WEBVTT - Cash Is Not Trash 0:00:13.880 --> 0:00:17.680 Hello, and welcome to What Goes Up, a weekly markets podcast. 0:00:17.760 --> 0:00:19.880 My name is Mike Reagan. I'm a senior editor at 0:00:19.880 --> 0:00:23.880 Bloomberg and Donna High across Acid reporter with Bloomberg and 0:00:23.960 --> 0:00:26.040 this week, well, on this show, we obviously like to 0:00:26.079 --> 0:00:28.760 talk about what's going up, and this year, one thing 0:00:28.800 --> 0:00:32.240 that's going up noticeably is interest rates on corporate bonds 0:00:32.640 --> 0:00:35.920 as well as their spreads above treasury yields. So what 0:00:36.040 --> 0:00:38.599 sort of signal is that setting about the economy and 0:00:38.760 --> 0:00:41.960 risks to other markets? And with the yields on investment 0:00:41.960 --> 0:00:45.320 grade bonds approaching five percent this month and almost thirteen 0:00:45.360 --> 0:00:48.199 year high, is there enough value there for investors to 0:00:48.240 --> 0:00:52.000 start boosting allocations to corporate debt. We'll get into it 0:00:52.040 --> 0:00:55.040 with a very well known credit markets veteran and one 0:00:55.080 --> 0:00:58.120 of our own Bloomberg editors who covers the space. But 0:00:58.280 --> 0:01:00.880 first Vil Donna, I feel like, guy, do owe you 0:01:00.960 --> 0:01:04.320 an apology? You do? Um? I do? Yeah? That is 0:01:04.360 --> 0:01:07.399 because we had a zoom call earlier to plan the podcast, 0:01:07.840 --> 0:01:10.400 and for some reason my video was not working. I 0:01:10.800 --> 0:01:14.319 my face was not showing up on video, and I 0:01:14.360 --> 0:01:16.640 had assumed you had figured out some way to have 0:01:16.760 --> 0:01:20.040 zoom block block my face on video, which I thought 0:01:20.120 --> 0:01:23.080 was something you would probably do. That would have been fun, 0:01:23.440 --> 0:01:26.119 That would have been really fun. But it turns out 0:01:26.200 --> 0:01:29.319 it was just I needed to upgrade some driver or 0:01:29.360 --> 0:01:32.080 something on my laptop, and the nice folks at the 0:01:32.080 --> 0:01:35.320 Bloomberg I T department, who are incredible by the way, 0:01:35.160 --> 0:01:37.720 they hooked me up. So I do apology. It's kind 0:01:37.720 --> 0:01:40.280 of a halfhearted apology though, because I think that if 0:01:40.319 --> 0:01:41.880 you could figure out a way to do that, you 0:01:41.880 --> 0:01:45.679 you probably would. Actually if any of like the Zoom 0:01:45.800 --> 0:01:50.000 uh you know, the CEOs or whoever the product managers 0:01:50.040 --> 0:01:52.720 at Zoom are listening, that could be a really fun 0:01:52.760 --> 0:01:56.640 feature for like, you know, blocking some of your friends 0:01:56.760 --> 0:02:03.080 or I don't know, it might be fun just blocking me, 0:02:03.080 --> 0:02:06.320 me blocking Mike Reagan basically, yeah, exactly. But I'm excited 0:02:06.360 --> 0:02:08.960 to say our Zoom is working totally well now, so 0:02:09.000 --> 0:02:11.840 we're able to perform the podcast here in in uh 0:02:12.560 --> 0:02:15.560 HD video I suppose, and uh I see our guests 0:02:15.600 --> 0:02:17.639 are are ready to get at it, So why don't 0:02:17.680 --> 0:02:19.079 you why do you bring him in? Tell us a 0:02:19.080 --> 0:02:20.959 little bit about the guests this week. Yeah, I was 0:02:20.960 --> 0:02:24.160 going to say that our guests were definitely not blocking, 0:02:24.240 --> 0:02:28.079 And so I do want to introduce Oxana Aaronov. She's 0:02:28.120 --> 0:02:31.160 a head of market Strategy of Alternative