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Speaker 1: Hello, and welcome to What Goes Up, a weekly markets podcast.

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Speaker 1: My name is Mike Reagan. I'm a senior editor at

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Speaker 1: Bloomberg and Donna High across Acid reporter with Bloomberg and

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Speaker 1: this week, well, on this show, we obviously like to

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Speaker 1: talk about what's going up, and this year, one thing

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Speaker 1: that's going up noticeably is interest rates on corporate bonds

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Speaker 1: as well as their spreads above treasury yields. So what

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Speaker 1: sort of signal is that setting about the economy and

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Speaker 1: risks to other markets? And with the yields on investment

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Speaker 1: grade bonds approaching five percent this month and almost thirteen

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Speaker 1: year high, is there enough value there for investors to

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Speaker 1: start boosting allocations to corporate debt. We'll get into it

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Speaker 1: with a very well known credit markets veteran and one

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Speaker 1: of our own Bloomberg editors who covers the space. But

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Speaker 1: first Vil Donna, I feel like, guy, do owe you

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Speaker 1: an apology? You do? Um? I do? Yeah? That is

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Speaker 1: because we had a zoom call earlier to plan the podcast,

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Speaker 1: and for some reason my video was not working. I

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Speaker 1: my face was not showing up on video, and I

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Speaker 1: had assumed you had figured out some way to have

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Speaker 1: zoom block block my face on video, which I thought

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Speaker 1: was something you would probably do. That would have been fun,

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Speaker 1: That would have been really fun. But it turns out

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Speaker 1: it was just I needed to upgrade some driver or

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Speaker 1: something on my laptop, and the nice folks at the

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Speaker 1: Bloomberg I T department, who are incredible by the way,

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Speaker 1: they hooked me up. So I do apology. It's kind

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Speaker 1: of a halfhearted apology though, because I think that if

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Speaker 1: you could figure out a way to do that, you

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Speaker 1: you probably would. Actually if any of like the Zoom

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Speaker 1: uh you know, the CEOs or whoever the product managers

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Speaker 1: at Zoom are listening, that could be a really fun

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Speaker 1: feature for like, you know, blocking some of your friends

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Speaker 1: or I don't know, it might be fun just blocking me,

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Speaker 1: me blocking Mike Reagan basically, yeah, exactly. But I'm excited

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Speaker 1: to say our Zoom is working totally well now, so

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Speaker 1: we're able to perform the podcast here in in uh

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Speaker 1: HD video I suppose, and uh I see our guests

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Speaker 1: are are ready to get at it, So why don't

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Speaker 1: you why do you bring him in? Tell us a

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Speaker 1: little bit about the guests this week. Yeah, I was

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Speaker 1: going to say that our guests were definitely not blocking,

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Speaker 1: And so I do want to introduce Oxana Aaronov. She's

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Speaker 1: a head of market Strategy of Alternative fixed Income at

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Speaker 1: JP Morgan Asset Management. And also we have James Crombie,

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Speaker 1: Senior editor A Bloomberg, both joining us this week. Thanks

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Speaker 1: so much for joining us, Thanks for having me ye Axanna,

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Speaker 1: can we maybe just start with you and I just

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Speaker 1: I read your title title out loud, but maybe you

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Speaker 1: can just tell us a bit more about your role

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Speaker 1: at Jippy Morgan and what you do. Sure, absolutely so.

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Speaker 1: I am part of a platform that is focused pretty

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Speaker 1: much exclusively on absolute return investing and fixed income, and

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Speaker 1: to be honest with you, you know, I think that's

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Speaker 1: even a little bit of a misnomer, if you will,

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Speaker 1: because fixed income until certainly maybe the last ten years

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Speaker 1: or so, when the Fed and other central banks got

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Speaker 1: very very involved in bond markets. Um pixicon has always

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Speaker 1: been thought by investors as an absolute return asset class. Right.

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Speaker 1: This is where investors put money to sleep well at night.

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Speaker 1: This is the diversification part of their portfolios versus equities.

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Speaker 1: This is the stay wealthy part of their portfolios. And

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Speaker 1: that's really you know, been somewhat diluted, if you will,

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Speaker 1: and maybe even lost. Over the last ten years, fix

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Speaker 1: income has become a get rich asset class. We have

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Speaker 1: really tried to preserve this focus on capital preservation first

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Speaker 1: and then with that, what's the best return I can

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Speaker 1: deliver And of course that's really come into the spotlight

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Speaker 1: over the last well year to date, I should say.

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Speaker 1: And what that does in terms of our focus versus

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Speaker 1: you know, the focus of more traditional fixed income teams

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Speaker 1: out there, is that UM. We really look at any

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Speaker 1: fixed income opportunity or any investment opportunity, I should say,

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Speaker 1: from both a long and short standpoint. In other words,

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Speaker 1: typically when you ask a fixed income investor whether they

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Speaker 1: like an investment opportunity or not, they're going to look

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Speaker 1: at the yield and they're going to sort of base

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Speaker 1: their decision on that, So they're looking at it from

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Speaker 1: a long only standpoint. We always look at UM sectors

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Speaker 1: across fixed income UM as well as alternative investment opportunities

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Speaker 1: and even in very select cases private market opportunities from

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Speaker 1: the standpoint of is this compensating me for the risk

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Speaker 1: that I'm taking on, in which case I want to

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Speaker 1: be long? Is this fair value? In which case I

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Speaker 1: probably don't want to be in this trade, or is

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Speaker 1: this so overvalue that I actually may want to be

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Speaker 1: short or used this as a hedge versus another kind

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Speaker 1: of risk in my portfolio. So we do pull a

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Speaker 1: lot of livers on this team in terms of having

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Speaker 1: a lot of flexibility to deliver returns. But our goal

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Speaker 1: always is to think like bond investors, and bond investors

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Speaker 1: should absolutely always be focused on capital preservation and with

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Speaker 1: that in mind, what's the best return I can deliver?

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Speaker 1: And I do wanna talk about what returns are sort

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Speaker 1: of attractive to you and where you're seeing value or

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Speaker 1: not UM, But I think before we get into that um,

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Speaker 1: the credit markets are are important, uh, even to investors

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Speaker 1: in other asset classes. I think they're often looked at

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Speaker 1: as a signal, sort of a macro signal of of

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Speaker 1: where the economy is going and what that might mean

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Speaker 1: for you know, markets large, you know, risk your assets especially,

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Speaker 1: you know, and I'm looking at some of the signals

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Speaker 1: and say, the treasury market, the break even five year

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Speaker 1: break even rate is actually coming down pretty aggressively, so

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Speaker 1: perhaps signaling that that inflation, that hot inflation that we've

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Speaker 1: been experiencing all year um, at least in the bond markets.

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Speaker 1: View might might be cooling off, but those spreads are

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Speaker 1: are widening still, um, And I'm curious, you know, what

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Speaker 1: does that signal to you? I mean, it doesn't seem

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Speaker 1: like they've widened out to the to the point where

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Speaker 1: spreads loan would be a sort of macro risk to

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Speaker 1: the economy. But they were you know, elevated and and

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Speaker 1: they don't really appear to be coming down at the moment.

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Speaker 1: So what what is the signal there about the economy

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Speaker 1: to you? I mean, is it is it, you know,

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Speaker 1: as obvious as a recession is on the way, or

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Speaker 1: is it is it more nuanced? Well, I'm going to

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Speaker 1: probably zoom out a little bit and express a little

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Speaker 1: bit of skepticism around the bond market stability to be

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Speaker 1: that kind of you know, predictive force, because if that

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Speaker 1: were the case, then um, you know, yields have been

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Speaker 1: at lower and lower and a new record lows for

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Speaker 1: so many years, indicating a recession. I guess then if

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Speaker 1: we really believe in the indicative or in the predictive

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Speaker 1: function I said, should say of the bond market, and

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Speaker 1: that of course it's not materialized that we had a

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Speaker 1: pretty dramatic dip around the pandemic, but that was a

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Speaker 1: very esoteric event. Outside of that, we haven't really seen

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Speaker 1: the kind of recession that the bond market would have

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Speaker 1: been predicting at these record low yields every year um so,

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Speaker 1: and of course has to do with just the tremendous

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Speaker 1: amount of meddling by central banks. So so, I think

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Speaker 1: that has frankly, frankly distorted UM the bond markets ability

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Speaker 1: to be that predictive or forecasting mechanism. Having said that,

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Speaker 1: certainly we're seeing, um, you know, a leveling off of investment,

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Speaker 1: not investment, of inflation expectations certainly around you know, the

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Speaker 1: ten year break events have kind of stuck around in

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Speaker 1: the mid twos, but you are seeing them climb up

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Speaker 1: UM with respect to two year and five year break

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Speaker 1: events and inflation expectations there are continuing to kind of

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Speaker 1: tick up or remain elevated. In fact, the two year

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Speaker 1: part of the curve, we still do not have a

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Speaker 1: positive real return, right and that's, by the way, something

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Speaker 1: that Powell and the Fed are very much focused on.

