:37:32,960 --> 00:37:34,880
Speaker 1: and then you know the signs of stress we're seeing

797
00:37:35,080 --> 00:37:37,240
Speaker 1: in some of the markets xclos some of the equity

798
00:37:37,320 --> 00:37:39,960
Speaker 1: checks aren't being paid, for example, do you think that

799
00:37:40,000 --> 00:37:42,719
Speaker 1: there's any sign of froth at all in ABS right now?

800
00:37:43,120 --> 00:37:46,000
Speaker 3: When we think whereas froth, we're defensively postured and we're

801
00:37:46,080 --> 00:37:48,399
Speaker 3: up in the capital stack, We're not taking a lot

802
00:37:48,400 --> 00:37:51,520
Speaker 3: of risk. We're staying in double A, triple A single,

803
00:37:51,520 --> 00:37:55,080
Speaker 3: a type paper friend of the curve where there's underwriting

804
00:37:55,080 --> 00:37:57,759
Speaker 3: that it's very very solid, and we do our own

805
00:37:58,080 --> 00:38:00,799
Speaker 3: analysis and we're comfortable with it. If we start to

806
00:38:00,840 --> 00:38:03,600
Speaker 3: think that the market is, you know, there's not as

807
00:38:03,680 --> 00:38:06,000
Speaker 3: much paper, not as much issuance, you know, then we'll

808
00:38:06,040 --> 00:38:08,280
Speaker 3: express our views by moving down in the capitol structure.

809
00:38:08,280 --> 00:38:10,240
Speaker 3: But right now, i'd say up in the capital stack,

810
00:38:10,880 --> 00:38:13,640
Speaker 3: not taking a lot of risk, getting you know, quality

811
00:38:13,640 --> 00:38:17,239
Speaker 3: exposure of deals that deliver very very quickly, and I

812
00:38:17,280 --> 00:38:19,919
Speaker 3: think we're comfortable with our exposure there, so not taking

813
00:38:19,960 --> 00:38:21,560
Speaker 3: a lot of risk in that market. I'd say up

814
00:38:21,560 --> 00:38:24,239
Speaker 3: in the capital stack and still looks more attractive than

815
00:38:24,560 --> 00:38:25,680
Speaker 3: short corporate bonds.

816
00:38:25,960 --> 00:38:28,160
Speaker 1: So if you look around everything, you get to see, Dave,

817
00:38:28,200 --> 00:38:30,279
Speaker 1: where's the best relative value right now, let's say for

818
00:38:30,280 --> 00:38:31,440
Speaker 1: the next twelve months.

819
00:38:31,960 --> 00:38:34,520
Speaker 3: That's a tough call. I think, you know, we're divers

820
00:38:35,239 --> 00:38:39,600
Speaker 3: pretty well diversified, defensively postured. We do have exposure to

821
00:38:39,680 --> 00:38:42,640
Speaker 3: leverage finance. But I'd say probably a little blower long

822
00:38:42,719 --> 00:38:46,760
Speaker 3: term averages, a little more insecuritized due to the fact

823
00:38:46,760 --> 00:38:49,880
Speaker 3: that asset backs through the fact that you mentioned a

824
00:38:49,880 --> 00:38:53,319
Speaker 3: lot of issuance have gotten cheap. CMBs have moved quite

825
00:38:53,320 --> 00:38:56,359
Speaker 3: a bit this year. They're probably pretty fully valued. One

826
00:38:56,360 --> 00:39:00,520
Speaker 3: that we didn't talk about, which I think everybody loves

827
00:39:00,560 --> 00:39:03,720
Speaker 3: to talk about and I will buy, is the uni market.

828
00:39:03,800 --> 00:39:06,720
Speaker 3: You know, Muni's started the year with heavy, heavy supply.

829
00:39:07,520 --> 00:39:12,480
Speaker 3: You had supply overwhelmed demand, so you know, pretty poor performance,

830
00:39:13,239 --> 00:39:15,319
Speaker 3: but you had taxable equivalent yields that we haven't seen

831
00:39:15,400 --> 00:39:17,799
Speaker 3: going back to the global financial crisis. An investment grade

832
00:39:17,800 --> 00:39:21,879
Speaker 3: you're getting six percent on high yield, you're getting nine

833
00:39:21,880 --> 00:39:24,120
Speaker 3: and a half percent. That's insane.

834
00:39:24,600 --> 00:39:26,200
Speaker 1: But if you just start to corporates, Dave, is there

835
00:39:26,200 --> 00:39:29,040
Speaker 1: anything that think sticks out as a screaming buy right now.

836
00:39:29,280 --> 00:39:33,080
Speaker 3: I'd say in the corporate market, you know, spreads are tight,

837
00:39:33,239 --> 00:39:37,200
Speaker 3: you know, nothing there screaming as a buy for us.

838
00:39:37,440 --> 00:39:39,400
Speaker 3: I would say that one that we didn't mention is

839
00:39:39,520 --> 00:39:45,080
Speaker 3: midstream energy, those with contracted cash flows like gas, gas processing,

840
00:39:45,239 --> 00:39:49,279
Speaker 3: and pipelines look somewhat attractive. You know, we talked about

841
00:39:49,680 --> 00:39:52,319
Speaker 3: the banks. I would just say that some of the

842
00:39:52,320 --> 00:39:55,879
Speaker 3: capital good companies also look attractive, but nothing screaming there

843
00:39:55,920 --> 00:39:58,640
Speaker 3: for a buy. Not when spreads are at seventy nine

844
00:39:58,719 --> 00:40:01,040
Speaker 3: and the twenty seven year OD heights in seventy three.

845
00:40:01,239 --> 00:40:02,960
Speaker 1: And if you are long credit and you're going into

846
00:40:03,000 --> 00:40:05,360
Speaker 1: next year thinking, you know, you're a bit worried, what's

847
00:40:05,400 --> 00:40:08,600
Speaker 1: the best hedge for credit exposure.

848
00:40:08,520 --> 00:40:11,840
Speaker 3: I'd say securitized. I mean, that's how we're sort of

849
00:40:11,840 --> 00:40:15,480
Speaker 3: hedging our book, going into short, high quality paper that's very,

850
00:40:15,560 --> 00:40:18,120
Speaker 3: very liquid, and if we see this location in the

851
00:40:18,120 --> 00:40:20,760
Speaker 3: corporate bond market, we can quickly turn that into liquidity

852
00:40:20,800 --> 00:40:23,680
Speaker 3: and quickly moving back into the investment grade market.

853
00:40:24,200 --> 00:40:27,200
Speaker 1: Great stuff, Dave Albright, President and CIO at new Fleet

854
00:40:27,200 --> 00:40:29,359
Speaker 1: Asset Management, It's been a great pleasure having you on

855
00:40:29,360 --> 00:40:29,960
Speaker 1: the credit edge.

856
00:40:29,960 --> 00:40:31,920
Speaker 3: Many thanks, Thank you, guys, thanks for having me.

857
00:40:32,120 --> 00:40:34,359
Speaker 1: And to Arnold Kakuda with Bloomberg Intelligence, thank you very

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