fixed Income at 0:02:31.200 --> 0:02:34.600 JP Morgan Asset Management. And also we have James Crombie, 0:02:34.720 --> 0:02:38.200 Senior editor A Bloomberg, both joining us this week. Thanks 0:02:38.240 --> 0:02:42.000 so much for joining us, Thanks for having me ye Axanna, 0:02:42.040 --> 0:02:44.080 can we maybe just start with you and I just 0:02:44.600 --> 0:02:47.079 I read your title title out loud, but maybe you 0:02:47.120 --> 0:02:48.680 can just tell us a bit more about your role 0:02:48.720 --> 0:02:52.679 at Jippy Morgan and what you do. Sure, absolutely so. 0:02:52.960 --> 0:02:56.840 I am part of a platform that is focused pretty 0:02:56.880 --> 0:03:00.760 much exclusively on absolute return investing and fixed income, and 0:03:00.840 --> 0:03:02.919 to be honest with you, you know, I think that's 0:03:03.360 --> 0:03:05.520 even a little bit of a misnomer, if you will, 0:03:05.560 --> 0:03:09.320 because fixed income until certainly maybe the last ten years 0:03:09.400 --> 0:03:11.400 or so, when the Fed and other central banks got 0:03:11.520 --> 0:03:15.400 very very involved in bond markets. Um pixicon has always 0:03:15.400 --> 0:03:19.600 been thought by investors as an absolute return asset class. Right. 0:03:19.639 --> 0:03:22.079 This is where investors put money to sleep well at night. 0:03:22.440 --> 0:03:25.760 This is the diversification part of their portfolios versus equities. 0:03:26.760 --> 0:03:30.239 This is the stay wealthy part of their portfolios. And 0:03:30.360 --> 0:03:34.400 that's really you know, been somewhat diluted, if you will, 0:03:34.639 --> 0:03:37.520 and maybe even lost. Over the last ten years, fix 0:03:37.560 --> 0:03:40.000 income has become a get rich asset class. We have 0:03:40.120 --> 0:03:43.960 really tried to preserve this focus on capital preservation first 0:03:44.360 --> 0:03:46.960 and then with that, what's the best return I can 0:03:46.960 --> 0:03:50.760 deliver And of course that's really come into the spotlight 0:03:50.800 --> 0:03:53.320 over the last well year to date, I should say. 0:03:54.040 --> 0:03:56.880 And what that does in terms of our focus versus 0:03:56.920 --> 0:03:59.120 you know, the focus of more traditional fixed income teams 0:03:59.120 --> 0:04:03.280 out there, is that UM. We really look at any 0:04:03.280 --> 0:04:06.000 fixed income opportunity or any investment opportunity, I should say, 0:04:06.080 --> 0:04:08.960 from both a long and short standpoint. In other words, 0:04:09.240 --> 0:04:12.120 typically when you ask a fixed income investor whether they 0:04:12.160 --> 0:04:14.360 like an investment opportunity or not, they're going to look 0:04:14.360 --> 0:04:16.320 at the yield and they're going to sort of base 0:04:16.360 --> 0:04:18.160 their decision on that, So they're looking at it from 0:04:18.200 --> 0:04:21.680 a long only standpoint. We always look at UM sectors 0:04:21.680 --> 0:04:25.960 across fixed income UM as well as alternative investment opportunities 0:04:25.960 --> 0:04:28.960 and even in very select cases private market opportunities from 0:04:28.960 --> 0:04:32.640 the standpoint of is this compensating me for the risk 0:04:33.000 --> 0:04:34.800 that I'm taking on, in which case I want to 0:04:34.839 --> 0:04:37.039 be long? Is this fair value? In which case I 0:04:37.040 --> 0:04:38.839 probably don't want to be in this trade, or is 0:04:38.880 --> 0:04:41.400 this so overvalue that I actually may want to be 0:04:41.640 --> 0:04:44.800 short or used this as a hedge versus another kind 0:04:44.800 --> 0:04:47.440 of risk in my portfolio. So we do pull a 0:04:47.440 --> 0:04:50.000 lot of livers on this team in terms of having 0:04:50.040 --> 0:04:52.800 a lot of flexibility to deliver returns. But our goal 0:04:52.960 --> 0:04:56.880 always is to think like bond investors, and bond investors 0:04:56.880 --> 0:05:00.839 should absolutely always be focused on capital preservation and with 0:05:01.000 --> 0:05:03.040 that in mind, what's the best return I can deliver? 