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Speaker 1: But taking a step away from that for a second

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Speaker 1: to talk about the spreads. But you asked about So, yes,

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Speaker 1: we have seen, we have seen some spread widening. But

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Speaker 1: to put it in perspective, we, uh, the last time

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Speaker 1: we had a hiking cycle and a tiny bit of

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Speaker 1: inflation was of course, the two thousand fifteen two thousand

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Speaker 1: eteen hiking cycle UM, and we had inflation of like

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Speaker 1: barely about two percent maybe, and the unemployment rate was

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Speaker 1: higher UM and the cycling higgle, the hiking cycle was

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Speaker 1: incredibly benign, right, I think we would all agree, And

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Speaker 1: yet we still saw highield spreads for one go into

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Speaker 1: the mid fives and we are barely crossing that threshold

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Speaker 1: now with inflation at a four decade high, and no

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Speaker 1: one can really tell you whether it is in fact

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Speaker 1: moderating or it will continue to tick up and unemployment

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Speaker 1: rates significantly below where we are doing the during the

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Speaker 1: last much more benign hiking cycle. So I think that

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Speaker 1: you know to call this UM certainly uh, you know,

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Speaker 1: an opportunity to get invested, To call this a bargain

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Speaker 1: from a spread standpoint, I think we're far from that,

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Speaker 1: and we can talk more about you know, what would

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Speaker 1: make this a bargain? What what needs to be reflected

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Speaker 1: in the price but at this point, all the carnage

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Speaker 1: we've seen in the bond markets, whether it's in the

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Speaker 1: interest rate sensitive part of it or in the less

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Speaker 1: interest rate sensitive part, Like how you, it's all been

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Speaker 1: interest rate driven, very very little of it has actually

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Speaker 1: been spread or credit risk driven, and we need to

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Speaker 1: see that punch in order to start to talk about opportunities. James,

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Speaker 1: I know you talked to a lot of investors um

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Speaker 1: is ox on his view sort of the consensus is

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Speaker 1: there is there sort of a you know, a counter

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Speaker 1: argument to be made that you know, maybe spreads are

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Speaker 1: due to come in. Well, there's no doubt that the

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Speaker 1: performances he has been terrible. Um we're down yesterday on

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Speaker 1: junk bonds, which has never happened before. You know, we've

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Speaker 1: got records going about forty years UM and we've never

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Speaker 1: seen such terrible returns. We've never been double digit returns

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Speaker 1: by the time in the year. So you know, definitely

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Speaker 1: it looks pretty scary out there. And I agree that

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Speaker 1: if we slip into recession, then you know, the potential

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Speaker 1: for defaults and principal loss and all the things that

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Speaker 1: keep h fix income investors up at night worrying are

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Speaker 1: going to be upon us. And you know, as as

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Speaker 1: Oxana says, you know, spreads could go a lot wider

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Speaker 1: get into recession based on history, but also default rates,

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Speaker 1: but easily go into the double digits um if we

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Speaker 1: get into a recession as well. So you know, there's

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Speaker 1: a lot of worrying stuff out there and there is

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Speaker 1: more distress um. But you know, you could also say

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Speaker 1: that we're in much better shape than we were even

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Speaker 1: a couple of years ago. Companies have taken advantage of

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Speaker 1: the sheep out there too to turn out their maturities,

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Speaker 1: you know, to push those into the future, so they

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Speaker 1: don't really have much of an immediate worry in terms

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Speaker 1: of you know, big payments coming due on their debt um.

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Speaker 1: You know, at the same time, earnings have held up,

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Speaker 1: so they've got cash. Particularly the investment grade companies, they've

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Speaker 1: got a ton of cash on their balance sheets. They're

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Speaker 1: buying back stuff, They're going to probably buy back bonds. Um.

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Speaker 1: Credit ratings. You know, Oxana might have a view on

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Speaker 1: whether they are good accurate predictus or not, but they're

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Speaker 1: much higher now than they were in the past. You know,

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Speaker 1: there's any about ten of the market that triples see now,

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Speaker 1: which is the lowest rated stuff. So you know, really

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Speaker 1: you could you could argue that there is no real stress,

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Speaker 1: there's no rollover risk. Um. You know, of course we're

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Speaker 1: going to lose some zombie companies along the way. They

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Speaker 1: may blow up, but who cares about them? You know,

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Speaker 1: they probably should have died a long time ago. You know,

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Speaker 1: you might you might just say it's different this time,

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Speaker 1: and that's been definitely a very popular view. And look,

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Speaker 1: the reality is that the HIGHLD market and we and

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Speaker 1: we talked about the HILD market because of course those

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Speaker 1: are some of the best opportunities that tend to materialize

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Speaker 1: out of the stress that we're seeing right um. And

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Speaker 1: also it's a it's an interesting kind of harbinger, if

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Speaker 1: you will. That's where stresses tend to appear first, and

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Speaker 1: so it's an important part of the market to to consider.

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Speaker 1: But it's also a relatively young market, right Hi. You'd

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Speaker 1: really didn't exist at the current size and technicals until

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Speaker 1: really well into the two thousand's, and the last time

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Speaker 1: we had inflation even above you know slightly four was

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Speaker 1: in the very early two thousands and it was a

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Speaker 1: very different high old market back then. So we really

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Speaker 1: don't have a ton of history to go on. You

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Speaker 1: know that that corresponds to what we're going through now,

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Speaker 1: which is essentially the FED hiking into a decelerating earnings environment. Right.

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Speaker 1: We went from the FED hiking into um economy strength

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Speaker 1: and strong earnings into now the FED is is hiking

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Speaker 1: into a decelerating earnings environment. And what we know, or

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Speaker 1: what we can say about a decelerating earnings environment that

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Speaker 1: is also inflationary for the time being, is that profit

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Speaker 1: margins are going to be squeezed because and particularly for

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Speaker 1: high elituors which tympically do not have the pricing power

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Speaker 1: and cannot necessarily offset their costs accordingly, and so their

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Speaker 1: profit margins will be squeezed. And yes, exactly as you said,

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Speaker 1: you're going to see some amount of these or all

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Speaker 1: these zombie companies, a lot of which are lower rated,

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Speaker 1: so you know, low beds or even triple seeds, and

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Speaker 1: roughly ten anywhere between ten and of this market, by

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Speaker 1: the ways, estimated to be zombie UM companies. They could

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Speaker 1: sort of disappear, and you're right, no one should care

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Speaker 1: about them. They shouldn't probably exist to begin with. But

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Speaker 1: the reality is that when cracks like that appear in

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Speaker 1: one part of the market, it tends to reverberate to

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Speaker 1: the rest of the market. And an example I always

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Speaker 1: like to give is where you have legitimate, very serious,

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Speaker 1: fundamental issues in energy, but you have the entire high

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Speaker 1: old sector completely repriced, even though you had no fundamental

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Speaker 1: stress in technology and healthcare and gaming and lesion and

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Speaker 1: a bunch of other sectors. It was all energy driven,

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Speaker 1: but the entire market went to almost a thousand over

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Speaker 1: And the last thing I will say on kind of

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Speaker 1: descry to you know, let's get invested now, is again,

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Speaker 1: we don't know what the future will bring, but it

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Speaker 1: is fair to talk about the fact that liquidity will

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Speaker 1: be reduced with the FED kind of removing itself, and

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Speaker 1: broader market liquidity is very different today with the south

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Speaker 1: side no longer playing the shock absorber that they used

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Speaker 1: to be. It's also fair to um to say that, look,

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Speaker 1: markets have to grapple with this kind of squeeze to

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Speaker 1: to profit margins. But from a purely kind of quantitative standpoint,

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Speaker 1: right the higher market right now is running at a

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Speaker 1: spread duration of four point two roughly, and what that

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Speaker 1: tells us is that it will take less than two

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Speaker 1: hundred basis points of widening to wipe out that very

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Speaker 1: juicy eight percent yield that everyone is salvating over now.

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Speaker 1: And two hundred basis points or high, let me tell you,

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Speaker 1: is not a lot. It can happen very very quickly.

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Speaker 1: And so right now, with defaults at one percent, I

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Speaker 1: think it is absolutely reasonable to expect them to go

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Speaker 1: to long term averages of three and a half percent,

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Speaker 1: if not through that average, and we haven't seen that yet.

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Speaker 1: And it is when we start to see that reflected

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Speaker 1: in the spreads that's really when those bargains are going

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Speaker 1: to start to appear. I think it is way too

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Speaker 1: early to talk about them now. So as a follow

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Speaker 1: the last time we were in this mess much the

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Speaker 1: FED came in and save the day, and that was

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Speaker 1: a huge trade for a lot of people. Um, what

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Speaker 1: are the chances that I don't extend to say the

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Speaker 1: day again, but what are the chances they might just

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Speaker 1: take the foot off the accelerator and help people out.

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Speaker 1: Really important to talk about this because I think a

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Speaker 1: lot of investors are treating this as yet another kind

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Speaker 1: of blip in the mean reversion that the feed is

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Speaker 1: engineered for close to fifteen years now, right. But the

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Speaker 1: reality is that even in the pandemic, in the worst

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Speaker 1: part of the FED got involved because you had blue

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Speaker 1: chip companies truly struggle and unemployment soaring because they were

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Speaker 1: laying off so many people, and so their involvement really

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Speaker 1: was about supporting well capitalized, strong companies that fell on

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Speaker 1: hard times because of a completely exogenous factor. You may

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Speaker 1: re all that when one of the best programs included

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Speaker 1: buying hid a t S how was met with very

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Speaker 1: stringent questioning in Congress and there that ceased very quickly,

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Speaker 1: but the market overall kind of took a cue that

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Speaker 1: looked the FETE is. Therefore, we're in a very different

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Speaker 1: environment today. The FETE has zero appetite to support you know,

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Speaker 1: certainly the zombie companies, much less the rest of jun

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Speaker 1: graded universe and credit. And really I think that the

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Speaker 1: threshold for the FED to get involved is two fold.

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Speaker 1: They will continue to choose inflation over growth. First of all,

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Speaker 1: because they have no choice. They need to clam down

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Speaker 1: on this inflation. It is the most regressive tax there is,

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Speaker 1: and they do not want to find themselves in kind

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Speaker 1: of the political corsairs. And I think Powell has made

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Speaker 1: it very clear that it is important to him to

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Speaker 1: him to go down in history as the person who

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Speaker 1: contained inflation. So they will continue to choose inflation over

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Speaker 1: growth as long as inflation remains an elevated problem. And

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Speaker 1: the second thing is, I do not think they get

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Speaker 1: involved in terms of any kind of support to the

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Speaker 1: market until we see investment grades spreads go way north

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Speaker 1: of two hundreds and right now we're roughly at one fifty.

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Speaker 1: You know, we've been in the past and very serious,

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Speaker 1: you know, like Great Financial Crisis invest from great spreads

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Speaker 1: got closed as close to six hundred over. You do

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Speaker 1: not think the FED gets involved until you know investment

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Speaker 1: grade spreads probably start to push three hundred um. The

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Speaker 1: FED is likely not getting involved at all as long

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Speaker 1: as inflation continues to be the problem because the very thing,

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Speaker 1: the only tool available to the FED is to tighten

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Speaker 1: financial conditions, and by definition, tighter financial conditions mean less

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Speaker 1: access to capital, mean and accelerated default rate. Right, all

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Speaker 1: of these things that we as investors, or at least

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Speaker 1: that you know equity investors bread, this is what the

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Speaker 1: FED is trying to engineer. It's the only tool they

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Speaker 1: have available to them. It's a blunt tool. So unfortunately,

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Speaker 1: the fed foot is really not here for investors. So

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Speaker 1: then the problem realized at the bottom end of the market.

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Speaker 1: The junkie is risky, is most indebted companies that are

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Speaker 1: probably having trouble with earnings the way the economy is changing,

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Speaker 1: maybe their consumer related companies. But um, do we really

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Speaker 1: care beyond that? I mean, is there a contagion effect?

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Speaker 1: Is there a broader impact of of you know, that

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Speaker 1: small part of the market blowing up? Absolutely, So it's

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Speaker 1: not really just about that small part of the market.

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Speaker 1: It's about the fact that the market will start to

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Speaker 1: price in, and it hasn't yet, but we'll start to

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Speaker 1: price in. What does it mean, um, that you know,

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Speaker 1: the default rate moves towards an average of the historic

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Speaker 1: average of three and a half percent. What does it

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Speaker 1: mean that, you know, companies do not have access to

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Speaker 1: cheat capital anymore? What does it mean that their profit

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Speaker 1: margins are squeezed? You know, very little of that is

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Speaker 1: actually in the price We're starting to see it, you know,

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Speaker 1: kind of come into a spread and and and push

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Speaker 1: spreads wider. But as the market reckons with this reality.

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Speaker 1: You know, one of the things that I always hear

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Speaker 1: about is, Oh, you know how you'll doesn't have a

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Speaker 1: maturity wall that's imminent, right, this normantu like the next

358
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Speaker 1: huge maturity wall is and thereafter. But the reality markets

359
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Speaker 1: don't work like that, right, My markets don't wait for

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Speaker 1: an event. Markets price in an event. And so if

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Speaker 1: the market believes that a lot of these companies are

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Speaker 1: going to have difficulty tapping UM capital markets to refinance themselves,

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Speaker 1: that's going to come into prices way before that maturity

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Speaker 1: will materializes. So you can have almost like recessionary pricing

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Speaker 1: even without an actual recession, without actually you know, double

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Speaker 1: digit defaults if you will UM. It's all sort of

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Speaker 1: about expectations. And if expectations around recession and around a

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Speaker 1: slowdown continue to build, you're going to continue to see

369
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Speaker 1: spread widening. And as spread winding continues, what happens investors

370
00:19:51,960 --> 00:19:55,800
Speaker 1: yank their money. So much of high old exposure is

371
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Speaker 1: in mutual funds and ETFs, right, all of these instantaneously

372
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Speaker 1: look with instruments, and as spreads widen, investors continue to

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Speaker 1: yank their money. So selling begets more selling, pressure begets

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Speaker 1: more pressure. Remember, you don't have the same liquidity underpinnings

375
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Speaker 1: in this market that you used to UM. The cell

376
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Speaker 1: side is not there to take these bonds off your hands.

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Speaker 1: So price discovery becomes very, very violent. We've seen it

378
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Speaker 1: all before and it's going to happen again. Is there

379
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Speaker 1: a clear trigger on the horizon and is it earnings?

380
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Speaker 1: Is that margins? Is it something else to do with

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Speaker 1: the bed and what what really is on the horizon

382
00:20:29,720 --> 00:20:33,399
Speaker 1: that could tip this over? And that's really the question

383
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Speaker 1: I think on everyone's minds is sort of what is

384
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Speaker 1: that capitulation tipping point right? And and we never can

385
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Speaker 1: estimate or predict what that is. There's not been a

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Speaker 1: single sort of point in past UM cycles, you know,

387
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Speaker 1: or the part of the cycle where something breaks that

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Speaker 1: you could kind of look forward and say, look, this

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Speaker 1: is what it's going to be. So I don't think

390
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Speaker 1: we're going to be able to predict it, but I

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00:20:56,040 --> 00:21:01,159
Speaker 1: think all of the components are certainly there, and the

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Speaker 1: components being that it's just simply not reflected in the

393
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Speaker 1: price yet UM And as it starts to you're gonna

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Speaker 1: see reevaluation in terms of you know, do I really

395
00:21:10,960 --> 00:21:13,280
Speaker 1: want this in my portfolio? I thought i'd be because

396
00:21:13,280 --> 00:21:15,280
Speaker 1: remember a lot of people did get into high yeld

397
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Speaker 1: at five percent or six percent, and now they're seeing

398
00:21:17,840 --> 00:21:22,480
Speaker 1: nothing but losses. And this sort of entire generational investors.

399
00:21:22,480 --> 00:21:25,200
Speaker 1: You know, if we were to get into investor psychology here, UM,

400
00:21:25,240 --> 00:21:27,879
Speaker 1: this entire generation of investors is not really see the

401
00:21:27,920 --> 00:21:31,400
Speaker 1: market that's been continuously challenging for a prolonged period of time.

402
00:21:31,760 --> 00:21:38,080
Speaker 1: So UM, I think that anything can become that tipping point.

403
00:21:37,840 --> 00:21:42,600
Speaker 1: But we haven't even touched on the geopolitical um tensions obviously,

404
00:21:42,680 --> 00:21:46,440
Speaker 1: but something that sends the oil prices even higher. Oil

405
00:21:46,480 --> 00:21:49,439
Speaker 1: prices have seen a reprieved recently. UM. It could be

406
00:21:49,560 --> 00:21:52,879
Speaker 1: any number of things, but certainly you have the makings

407
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Speaker 1: of this sort of capitulation, and we need to see

408
00:21:56,840 --> 00:22:00,560
Speaker 1: that capitulation for our mandate to start to get aggressive

409
00:22:00,960 --> 00:22:03,440
Speaker 1: and start to get invested in this market. And one

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Speaker 1: other point I would like to make is that when

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Speaker 1: you look at you know, if we use the nineteen

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Speaker 1: eighties kind of on the bat or in nine seventies

413
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Speaker 1: and early nineteen eighties UM as a sort of parallel

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Speaker 1: to the investment environment that we're in right now in

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Speaker 1: terms of the high inflation, UM, you can see that

416
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Speaker 1: assets generally struggled, particularly on a real return basis right,

417
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Speaker 1: It was a struggle to generate a positive real return

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Speaker 1: and it will probably be you know, maybe somewhat similar

419
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Speaker 1: this time around. So getting in at the right price

420
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Speaker 1: is really important. Buying that you know, bond at a

421
00:22:39,600 --> 00:22:44,080
Speaker 1: bargain price is really important. That's really maybe the difference

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Speaker 1: between generating that positive long term real return and not.

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Speaker 1: Just to talk to Mike's point about, you know, if

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Speaker 1: you're not in these markets all day long from a

425
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Speaker 1: cross assets white, why should you care about what's going

426
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Speaker 1: on in credit right now? Why should you care about

427
00:23:01,160 --> 00:23:03,399
Speaker 1: what's going on in credit right now? I mean, it's

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Speaker 1: the backbone of everything that goes on in great question

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Speaker 1: from a credit markets journalist, James, I gotta say, but

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Speaker 1: that's a question a dumb guy like me should ask.

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Speaker 1: But I appreciate it. I allow you for taking that

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Speaker 1: bullet for me. Okay. So I mean, look, it's it's

433
00:23:21,600 --> 00:23:26,320
Speaker 1: really the backbone of everything, all kind of risk taking, right,

434
00:23:26,359 --> 00:23:29,280
Speaker 1: And it's the it's it's the sentiment of the investor,

435
00:23:29,359 --> 00:23:31,760
Speaker 1: because if credit markets start to fall out of bed,

436
00:23:32,400 --> 00:23:35,280
Speaker 1: it's certainly not going to be positive for equity markets.

437
00:23:35,400 --> 00:23:40,480
Speaker 1: Right as the cost of capital rises, generally um, that

438
00:23:40,640 --> 00:23:43,280
Speaker 1: is going to have dramatic impact on earnings. I mean,

439
00:23:43,359 --> 00:23:47,119
Speaker 1: that's the kind of the direct mechanism that translates into,

440
00:23:47,160 --> 00:23:50,520
Speaker 1: of course, your equity investment experience. So without a doubt,

441
00:23:50,520 --> 00:23:54,120
Speaker 1: what happens in credit is incredibly important to the rest

442
00:23:54,119 --> 00:23:57,440
Speaker 1: of the market. Well, you know what Oxon is, Sometimes

443
00:23:57,440 --> 00:24:00,880
Speaker 1: a credit market stress can be so cute and so

444
00:24:00,960 --> 00:24:04,720
Speaker 1: dangerous that it actually does either tip the economy into

445
00:24:04,800 --> 00:24:08,720
Speaker 1: recession or perhaps exacerbate a recession. I sort of get

446
00:24:08,720 --> 00:24:11,520
Speaker 1: the impression right now, though, that corporate balance sheets are

447
00:24:11,600 --> 00:24:15,120
Speaker 1: are healthy enough that we don't necessarily have to really

448
00:24:15,160 --> 00:24:17,040
Speaker 1: worry about either one of those issues. If we do

449
00:24:17,080 --> 00:24:21,040
Speaker 1: get a recession, the effect on the from the credit

450
00:24:21,080 --> 00:24:23,640
Speaker 1: markets might not be enough to really worsen it too bad.