0:05:03.839 --> 0:05:07.400 And I do wanna talk about what returns are sort 0:05:07.400 --> 0:05:09.960 of attractive to you and where you're seeing value or 0:05:10.080 --> 0:05:13.159 not UM, But I think before we get into that um, 0:05:13.200 --> 0:05:17.440 the credit markets are are important, uh, even to investors 0:05:17.480 --> 0:05:19.760 in other asset classes. I think they're often looked at 0:05:19.760 --> 0:05:22.520 as a signal, sort of a macro signal of of 0:05:22.520 --> 0:05:25.159 where the economy is going and what that might mean 0:05:25.279 --> 0:05:30.200 for you know, markets large, you know, risk your assets especially, 0:05:30.680 --> 0:05:32.840 you know, and I'm looking at some of the signals 0:05:32.839 --> 0:05:35.440 and say, the treasury market, the break even five year 0:05:35.480 --> 0:05:38.320 break even rate is actually coming down pretty aggressively, so 0:05:38.760 --> 0:05:42.400 perhaps signaling that that inflation, that hot inflation that we've 0:05:42.440 --> 0:05:45.480 been experiencing all year um, at least in the bond markets. 0:05:45.560 --> 0:05:48.640 View might might be cooling off, but those spreads are 0:05:48.680 --> 0:05:53.279 are widening still, um, And I'm curious, you know, what 0:05:53.440 --> 0:05:56.640 does that signal to you? I mean, it doesn't seem 0:05:56.680 --> 0:05:59.119 like they've widened out to the to the point where 0:05:59.480 --> 0:06:02.600 spreads loan would be a sort of macro risk to 0:06:02.640 --> 0:06:06.360 the economy. But they were you know, elevated and and 0:06:06.360 --> 0:06:08.800 they don't really appear to be coming down at the moment. 0:06:08.880 --> 0:06:11.280 So what what is the signal there about the economy 0:06:11.320 --> 0:06:13.240 to you? I mean, is it is it, you know, 0:06:13.360 --> 0:06:16.200 as obvious as a recession is on the way, or 0:06:16.279 --> 0:06:19.640 is it is it more nuanced? Well, I'm going to 0:06:20.000 --> 0:06:22.520 probably zoom out a little bit and express a little 0:06:22.520 --> 0:06:26.479 bit of skepticism around the bond market stability to be 0:06:26.720 --> 0:06:29.919 that kind of you know, predictive force, because if that 0:06:30.000 --> 0:06:32.960 were the case, then um, you know, yields have been 0:06:33.440 --> 0:06:36.280 at lower and lower and a new record lows for 0:06:36.320 --> 0:06:39.440 so many years, indicating a recession. I guess then if 0:06:39.480 --> 0:06:42.000 we really believe in the indicative or in the predictive 0:06:42.000 --> 0:06:44.440 function I said, should say of the bond market, and 0:06:44.440 --> 0:06:47.000 that of course it's not materialized that we had a 0:06:47.040 --> 0:06:51.160 pretty dramatic dip around the pandemic, but that was a 0:06:51.240 --> 0:06:53.679 very esoteric event. Outside of that, we haven't really seen 0:06:53.720 --> 0:06:56.600 the kind of recession that the bond market would have 0:06:56.640 --> 0:06:59.640 been predicting at these record low yields every year um so, 0:06:59.760 --> 0:07:02.080 and of course has to do with just