451
00:24:23,720 --> 00:24:25,679
Speaker 1: Is that? Is that too optimistic? Do you think? I

452
00:24:25,680 --> 00:24:28,800
Speaker 1: think it's absolutely fair to say that corporate balance sheets

453
00:24:28,840 --> 00:24:31,240
Speaker 1: are coming into this in as good a shape as

454
00:24:31,280 --> 00:24:34,760
Speaker 1: we could probably desire, at least on the you know,

455
00:24:34,800 --> 00:24:37,719
Speaker 1: somewhat higher, higher quality side of the credit market, right

456
00:24:37,720 --> 00:24:39,720
Speaker 1: if we kind of leave those zombies and those really

457
00:24:39,760 --> 00:24:42,840
Speaker 1: really um john Kie companies out of it. Yes, I

458
00:24:42,880 --> 00:24:45,560
Speaker 1: think corporate balance sheets are are generally in good shape,

459
00:24:45,560 --> 00:24:48,520
Speaker 1: and I think they're that you know, spreads are reflecting that,

460
00:24:48,640 --> 00:24:50,359
Speaker 1: and that's really good. It goes back to what's in

461
00:24:50,400 --> 00:24:54,800
Speaker 1: the price UM. But the the reality is that you

462
00:24:54,880 --> 00:25:00,159
Speaker 1: can have recessionary pricing without an actual recession, and we've

463
00:25:00,200 --> 00:25:03,320
Speaker 1: seen it happened time and time again. UM. And the

464
00:25:03,400 --> 00:25:06,919
Speaker 1: other thing too is you can have UM stress and

465
00:25:07,080 --> 00:25:11,199
Speaker 1: credit market exactly as you said, without necessarily a recession

466
00:25:11,320 --> 00:25:14,640
Speaker 1: too in the broader economy. Right, So these two things,

467
00:25:14,760 --> 00:25:19,480
Speaker 1: just like we've had strong financial markets UM and ascid

468
00:25:19,520 --> 00:25:24,280
Speaker 1: appreciation even through periods of so so economic underpinnings right

469
00:25:24,320 --> 00:25:26,879
Speaker 1: over the last twelve years, UM, we can now have

470
00:25:26,960 --> 00:25:29,880
Speaker 1: the reverse. We can have you know, very anemic asset

471
00:25:29,920 --> 00:25:33,040
Speaker 1: returns and asset growth against a backdrop of an okay

472
00:25:33,320 --> 00:25:38,320
Speaker 1: UM economy. So UM one doesn't necessarily cause the other.

473
00:25:38,760 --> 00:25:42,800
Speaker 1: I think that given that valuations are UM, you know,

474
00:25:42,880 --> 00:25:46,439
Speaker 1: pretty strong, and we're we started this episode of you know,

475
00:25:46,480 --> 00:25:50,360
Speaker 1: the hiking cycle and quantitative tightening which is now beginning

476
00:25:50,440 --> 00:25:52,880
Speaker 1: and inflation. We started all of this. We came into

477
00:25:52,880 --> 00:25:57,320
Speaker 1: all of this with elevated valuations and so it's unfortunately,

478
00:25:57,320 --> 00:26:01,800
Speaker 1: it's it's going to be difficult to UM reset or

479
00:26:01,800 --> 00:26:04,600
Speaker 1: it's going to take time to reset so that we

480
00:26:04,600 --> 00:26:08,679
Speaker 1: can start earning those outsized returns. Everyone has gotten so

481
00:26:08,840 --> 00:26:11,040
Speaker 1: used to UM. But certainly I agree with you. I

482
00:26:11,080 --> 00:26:15,280
Speaker 1: think corporate balance sheets are are relatively in decent shape UM.

483
00:26:15,400 --> 00:26:19,040
Speaker 1: But again, that pressure on profit margins will continue to

484
00:26:19,160 --> 00:26:22,480
Speaker 1: drive spreads wider because it just needs to be reflected

485
00:26:22,520 --> 00:26:24,479
Speaker 1: in the price, and at this point it is not.

486
00:26:25,720 --> 00:26:27,479
Speaker 1: So what's the trade here then, A stand? I mean,

487
00:26:27,480 --> 00:26:29,639
Speaker 1: we've talked in the past about going into cash, but

488
00:26:29,760 --> 00:26:32,760
Speaker 1: in tempers and inflation environment, you're losing money on that cash.

489
00:26:32,800 --> 00:26:35,800
Speaker 1: So what do you do? So I've been hearing about

490
00:26:36,000 --> 00:26:39,800
Speaker 1: investors losing money on sitting in cash and that cash

491
00:26:39,880 --> 00:26:41,880
Speaker 1: is trash for as long as I've been in this industry.

492
00:26:41,880 --> 00:26:44,240
Speaker 1: But the reality is that if you have been in

493
00:26:44,320 --> 00:26:48,080
Speaker 1: cash for the last you know, five years, you've essentially

494
00:26:48,080 --> 00:26:52,880
Speaker 1: outperformed the Barkley the Bloomberg excuse me, Barkley's aggregate index

495
00:26:53,440 --> 00:26:56,199
Speaker 1: UM over the year today, one year, three year, and

496
00:26:56,200 --> 00:26:59,040
Speaker 1: depending on the day, yes, even five years and now

497
00:26:59,119 --> 00:27:02,720
Speaker 1: to three years. That's a positive return versus a negative return.

498
00:27:03,119 --> 00:27:05,560
Speaker 1: So I think that we have to sort of dispense

499
00:27:05,600 --> 00:27:08,480
Speaker 1: with these absolutes and really think about it. This is

500
00:27:08,520 --> 00:27:11,080
Speaker 1: like one of the craziest things to me, frankly, about

501
00:27:11,240 --> 00:27:16,400
Speaker 1: how our industry functions. Because in fixed income you absolutely

502
00:27:16,560 --> 00:27:21,720
Speaker 1: have very identifiable tops. When the tenure was at fifty

503
00:27:21,760 --> 00:27:25,560
Speaker 1: basis point, it had nowhere to go but up. So

504
00:27:25,680 --> 00:27:29,280
Speaker 1: why are we not, like, why aren't there wide splayer spread,

505
00:27:29,359 --> 00:27:32,560
Speaker 1: you know, alarm bells um sounding off about this? Did

506
00:27:32,560 --> 00:27:36,080
Speaker 1: you do you remember hearing that? No, that the rhetoric

507
00:27:36,240 --> 00:27:38,800
Speaker 1: was the same cash it's trash and you should be invested,

508
00:27:38,880 --> 00:27:41,159
Speaker 1: and because something else you yield more than treasury, you

509
00:27:41,200 --> 00:27:44,120
Speaker 1: should buy that even though you know valuations there were

510
00:27:44,200 --> 00:27:46,960
Speaker 1: equally over priced. So I think that instead of resorting

511
00:27:47,000 --> 00:27:49,440
Speaker 1: to these absolutes, we have to really think about what's

512
00:27:49,480 --> 00:27:53,679
Speaker 1: priced in and we have to think about Yes, inflation

513
00:27:53,840 --> 00:27:56,720
Speaker 1: right now is a serious problem. And yes, you are

514
00:27:56,760 --> 00:28:00,160
Speaker 1: earning eight percent in high yield versus you know, still

515
00:28:00,400 --> 00:28:05,600
Speaker 1: significantly less in cash. But what is your price appreciation

516
00:28:05,800 --> 00:28:10,600
Speaker 1: or what is your capital preservation potential? Right? And which

517
00:28:10,640 --> 00:28:12,920
Speaker 1: of those are most important to you? Because maybe they're

518
00:28:12,920 --> 00:28:15,360
Speaker 1: not important to you, but again to us, as absolute

519
00:28:15,400 --> 00:28:19,399
Speaker 1: return investors, we focus on capital preservation first. And so

520
00:28:19,560 --> 00:28:22,359
Speaker 1: given all of the push and pull forces in the

521
00:28:22,400 --> 00:28:24,480
Speaker 1: markets today, we look at it and say, look, we

522
00:28:24,520 --> 00:28:27,440
Speaker 1: think that the risks are skewed to the downside. So

523
00:28:27,480 --> 00:28:31,080
Speaker 1: we prefer to have a lot of liquidity in our

524
00:28:31,119 --> 00:28:34,360
Speaker 1: portfolio because right now it serves as a free option

525
00:28:34,520 --> 00:28:37,760
Speaker 1: essentially on as any class in the world, and we

526
00:28:37,840 --> 00:28:40,480
Speaker 1: think that the opportunities that will continue to get better

527
00:28:41,520 --> 00:28:45,520
Speaker 1: on balanced, just like it has for the entire you know,

528
00:28:45,680 --> 00:28:48,280
Speaker 1: six months of this year, and we've been hearing people

529
00:28:48,320 --> 00:28:51,600
Speaker 1: about getting invested in January and February and March and

530
00:28:51,680 --> 00:28:54,120
Speaker 1: in April, and it continues to get better, and we

531
00:28:54,160 --> 00:28:56,560
Speaker 1: think that spreads will continue to go wider. So for

532
00:28:56,680 --> 00:28:59,680
Speaker 1: us right now, again it's absolute return investors that are

533
00:29:00,120 --> 00:29:05,000
Speaker 1: trying to manage and outperform cash irrespective of whether the

534
00:29:05,120 --> 00:29:08,200
Speaker 1: regime is a benevolent one for bonds or not. Right

535
00:29:08,200 --> 00:29:12,040
Speaker 1: we're not investing versus a market risk driven benchmark. We're

536
00:29:12,040 --> 00:29:16,360
Speaker 1: investing versus capital preservation essentially, and so for us, we

537
00:29:16,400 --> 00:29:20,080
Speaker 1: believe that a focus on capital preservation continues to be warranted,

538
00:29:20,360 --> 00:29:23,959
Speaker 1: and we prefer to being very liquid structures at this

539
00:29:24,000 --> 00:29:28,200
Speaker 1: point in a combination of liquidity, high quality floating rate

540
00:29:28,640 --> 00:29:31,440
Speaker 1: to continue to like that trade and really for us,

541
00:29:31,520 --> 00:29:34,240
Speaker 1: this is still a capital preservation part of the cycle,

542
00:29:34,280 --> 00:29:36,120
Speaker 1: although I think we're closer to the end of it

543
00:29:36,160 --> 00:29:38,640
Speaker 1: than we were a couple of months ago, and you know,

544
00:29:38,720 --> 00:29:40,680
Speaker 1: probably in the next month or two, we're going to

545
00:29:40,800 --> 00:29:44,600
Speaker 1: start to transition into the start to get aggressive, start

546
00:29:44,680 --> 00:29:48,040
Speaker 1: to go after those returns part of the cycle UM

547
00:29:48,080 --> 00:29:50,560
Speaker 1: as we see spreads widen and some of these more

548
00:29:50,600 --> 00:29:54,200
Speaker 1: barish expectations get reflected in the price. But at this point,

549
00:29:54,440 --> 00:29:56,920
Speaker 1: absolutely we think that capital preservation is still the name

550
00:29:56,920 --> 00:30:01,280
Speaker 1: of the game. Why not in this environment by apple

551
00:30:01,360 --> 00:30:06,640
Speaker 1: bonds for training at thirty points discounts to you know,

552
00:30:06,640 --> 00:30:08,800
Speaker 1: there's someone very long dated obviously, but why not go

553
00:30:08,920 --> 00:30:15,160
Speaker 1: into very high rated investment rate, very cheap bonds. So

554
00:30:15,240 --> 00:30:19,040
Speaker 1: we don't have a problem with someone doing that if

555
00:30:19,080 --> 00:30:23,840
Speaker 1: they're doing it in a portfolio that is ladder. Generally,

556
00:30:23,880 --> 00:30:27,360
Speaker 1: I think that you know, right now a portfolio there

557
00:30:27,440 --> 00:30:30,720
Speaker 1: is a ladder portfolio is an approach that we don't

558
00:30:30,720 --> 00:30:32,480
Speaker 1: really have a ton of problem with. I think where

559
00:30:32,520 --> 00:30:35,880
Speaker 1: investors are going to UM struggle is, you know, frankly,

560
00:30:35,960 --> 00:30:40,080
Speaker 1: mutual funds, because mutual funds have a UM perpetual maturity

561
00:30:40,360 --> 00:30:42,920
Speaker 1: and so unlike a physical bond that you own, right

562
00:30:42,920 --> 00:30:45,880
Speaker 1: there's no maturity that you mature up to UM or

563
00:30:45,960 --> 00:30:50,160
Speaker 1: down to. You're sort of stuck at that price until um,

564
00:30:50,200 --> 00:30:53,160
Speaker 1: the market gives you a better one UM. And that's

565
00:30:53,200 --> 00:30:56,080
Speaker 1: really where that's really why kind of the losses that

566
00:30:56,280 --> 00:30:58,920
Speaker 1: mutual fund investors have experienced, the real losses that they

567
00:30:59,080 --> 00:31:01,360
Speaker 1: went and tried to sell right now, they will have

568
00:31:01,480 --> 00:31:05,640
Speaker 1: label turn those paper losses into real lasses UM. But

569
00:31:05,760 --> 00:31:07,600
Speaker 1: we do not have a problem with someone buying you know,

570
00:31:07,920 --> 00:31:11,480
Speaker 1: deeply discounted bonds at this point, UM and and putting

571
00:31:11,480 --> 00:31:14,720
Speaker 1: them into a ladder portfolio. We think that's okay. UM.

572
00:31:14,760 --> 00:31:18,320
Speaker 1: You know, deeply discounted stuff. There's really not a ton

573
00:31:18,360 --> 00:31:21,200
Speaker 1: of it out there um at this point. And if

574
00:31:21,240 --> 00:31:24,760
Speaker 1: something is deeply discounted right now, there's generally a pretty

575
00:31:24,800 --> 00:31:28,200
Speaker 1: good reason for why it is trading at that price. UM.

576
00:31:28,320 --> 00:31:30,680
Speaker 1: Some of the market, you know, sectors that we've been

577
00:31:30,720 --> 00:31:32,840
Speaker 1: looking at that we think are starting to look more

578
00:31:33,000 --> 00:31:36,960
Speaker 1: right for getting invested are kind of around the edges

579
00:31:37,000 --> 00:31:40,120
Speaker 1: of fixing comp and have more equity correlated risks, So

580
00:31:40,200 --> 00:31:43,760
Speaker 1: things like convertibles, things like closed down funds UM. Both

581
00:31:43,800 --> 00:31:46,680
Speaker 1: of those tend to you know, track equity risk more

582
00:31:46,720 --> 00:31:50,480
Speaker 1: closely and have a higher beta to equity, and we're seeing,

583
00:31:50,520 --> 00:31:53,920
Speaker 1: you know, significant discounts there, and I think that that

584
00:31:54,200 --> 00:31:56,120
Speaker 1: is maybe at the top of our shopping list in

585
00:31:56,120 --> 00:31:59,440
Speaker 1: the foreseeable future. Um. But we'll see how how the

586
00:31:59,480 --> 00:32:03,280
Speaker 1: rest of this market place out, Axana, Can I actually

587
00:32:03,280 --> 00:32:06,160
Speaker 1: ask you to go back to the basics, if I

588
00:32:06,200 --> 00:32:08,560
Speaker 1: can call it? That? I know in some notes recently

589
00:32:08,800 --> 00:32:10,840
Speaker 1: you had been saying recession is the only thing that's

590
00:32:10,880 --> 00:32:13,720
Speaker 1: capable of shutting down inflation, and at the same time

591
00:32:13,760 --> 00:32:16,120
Speaker 1: you said there's no easy way out of this, and

592
00:32:16,160 --> 00:32:18,400
Speaker 1: this is not yet in the price So maybe can

593
00:32:18,440 --> 00:32:24,600
Speaker 1: you just go over what specifically you're actually projecting. Yeah,

594
00:32:24,880 --> 00:32:27,600
Speaker 1: so we've gone that obviously through a number of years

595
00:32:27,600 --> 00:32:33,160
Speaker 1: of central bank support, and it's been UM said many times,

596
00:32:33,320 --> 00:32:36,240
Speaker 1: and I certainly believed that view as well, that really

597
00:32:36,280 --> 00:32:38,440
Speaker 1: the only thing that could have shut down that central

598
00:32:38,480 --> 00:32:42,160
Speaker 1: bank party, if you will, was inflation, and we didn't

599
00:32:42,160 --> 00:32:44,760
Speaker 1: see it for many years, and therefore the central banks

600
00:32:44,760 --> 00:32:47,200
Speaker 1: had no impetus to stop the support that they were

601
00:32:47,240 --> 00:32:51,239
Speaker 1: providing to the markets into financial assets, and then we

602
00:32:51,320 --> 00:32:55,120
Speaker 1: saw this inflation sort of you know, roar back to life, Um,

603
00:32:55,240 --> 00:32:57,600
Speaker 1: and at this point it's really hard to see. How

604
00:32:57,640 --> 00:33:00,680
Speaker 1: does it glide back down effortlessly the way you know

605
00:33:00,760 --> 00:33:04,760
Speaker 1: FED um forecasts are promising us that it will UM.

606
00:33:04,800 --> 00:33:07,280
Speaker 1: And even some former FED officials have come out and said, look,

607
00:33:07,320 --> 00:33:10,280
Speaker 1: this is really not these these forecasts are not realistic.

608
00:33:10,320 --> 00:33:13,160
Speaker 1: You know, we're not gonna see inflation glide back sort

609
00:33:13,200 --> 00:33:16,440
Speaker 1: of effortlessly UM in a soft Lenning scenario by the

610
00:33:16,560 --> 00:33:18,960
Speaker 1: end of next year. UM. Yes, it can go back

611
00:33:19,160 --> 00:33:23,040
Speaker 1: to significantly lower levels, to single digit levels via recession.

612
00:33:23,920 --> 00:33:28,040
Speaker 1: And some of the inflation mechanisms are nearly recessionary right

613
00:33:28,080 --> 00:33:32,480
Speaker 1: in terms of inflation crimps consumer spending, makes it more

614
00:33:32,480 --> 00:33:36,200
Speaker 1: difficult for consumers or or reduces consumer sentiment, I should say,

615
00:33:36,280 --> 00:33:39,880
Speaker 1: And we're seeing that. UM. So it seems that the

616
00:33:39,920 --> 00:33:43,000
Speaker 1: most natural way for this inflation to calm down is

617
00:33:43,000 --> 00:33:46,040
Speaker 1: a recession. And that means again that has to be

618
00:33:46,080 --> 00:33:52,240
Speaker 1: priced into credit valuations, which we're not really seeing yet. UM.

619
00:33:52,280 --> 00:33:55,640
Speaker 1: Although I think the consensus in the marketplace right now

620
00:33:55,720 --> 00:33:58,360
Speaker 1: is to the tune of we're going to see in

621
00:33:58,840 --> 00:34:03,040
Speaker 1: recession in three but that's not really yet being reflected

622
00:34:03,040 --> 00:34:07,720
Speaker 1: in the price I don't think UM. And if we

623
00:34:08,200 --> 00:34:12,880
Speaker 1: do see a recession. Unfortunately, it will coincide with still

624
00:34:12,920 --> 00:34:17,400
Speaker 1: elevated UM inflation levels. So it's not really clear to

625
00:34:17,440 --> 00:34:20,480
Speaker 1: me that long dated bonds are going to be necessarily

626
00:34:20,480 --> 00:34:23,520
Speaker 1: a great hedge in that environment for your risk, for

627
00:34:23,600 --> 00:34:27,160
Speaker 1: the riskier parts of your portfolio. UM. And finally, you know,

628
00:34:27,280 --> 00:34:29,480
Speaker 1: the said is as I said, you know, there are

629
00:34:29,480 --> 00:34:31,920
Speaker 1: tools are quite blunt. The only thing they can do

630
00:34:32,040 --> 00:34:35,759
Speaker 1: is tighten financial conditions, raise the cost of capital. And

631
00:34:35,800 --> 00:34:39,279
Speaker 1: those things are you know, inadvertently perhaps, but they are

632
00:34:39,360 --> 00:34:43,759
Speaker 1: also contributing to recession, risks becoming elevated and to the

633
00:34:43,800 --> 00:34:46,600
Speaker 1: reality of recession, which is what Powell told us recently, right,

634
00:34:46,600 --> 00:34:49,600
Speaker 1: he said that the possibility of recession is rising, as

635
00:34:49,680 --> 00:34:52,359
Speaker 1: much as he doesn't want that to be the case. Um,

636
00:34:52,400 --> 00:35:10,799
Speaker 1: he's being very transparent about that. You know. Uh. On

637
00:35:10,800 --> 00:35:13,560
Speaker 1: one thing we haven't touched on, which is so important

638
00:35:13,560 --> 00:35:16,600
Speaker 1: to credit markets is issuance. UM. And I have seen

639
00:35:16,680 --> 00:35:20,880
Speaker 1: some stories recently of companies either sort of postponing or

640
00:35:20,920 --> 00:35:25,360
Speaker 1: canceling deals or maybe tapping credit lines instead of issuing

641
00:35:25,400 --> 00:35:28,400
Speaker 1: corporate bonds. How do you see that unfolding in the

642
00:35:28,440 --> 00:35:31,080
Speaker 1: near future and and sort of what the effect on

643
00:35:31,120 --> 00:35:34,719
Speaker 1: the market would be if people corporates get a little

644
00:35:34,719 --> 00:35:39,839
Speaker 1: gun shy about issuance. Yeah, we saw you know that

645
00:35:40,440 --> 00:35:45,040
Speaker 1: boots deal. Get next right, the Walgrains boots um deal,

646
00:35:45,320 --> 00:35:47,920
Speaker 1: and we're going to see more of that. And essentially,

647
00:35:47,960 --> 00:35:50,719
Speaker 1: you know, credit markets in terms of issuance, it's been

648
00:35:51,040 --> 00:35:54,880
Speaker 1: very very slim um and and in many cases simply

649
00:35:54,880 --> 00:35:57,840
Speaker 1: shot down. And on one hand, you know, there is

650
00:35:57,920 --> 00:36:02,239
Speaker 1: an opinion out there that that is going to maybe

651
00:36:02,400 --> 00:36:06,520
Speaker 1: keep spreads tighter because you still have some demand right

652
00:36:06,600 --> 00:36:08,840
Speaker 1: for this paper, but it's not being issued at the

653
00:36:08,880 --> 00:36:12,240
Speaker 1: same clips, so maybe the demand kind of overrides supply.