the tremendous 0:07:02.120 --> 0:07:04.279 amount of meddling by central banks. So so, I think 0:07:04.320 --> 0:07:08.320 that has frankly, frankly distorted UM the bond markets ability 0:07:08.400 --> 0:07:11.960 to be that predictive or forecasting mechanism. Having said that, 0:07:12.520 --> 0:07:16.160 certainly we're seeing, um, you know, a leveling off of investment, 0:07:16.520 --> 0:07:21.120 not investment, of inflation expectations certainly around you know, the 0:07:21.240 --> 0:07:24.440 ten year break events have kind of stuck around in 0:07:24.480 --> 0:07:27.400 the mid twos, but you are seeing them climb up 0:07:27.760 --> 0:07:30.960 UM with respect to two year and five year break 0:07:31.040 --> 0:07:34.600 events and inflation expectations there are continuing to kind of 0:07:34.640 --> 0:07:37.240 tick up or remain elevated. In fact, the two year 0:07:37.280 --> 0:07:39.880 part of the curve, we still do not have a 0:07:39.880 --> 0:07:42.640 positive real return, right and that's, by the way, something 0:07:42.680 --> 0:07:45.080 that Powell and the Fed are very much focused on. 0:07:45.560 --> 0:07:47.520 But taking a step away from that for a second 0:07:47.560 --> 0:07:51.160 to talk about the spreads. But you asked about So, yes, 0:07:51.200 --> 0:07:54.000 we have seen, we have seen some spread widening. But 0:07:54.160 --> 0:07:58.120 to put it in perspective, we, uh, the last time 0:07:58.200 --> 0:08:01.280 we had a hiking cycle and a tiny bit of 0:08:01.280 --> 0:08:04.440 inflation was of course, the two thousand fifteen two thousand 0:08:04.520 --> 0:08:07.680 eteen hiking cycle UM, and we had inflation of like 0:08:07.800 --> 0:08:11.920 barely about two percent maybe, and the unemployment rate was 0:08:12.000 --> 0:08:15.360 higher UM and the cycling higgle, the hiking cycle was 0:08:15.400 --> 0:08:18.000 incredibly benign, right, I think we would all agree, And 0:08:18.120 --> 0:08:21.280 yet we still saw highield spreads for one go into 0:08:21.560 --> 0:08:25.560 the mid fives and we are barely crossing that threshold 0:08:25.680 --> 0:08:29.720 now with inflation at a four decade high, and no 0:08:29.760 --> 0:08:31.760 one can really tell you whether it is in fact 0:08:31.800 --> 0:08:36.160 moderating or it will continue to tick up and unemployment 0:08:36.240 --> 0:08:39.160 rates significantly below where we are doing the during the 0:08:39.240 --> 0:08:42.640 last much more benign hiking cycle. So I think that 0:08:42.720 --> 0:08:45.800 you know to call this UM certainly uh, you know, 0:08:46.080 --> 0:08:49.080 an opportunity to get invested, To call this a bargain 0:08:49.120 --> 0:08:52.000 from a spread standpoint, I think we're far from that, 0:08:52.080 --> 0:08:54.200 and we can talk more about you know, what would 0:08:54.240 --> 0:08:56.800 make this a bargain? What what needs to be reflected 0:08:56.800 --> 0:08:59.520 in the price but at this point, all the carnage 0:08:59.559 --> 0:09:01.360 we've seen in the bond markets, whether it's in the 0:09:01.440 --> 0:09:03.600 interest rate sensitive part of it or in the less 0:09:03.600 --> 0:09:06.679 interest rate sensitive part, Like how you, it's all been 0:09:06.800 --> 0:09:10.640 interest rate driven, very very little of it has actually 0:09:10.679 --> 0:09:13.880 been spread or credit risk driven, and we need to 0:09:13.920 --> 0:09:20.079 see that punch in order to start to talk about opportunities. James, 0:09:20.160 --> 0:09:24.160 I know you talked to a lot of investors um 0:09:24.280 --> 