654
00:36:13,160 --> 00:36:16,759
Speaker 1: But the reality is that what is a shutdown um

655
00:36:16,960 --> 00:36:21,439
Speaker 1: credit market? Essentially right, noitions means that there's no bid

656
00:36:21,480 --> 00:36:24,400
Speaker 1: at the price that the company wants to actually issue

657
00:36:24,440 --> 00:36:25,880
Speaker 1: that debt. And I'll give you an example. A few

658
00:36:25,920 --> 00:36:28,520
Speaker 1: weeks ago, I think it was Carnival Um that came

659
00:36:28,560 --> 00:36:31,720
Speaker 1: to market and had to borrow at ten and quarter

660
00:36:31,800 --> 00:36:34,560
Speaker 1: to ten and a half percent, whereas a few months

661
00:36:34,560 --> 00:36:37,240
Speaker 1: before that, I would assume they're borrowing it was probably

662
00:36:37,280 --> 00:36:40,160
Speaker 1: five to six percent. So a few months nearly doubled

663
00:36:40,320 --> 00:36:43,080
Speaker 1: their cross of capital. And so you know, companies that

664
00:36:43,120 --> 00:36:45,480
Speaker 1: can afford not to do that. They don't want to

665
00:36:45,480 --> 00:36:49,040
Speaker 1: do that, but that's not really a healthy that's certainly

666
00:36:49,040 --> 00:36:53,080
Speaker 1: not a healthy market. And in that environment, market participants

667
00:36:53,120 --> 00:36:55,840
Speaker 1: will be pricing in the fact that, look, you can't

668
00:36:55,880 --> 00:36:58,840
Speaker 1: finance yourself in this market, and that's also going to

669
00:36:58,880 --> 00:37:01,600
Speaker 1: find its way into valuations and it's going to push

670
00:37:01,600 --> 00:37:03,960
Speaker 1: spreads wider. And I don't think that that's actually a

671
00:37:03,960 --> 00:37:08,200
Speaker 1: constructive um dynamic for credit market and AXNA. Just to

672
00:37:08,239 --> 00:37:10,600
Speaker 1: wrap things up, since we tend to focus so much

673
00:37:10,719 --> 00:37:14,000
Speaker 1: on the stock market on the podcast, I know our

674
00:37:14,080 --> 00:37:17,200
Speaker 1: our colleague Katie Greifeld at Bloomberg she had written recently

675
00:37:17,200 --> 00:37:19,840
Speaker 1: the rising rates across the fixed income landscape are chipping

676
00:37:19,840 --> 00:37:24,200
Speaker 1: away at the there's no alternative mantra that we tend

677
00:37:24,239 --> 00:37:26,080
Speaker 1: to hear in the stock markets. I wanted to ask

678
00:37:26,120 --> 00:37:29,920
Speaker 1: you if credit is becoming more attractive than the stock

679
00:37:29,960 --> 00:37:36,600
Speaker 1: market even so, Um, yes, I think the higher rates

680
00:37:36,640 --> 00:37:40,440
Speaker 1: is certainly shipping away at Tina, there is not alternative,

681
00:37:41,440 --> 00:37:45,239
Speaker 1: certainly chipping away of that. But again, just like you know,

682
00:37:45,360 --> 00:37:47,839
Speaker 1: you don't simply but I mean, I don't know who

683
00:37:47,880 --> 00:37:50,160
Speaker 1: are these people that are simply buying stocks for the

684
00:37:50,200 --> 00:37:52,160
Speaker 1: divondend field, right I mean, it's all it's always about

685
00:37:52,160 --> 00:37:54,760
Speaker 1: the price, and I think in fixed income it also

686
00:37:54,920 --> 00:37:56,440
Speaker 1: has to be about the price. I think it is

687
00:37:56,560 --> 00:38:01,399
Speaker 1: because we've forgotten that price matters, and investors were buying

688
00:38:01,480 --> 00:38:04,200
Speaker 1: HI bonds at one oh seven or even higher, you know,

689
00:38:04,920 --> 00:38:08,280
Speaker 1: many dollars above part that they're sitting on the losses

690
00:38:08,360 --> 00:38:10,440
Speaker 1: that they're sitting on right now. So I think price

691
00:38:10,520 --> 00:38:14,279
Speaker 1: absolutely still matters, and especially in an environment where we

692
00:38:14,360 --> 00:38:18,040
Speaker 1: are at such tiny default levels that they almost have

693
00:38:18,239 --> 00:38:21,120
Speaker 1: nowhere to go but up, which means that again, paper

694
00:38:21,200 --> 00:38:24,319
Speaker 1: losses have the ability to become realized, you know, real

695
00:38:24,400 --> 00:38:27,480
Speaker 1: actual losses. UM. I don't think you can look at

696
00:38:27,520 --> 00:38:29,680
Speaker 1: the yield and isolation. I think at the end of

697
00:38:29,680 --> 00:38:32,200
Speaker 1: the day, you have to really look at what it

698
00:38:32,320 --> 00:38:35,160
Speaker 1: is priced in UM, your respect of what you're buying.

699
00:38:36,600 --> 00:38:40,600
Speaker 1: Great stuff, box SONA. We UH really appreciate your insights. Uh,

700
00:38:41,040 --> 00:38:44,040
Speaker 1: price matters. I'll tell you what matters on this podcast too,

701
00:38:44,360 --> 00:38:47,640
Speaker 1: is the craziest things we all saw in markets. Uh.

702
00:38:48,000 --> 00:38:49,880
Speaker 1: This week our tradition, and we can't let you go

703
00:38:50,280 --> 00:38:53,560
Speaker 1: until we per year. Yours your favorite crazy thing of

704
00:38:53,560 --> 00:38:56,600
Speaker 1: the week. I'll get us started though, rare attempt where

705
00:38:56,640 --> 00:38:59,400
Speaker 1: I get us started. Um well, don as you know,

706
00:39:00,200 --> 00:39:03,759
Speaker 1: one of my favorite asset classes are these ridiculous collectibles

707
00:39:03,840 --> 00:39:07,080
Speaker 1: that people pay ridiculous amounts of money for it auction.

708
00:39:07,719 --> 00:39:09,920
Speaker 1: I think I found the most ridiculous one of all

709
00:39:10,040 --> 00:39:13,399
Speaker 1: time from the New York Times, better than the vh

710
00:39:13,680 --> 00:39:16,000
Speaker 1: vhs you you had the other week that went for

711
00:39:19,200 --> 00:39:22,919
Speaker 1: Here's the headline from the Times. Dead roaches that eight

712
00:39:23,040 --> 00:39:27,480
Speaker 1: moon dust went off went up for auction. Then NASA objected.

713
00:39:27,520 --> 00:39:31,959
Speaker 1: I'll read that again, dead roaches that eight moon dust

714
00:39:32,239 --> 00:39:35,920
Speaker 1: went up for auction, and NASA objected. What happened is

715
00:39:36,000 --> 00:39:40,040
Speaker 1: in ninety nine when uh, the U S astronauts landed

716
00:39:40,080 --> 00:39:41,920
Speaker 1: on the Moon. If you do believe that that happened,

717
00:39:41,920 --> 00:39:45,000
Speaker 1: there's some conspiracy theories out there that it did not happen.

718
00:39:45,120 --> 00:39:47,360
Speaker 1: That's a that's a topic for a different podcast. But

719
00:39:47,760 --> 00:39:50,480
Speaker 1: assuming it happened, Uh, they brought back a bunch of

720
00:39:50,560 --> 00:39:53,680
Speaker 1: moon rocks and moon dust and they fed it to

721
00:39:54,200 --> 00:39:58,120
Speaker 1: you know, uh, cockroaches and I guess you know mice

722
00:39:58,280 --> 00:40:01,240
Speaker 1: and goldfish too, just see if it would be toxic

723
00:40:01,360 --> 00:40:03,640
Speaker 1: to them. Um there, you know, is one of the

724
00:40:03,719 --> 00:40:07,920
Speaker 1: experiments they performed afterward. Uh so one of the scientists

725
00:40:08,000 --> 00:40:11,239
Speaker 1: who performed this experiment with the cockroaches. I don't know

726
00:40:11,320 --> 00:40:13,080
Speaker 1: how they got them to eat the moon moon dust.

727
00:40:13,840 --> 00:40:15,560
Speaker 1: Maybe they put some hot sauce on it or something.