0:09:27.120 is ox on his view sort of the consensus is 0:09:27.160 --> 0:09:30.600 there is there sort of a you know, a counter 0:09:30.840 --> 0:09:33.600 argument to be made that you know, maybe spreads are 0:09:33.679 --> 0:09:36.960 due to come in. Well, there's no doubt that the 0:09:36.960 --> 0:09:42.040 performances he has been terrible. Um we're down yesterday on 0:09:42.240 --> 0:09:44.880 junk bonds, which has never happened before. You know, we've 0:09:44.880 --> 0:09:48.120 got records going about forty years UM and we've never 0:09:48.160 --> 0:09:51.600 seen such terrible returns. We've never been double digit returns 0:09:51.640 --> 0:09:54.880 by the time in the year. So you know, definitely 0:09:54.920 --> 0:09:57.000 it looks pretty scary out there. And I agree that 0:09:57.120 --> 0:10:00.400 if we slip into recession, then you know, the potential 0:10:00.440 --> 0:10:03.599 for defaults and principal loss and all the things that 0:10:04.080 --> 0:10:07.880 keep h fix income investors up at night worrying are 0:10:07.920 --> 0:10:10.000 going to be upon us. And you know, as as 0:10:10.080 --> 0:10:12.040 Oxana says, you know, spreads could go a lot wider 0:10:12.160 --> 0:10:15.200 get into recession based on history, but also default rates, 0:10:15.240 --> 0:10:18.360 but easily go into the double digits um if we 0:10:18.480 --> 0:10:20.800 get into a recession as well. So you know, there's 0:10:20.800 --> 0:10:23.400 a lot of worrying stuff out there and there is 0:10:23.440 --> 0:10:26.719 more distress um. But you know, you could also say 0:10:26.760 --> 0:10:28.920 that we're in much better shape than we were even 0:10:29.679 --> 0:10:32.439 a couple of years ago. Companies have taken advantage of 0:10:32.480 --> 0:10:36.599 the sheep out there too to turn out their maturities, 0:10:36.640 --> 0:10:38.360 you know, to push those into the future, so they 0:10:38.360 --> 0:10:42.360 don't really have much of an immediate worry in terms 0:10:42.360 --> 0:10:45.520 of you know, big payments coming due on their debt um. 0:10:45.559 --> 0:10:47.160 You know, at the same time, earnings have held up, 0:10:47.160 --> 0:10:50.280 so they've got cash. Particularly the investment grade companies, they've 0:10:50.280 --> 0:10:52.280 got a ton of cash on their balance sheets. They're 0:10:52.320 --> 0:10:55.880 buying back stuff, They're going to probably buy back bonds. Um. 0:10:56.000 --> 0:10:58.640 Credit ratings. You know, Oxana might have a view on 0:10:58.800 --> 0:11:03.360 whether they are good accurate predictus or not, but they're 0:11:03.400 --> 0:11:05.240 much higher now than they were in the past. You know, 0:11:05.240 --> 0:11:07.920 there's any about ten of the market that triples see now, 0:11:08.280 --> 0:11:10.640 which is the lowest rated stuff. So you know, really 0:11:10.679 --> 0:11:13.160 you could you could argue that there is no real stress, 0:11:13.160 --> 0:11:16.280 there's no rollover risk. Um. You know, of course we're 0:11:16.320 --> 0:11:18.440 going to lose some zombie companies along the way. They 0:11:18.520 --> 0:11:20.640 may blow up, but who cares about them? You know, 0:11:20.679 --> 0:11:22.760 they probably should have died a long time ago. You know, 0:11:22.880 --> 0:11:24.760 you might you might just say it's different this time, 0:11:25.480 --> 0:11:28.400 and that's been definitely a very popular view. And look, 0:11:28.440 --> 0:11:31.080 the reality is that the HIGHLD market and we and 0:11:31.080 --> 0:11:33.080 we talked about the HILD market because of course those 0:11:33.080 --> 0:11:35.679 are some of the best opportunities that tend to materialize 0:11:35.760 --> 0:11:38.320 out of the stress that we're seeing right um. And 0:11:38.360 --> 0:11:41.120 also it's a it's an interesting kind of harbinger, if 0:11:41.120 --> 0:11:43.880 you will. That's where stresses tend to appear first, and 0:11:43.920 --> 0:11:47.000 so it's an important part of the market to to consider. 