728
00:40:15,680 --> 00:40:19,640
Speaker 1: But she kept she kept the roaches. She determined that

729
00:40:19,719 --> 00:40:22,040
Speaker 1: they were not harmful to the roaches, but she kept

730
00:40:22,080 --> 00:40:25,000
Speaker 1: them in a safe for years and years, and then

731
00:40:25,040 --> 00:40:29,160
Speaker 1: they went up first auction. Uh NASA heard about this

732
00:40:29,360 --> 00:40:32,319
Speaker 1: and they put the kibosh on the auction, saying, those

733
00:40:32,360 --> 00:40:36,359
Speaker 1: are our roaches. You cannot sell those roaches. But as

734
00:40:36,440 --> 00:40:39,279
Speaker 1: you can probably guess, it's time to play prices, right

735
00:40:39,520 --> 00:40:43,800
Speaker 1: and ask you what price do you think the highest

736
00:40:43,840 --> 00:40:47,640
Speaker 1: bid was for these dead roaches that eight moon dust

737
00:40:48,080 --> 00:40:50,000
Speaker 1: before the auction was canceled. It's kind of a tricky

738
00:40:50,080 --> 00:40:54,359
Speaker 1: one because we don't have true price discovery. But first

739
00:40:55,120 --> 00:40:57,240
Speaker 1: you go first. I mean, who would buy dead roaches?

740
00:40:57,280 --> 00:40:58,840
Speaker 1: And where did she keep them? By the way, in

741
00:40:58,880 --> 00:41:03,000
Speaker 1: a freezer in a fireproof safe in her basement. Oh

742
00:41:03,080 --> 00:41:07,320
Speaker 1: my gosh. Okay, I will go with fifty five dollars

743
00:41:10,040 --> 00:41:12,839
Speaker 1: on what's your bid for dead rutches that eate moon dust?

744
00:41:13,840 --> 00:41:16,600
Speaker 1: Like you said, there's no price discovery in that market,

745
00:41:17,200 --> 00:41:24,000
Speaker 1: single issue market, Um I have absolutely no idea, and

746
00:41:24,239 --> 00:41:26,720
Speaker 1: I can't even imagin why anyone would want some dead roaches,

747
00:41:26,760 --> 00:41:31,400
Speaker 1: no matter what they ate. Um, I have no idea.

748
00:41:31,640 --> 00:41:33,279
Speaker 1: I'm gonna go with let's just for the sake of

749
00:41:33,280 --> 00:41:37,640
Speaker 1: the why not. Okay, so you're out bidding Volda on

750
00:41:37,680 --> 00:41:39,960
Speaker 1: the dead roaches. That James, what's your bid for the

751
00:41:40,040 --> 00:41:43,839
Speaker 1: dead roaches? That eight moon does? Think? Uh? Six months

752
00:41:43,880 --> 00:41:49,560
Speaker 1: ago probably a million bucks now, Tan Ground. That's a

753
00:41:49,640 --> 00:41:52,000
Speaker 1: great point. It's a great point. You know, it is

754
00:41:52,080 --> 00:41:55,439
Speaker 1: not a very satisfying one because we did not see

755
00:41:55,480 --> 00:41:57,719
Speaker 1: the winning bid for the auction. NASA came in and

756
00:41:57,760 --> 00:42:00,160
Speaker 1: spoiled it. High spid was forty So you guys, we're

757
00:42:00,160 --> 00:42:02,880
Speaker 1: both pretty pretty close. Wow. They expected it to go

758
00:42:03,000 --> 00:42:06,080
Speaker 1: much higher, of course, as auctioneers tend to. But so

759
00:42:06,160 --> 00:42:11,640
Speaker 1: we were close here. You guys are pretty close. Roaches,

760
00:42:12,600 --> 00:42:14,600
Speaker 1: I think James right though that a year or two

761
00:42:14,640 --> 00:42:19,000
Speaker 1: ago they probably would have gotten seven figures. But uh,

762
00:42:19,200 --> 00:42:21,719
Speaker 1: the times are tough now, you know. It's uh, it's

763
00:42:21,800 --> 00:42:25,360
Speaker 1: it's a different market, different valuations across all asset classes,

764
00:42:25,400 --> 00:42:29,080
Speaker 1: including dead roaches. About you, Bill Donna, what's the what's

765
00:42:29,120 --> 00:42:32,200
Speaker 1: the craziest thing you've seen mine has to do with

766
00:42:32,280 --> 00:42:35,560
Speaker 1: the CEO. There's this wonderful Bloomberg story that I read

767
00:42:35,640 --> 00:42:38,520
Speaker 1: about Andrew for Micah. I hope I'm pronouncing his name right.

768
00:42:38,560 --> 00:42:41,360
Speaker 1: He's a chief executive officer of Jupiter Fund Management. He

769
00:42:41,480 --> 00:42:44,040
Speaker 1: had announced that he's leaving his company, and what he

770
00:42:44,080 --> 00:42:46,680
Speaker 1: told Bloomberg is I just want to go sit at

771
00:42:46,719 --> 00:42:50,160
Speaker 1: the beach and do nothing. I'm not thinking about anything else,

772
00:42:51,040 --> 00:42:54,160
Speaker 1: which I love. It's like everybody's thinking this, but nobody

773
00:42:54,200 --> 00:42:56,360
Speaker 1: wants to admit that. Nobody wants to say it. He

774
00:42:56,480 --> 00:42:59,080
Speaker 1: just wants to sit at the beach. I think that's

775
00:42:59,120 --> 00:43:00,840
Speaker 1: the sanest thing. I hear it all week, not the

776
00:43:00,880 --> 00:43:04,160
Speaker 1: craziest things. Onto something. All these people on Twitter are like, oh,

777
00:43:04,360 --> 00:43:06,880
Speaker 1: you know, I think he's based in the UK, like

778
00:43:07,000 --> 00:43:11,120
Speaker 1: in America. CEO says like he'll retire, then he'll go

779
00:43:11,239 --> 00:43:13,760
Speaker 1: back to doing like ten other jobs. This guy literally

780
00:43:13,840 --> 00:43:18,120
Speaker 1: just wants to sit on the beach. I took my

781
00:43:18,200 --> 00:43:20,920
Speaker 1: hat to him too. That guy's a role model for us,

782
00:43:20,960 --> 00:43:23,640
Speaker 1: all I believe. How about you, ox On, have you

783
00:43:23,680 --> 00:43:28,400
Speaker 1: seen anything crazy recently? So I certainly cannot top the roaches,

784
00:43:28,520 --> 00:43:30,560
Speaker 1: but I will um and I you know, I think

785
00:43:30,680 --> 00:43:34,560
Speaker 1: that The stuff that I see that is crazy is daily.

786
00:43:34,640 --> 00:43:37,839
Speaker 1: But at the same time it is very um much

787
00:43:37,920 --> 00:43:40,440
Speaker 1: more broad than anything that's kind of specific to this

788
00:43:40,520 --> 00:43:42,719
Speaker 1: week or last week. And it is certainly in the

789
00:43:42,960 --> 00:43:45,840
Speaker 1: phones in the realm of like, let's just be sane,

790
00:43:46,239 --> 00:43:49,919
Speaker 1: you know, and and and and I want to offer

791
00:43:50,000 --> 00:43:51,880
Speaker 1: some sanity here and for me that the stuff that

792
00:43:51,920 --> 00:43:55,239
Speaker 1: really is crazy is how investors in fix income are

793
00:43:55,400 --> 00:43:57,960
Speaker 1: so desperately trying to fight this FED. Right when the

794
00:43:58,000 --> 00:43:59,960
Speaker 1: FED was on your side, the mantra was don't fight

795
00:44:00,200 --> 00:44:03,080
Speaker 1: the FED, and so I offer the same advice. Now

796
00:44:03,200 --> 00:44:05,480
Speaker 1: the FED is only at the starting point of this

797
00:44:05,640 --> 00:44:08,960
Speaker 1: high cycling hiking cycle. We do not know what quantitative

798
00:44:09,040 --> 00:44:11,400
Speaker 1: tipening is going to bring. Frankly, we didn't talk about that,

799
00:44:11,520 --> 00:44:13,680
Speaker 1: but that's a wild card in and of itself. A

800
00:44:13,800 --> 00:44:17,520
Speaker 1: recession fears are are rising um and the FED is

801
00:44:17,560 --> 00:44:20,960
Speaker 1: telling you that they're choosing inflation over growth over and over.

802
00:44:21,360 --> 00:44:24,160
Speaker 1: Don't fight the FED. But at the same time, to

803
00:44:24,520 --> 00:44:26,920
Speaker 1: James's point, they did kind of set that precedent with

804
00:44:27,000 --> 00:44:29,960
Speaker 1: the corporate credit facility in the pandemic and sort of

805
00:44:30,000 --> 00:44:33,080
Speaker 1: broke the seal on that, uh, that idea of buying

806
00:44:33,480 --> 00:44:36,120
Speaker 1: corporate credit. If if times get bet enough, is there

807
00:44:36,560 --> 00:44:38,800
Speaker 1: is that in the price to some degree? Do you

808
00:44:38,880 --> 00:44:41,959
Speaker 1: think that that they might one day return? I think

809
00:44:42,080 --> 00:44:48,040
Speaker 1: that that is what's key keeping a lid on the

810
00:44:48,239 --> 00:44:50,840
Speaker 1: spread widening for the time being. And I think, you know,

811
00:44:50,880 --> 00:44:52,880
Speaker 1: we talked about what is going to be that tipping

812
00:44:52,960 --> 00:44:55,200
Speaker 1: point for the capitulation. I think it's going to be

813
00:44:55,320 --> 00:44:59,200
Speaker 1: this realization that, look, the FED put is a lot

814
00:44:59,280 --> 00:45:02,000
Speaker 1: of basis point doubt if it's even alive anymore. It

815
00:45:02,160 --> 00:45:04,959
Speaker 1: is not here now. It's not here for probably several

816
00:45:05,040 --> 00:45:08,000
Speaker 1: hundred basis points of high whining certainly, and you know

817
00:45:08,040 --> 00:45:11,640
Speaker 1: at least probably another hundred base points whining of investment grade.

818
00:45:12,000 --> 00:45:14,239
Speaker 1: So it's it's not there for you. The feed is

819
00:45:14,280 --> 00:45:16,759
Speaker 1: not there for you. This market has to learn to

820
00:45:16,880 --> 00:45:20,000
Speaker 1: stand on its own fundamentals and on its own merit

821
00:45:20,440 --> 00:45:23,320
Speaker 1: like it used to be. Yeah, I would say the

822
00:45:23,360 --> 00:45:25,960
Speaker 1: second craziest thing I've seen this week Bildanna is we

823
00:45:26,000 --> 00:45:28,560
Speaker 1: actually got James to come on the podcast for once.

824
00:45:28,600 --> 00:45:31,080
Speaker 1: He's he was very shy about coming on, but but

825
00:45:31,160 --> 00:45:33,520
Speaker 1: we got him on. So so James, your turn. What's

826
00:45:33,520 --> 00:45:37,480
Speaker 1: the craziest thing you've seen in markets recently? A couple

827
00:45:37,480 --> 00:45:39,320
Speaker 1: of things that fed today's saying they didn't know what

828
00:45:39,400 --> 00:45:43,960
Speaker 1: inflation was. That's pretty scary crazy, um. But sticking with credit,

829
00:45:44,040 --> 00:45:45,719
Speaker 1: I mean, I do look at bond prices all day

830
00:45:45,760 --> 00:45:49,360
Speaker 1: long of geek um, and you rarely see bond prices

831
00:45:49,440 --> 00:45:50,960
Speaker 1: moved in the morning when you come in more than

832
00:45:51,000 --> 00:45:53,840
Speaker 1: a point or so if you stare it, you know

833
00:45:54,280 --> 00:45:58,319
Speaker 1: the feed. Recently, we've seen bonds dropping ten points, twenty points,

834
00:45:58,800 --> 00:46:03,240
Speaker 1: forty points in one trade, um, And that's that's crazy

835
00:46:03,280 --> 00:46:07,080
Speaker 1: price action. That speaks to some of the points well

836
00:46:07,520 --> 00:46:11,160
Speaker 1: eximate during this podcast. You know the Boston Beyond today

837
00:46:12,120 --> 00:46:15,839
Speaker 1: ten points, those bonds yielding, how you distressed the still

838
00:46:15,960 --> 00:46:20,360
Speaker 1: rated sorry single beat plus um. The same thing happened

839
00:46:20,400 --> 00:46:23,760
Speaker 1: to Party City recently, whole bunch of retailers, and I'm

840
00:46:23,800 --> 00:46:26,520
Speaker 1: pulling the bond white outs. We haven't seen this sort

841
00:46:26,520 --> 00:46:28,839
Speaker 1: of price action. I don't think you know, you can

842
00:46:29,000 --> 00:46:34,120
Speaker 1: disagree outside I've seen this sort of level extreme. I

843
00:46:34,239 --> 00:46:36,719
Speaker 1: agree with you. I would also add to that, you

844
00:46:36,800 --> 00:46:39,000
Speaker 1: know what you alluded to, what you just refer to.

845
00:46:39,200 --> 00:46:41,440
Speaker 1: Those are bond prices that we can sort of very

846
00:46:41,560 --> 00:46:45,360
Speaker 1: readily observed because they're in the public corporate space. But

847
00:46:45,480 --> 00:46:47,439
Speaker 1: then there are parts of the bond market right where

848
00:46:47,760 --> 00:46:50,759
Speaker 1: pricing is is much more over the counter, if you will, right,

849
00:46:50,840 --> 00:46:54,000
Speaker 1: so um areas like mortgage credit, for example, there's a

850
00:46:54,080 --> 00:46:57,440
Speaker 1: whole area out there where you know, the family and

851
00:46:57,480 --> 00:47:00,640
Speaker 1: Freddie step back from providing guarantees to the number of

852
00:47:00,680 --> 00:47:03,000
Speaker 1: mortgages and throw them back into the market to kind

853
00:47:03,040 --> 00:47:05,360
Speaker 1: of live on their own um and price on their

854
00:47:05,400 --> 00:47:08,440
Speaker 1: own without the government guarantee. And we're seeing um to

855
00:47:08,640 --> 00:47:11,799
Speaker 1: various degree stresses in in that part of the mortgage market,

856
00:47:11,880 --> 00:47:14,080
Speaker 1: even though we're not really seeing stress in the housing

857
00:47:14,120 --> 00:47:16,880
Speaker 1: market yet yet. Mortgage rates are higher, and yes, we

858
00:47:17,000 --> 00:47:19,960
Speaker 1: expect to slow down and housing, but certainly they're none

859
00:47:20,000 --> 00:47:22,880
Speaker 1: of the systemic problems that existed there back in two

860
00:47:22,920 --> 00:47:25,400
Speaker 1: thousand and eight. But we're seeing, yes, bonds that are

861
00:47:25,480 --> 00:47:27,719
Speaker 1: off ten twenty points in this mortgage credit space. This

862
00:47:27,840 --> 00:47:30,800
Speaker 1: is kind of like the non agency part, particularly the

863
00:47:30,960 --> 00:47:33,840
Speaker 1: you know, lower than the most pristine parts of that market.

864
00:47:34,160 --> 00:47:38,719
Speaker 1: So without a doubt, there are some canarreas. Usually how

865
00:47:39,400 --> 00:47:43,719
Speaker 1: repricing broad repricing start, they start in more esoteric um

866
00:47:43,880 --> 00:47:46,520
Speaker 1: parts of the market like that, and with kind of

867
00:47:46,680 --> 00:47:48,759
Speaker 1: some you know, credits here and there, that are may

868
00:47:48,800 --> 00:47:52,239
Speaker 1: be weaker and then transition to a broader repricing. So

869
00:47:52,360 --> 00:47:54,360
Speaker 1: I think we're just at the starting of this. Is

870
00:47:54,400 --> 00:47:58,279
Speaker 1: it a summer liquidity issue at all? To or now

871
00:47:59,280 --> 00:48:01,200
Speaker 1: um liquid of the issue to the extent that it

872
00:48:01,280 --> 00:48:03,399
Speaker 1: can be that it is, you know, seasonal, I think

873
00:48:03,480 --> 00:48:06,279
Speaker 1: will be a huge issue. You know. One of the

874
00:48:06,360 --> 00:48:10,279
Speaker 1: things that Jamie Diamond wrote a shareholder Leo alluded to

875
00:48:10,360 --> 00:48:13,680
Speaker 1: the fact that market liquidity is very different. That sells

876
00:48:13,760 --> 00:48:15,400
Speaker 1: to the cell side is not there for you like

877
00:48:15,520 --> 00:48:18,080
Speaker 1: it used to be, and it makes for a significantly

878
00:48:18,120 --> 00:48:20,200
Speaker 1: less liquid market. And just to give you an idea,

879
00:48:20,560 --> 00:48:23,120
Speaker 1: you know, the top five corporate bond etf so things

880
00:48:23,200 --> 00:48:25,759
Speaker 1: like l q D and g J and K and

881
00:48:25,920 --> 00:48:29,160
Speaker 1: h y G like that, the top largest corporate bond ets,

882
00:48:29,200 --> 00:48:34,040
Speaker 1: their total assets are several times bigger than the corporates

883
00:48:34,080 --> 00:48:36,799
Speaker 1: the street is inventory. So these things, you know, start

884
00:48:36,880 --> 00:48:40,239
Speaker 1: to really redeem in size, and you know, dramatically, there's

885
00:48:40,280 --> 00:48:42,480
Speaker 1: really no other side to take that down, so you're

886
00:48:42,480 --> 00:48:46,040
Speaker 1: gonna have very dramatic prices covery downwards. So, yes, liquidity

887
00:48:46,120 --> 00:48:49,320
Speaker 1: plays a huge role. The way this market operates, the

888
00:48:49,400 --> 00:48:52,680
Speaker 1: liquidity it has on any given day is so different

889
00:48:52,800 --> 00:48:56,600
Speaker 1: than pre two eight and the FED plugged that hole

890
00:48:56,800 --> 00:49:00,400
Speaker 1: repeatedly for a very long time, and they're not anymore.

891
00:49:00,520 --> 00:49:03,480
Speaker 1: They're not at this time. So liquidity has completely shifted

892
00:49:03,520 --> 00:49:06,640
Speaker 1: to the buy side, but the bye side is fully

893
00:49:06,680 --> 00:49:09,440
Speaker 1: invested across the entire cycle. They have to sell something

894
00:49:09,520 --> 00:49:11,800
Speaker 1: to buy something, and so we just think it's a

895
00:49:11,840 --> 00:49:14,759
Speaker 1: completely different market and that's why we want to be

896
00:49:15,000 --> 00:49:19,000
Speaker 1: the liquidity providers um that will be very, very sorely

897
00:49:19,080 --> 00:49:23,480
Speaker 1: needed as this group pricing gets going well. Axada, We

898
00:49:23,680 --> 00:49:27,320
Speaker 1: really again appreciate your insights. Hopefully we can have you

899
00:49:27,440 --> 00:49:31,399
Speaker 1: back again sometime to talk markets again, and please bring

900
00:49:31,520 --> 00:49:33,719
Speaker 1: Jamie Diamond along if if you see him, Tom Tom,

901
00:49:33,800 --> 00:49:36,800
Speaker 1: He's invited to sounds great, Thanks so much, thank you,

902
00:49:37,239 --> 00:49:46,920
Speaker 1: thanks very much. What Goes Up will be back next

903
00:49:46,960 --> 00:49:48,520
Speaker 1: week and so then you can find us on the

904
00:49:48,560 --> 00:49:52,360
Speaker 1: Bloomberg Terminal website and app or wherever you get your podcast.

905
00:49:53,239 --> 00:49:54,759
Speaker 1: We love it if you took the time to rate

906
00:49:54,840 --> 00:49:57,800
Speaker 1: and review the show on Apple Podcasts, so more listeners

907
00:49:57,840 --> 00:49:59,959
Speaker 1: can find us, and you can find us on schoo,

908
00:50:00,560 --> 00:50:04,840
Speaker 1: follow me at reag Anonymous, Goldana hirach Is at Coldanna Hirich.

909
00:50:05,560 --> 00:50:10,080
Speaker 1: You can also Follow Bloomberg Podcasts at Podcasts. What Goes

910
00:50:10,160 --> 00:50:12,760
Speaker 1: Up is produced by Stacy Wang. The head of Bloomberg

911
00:50:12,840 --> 00:50:15,560
Speaker 1: podcast is Francesco Levie. Thanks for listening. To see you

912
00:50:15,680 --> 00:50:16,080
Speaker 1: next time.