0:11:47.280 --> 0:11:50.480 But it's also a relatively young market, right Hi. You'd 0:11:50.559 --> 0:11:55.480 really didn't exist at the current size and technicals until 0:11:55.640 --> 0:11:58.400 really well into the two thousand's, and the last time 0:11:58.440 --> 0:12:02.560 we had inflation even above you know slightly four was 0:12:03.400 --> 0:12:05.160 in the very early two thousands and it was a 0:12:05.240 --> 0:12:07.560 very different high old market back then. So we really 0:12:07.559 --> 0:12:10.080 don't have a ton of history to go on. You 0:12:10.080 --> 0:12:12.360 know that that corresponds to what we're going through now, 0:12:12.400 --> 0:12:18.600 which is essentially the FED hiking into a decelerating earnings environment. Right. 0:12:18.640 --> 0:12:22.640 We went from the FED hiking into um economy strength 0:12:23.000 --> 0:12:25.520 and strong earnings into now the FED is is hiking 0:12:25.559 --> 0:12:29.840 into a decelerating earnings environment. And what we know, or 0:12:29.880 --> 0:12:33.080 what we can say about a decelerating earnings environment that 0:12:33.200 --> 0:12:36.240 is also inflationary for the time being, is that profit 0:12:36.320 --> 0:12:39.199 margins are going to be squeezed because and particularly for 0:12:39.280 --> 0:12:42.520 high elituors which tympically do not have the pricing power 0:12:42.880 --> 0:12:46.760 and cannot necessarily offset their costs accordingly, and so their 0:12:46.800 --> 0:12:50.000 profit margins will be squeezed. And yes, exactly as you said, 0:12:50.960 --> 0:12:52.760 you're going to see some amount of these or all 0:12:52.840 --> 0:12:55.400 these zombie companies, a lot of which are lower rated, 0:12:55.440 --> 0:12:57.760 so you know, low beds or even triple seeds, and 0:12:57.840 --> 0:13:01.360 roughly ten anywhere between ten and of this market, by 0:13:01.360 --> 0:13:04.960 the ways, estimated to be zombie UM companies. They could 0:13:05.080 --> 0:13:07.560 sort of disappear, and you're right, no one should care 0:13:07.600 --> 0:13:10.040 about them. They shouldn't probably exist to begin with. But 0:13:10.080 --> 0:13:14.160 the reality is that when cracks like that appear in 0:13:14.280 --> 0:13:17.400 one part of the market, it tends to reverberate to 0:13:17.520 --> 0:13:19.640 the rest of the market. And an example I always 0:13:19.720 --> 0:13:25.280 like to give is where you have legitimate, very serious, 0:13:25.360 --> 0:13:29.160 fundamental issues in energy, but you have the entire high 0:13:29.200 --> 0:13:33.120 old sector completely repriced, even though you had no fundamental 0:13:33.200 --> 0:13:36.600 stress in technology and healthcare and gaming and lesion and 0:13:36.640 --> 0:13:39.199 a bunch of other sectors. It was all energy driven, 0:13:39.360 --> 0:13:42.640 but the entire market went to almost a thousand over 0:13:43.120 --> 0:13:45.960 And the last thing I will say on kind of 0:13:46.000 --> 0:13:48.880 descry to you know, let's get invested now, is again, 0:13:48.920 --> 0:13:50.880 we don't know what the future will bring, but it 0:13:50.960 --> 0:13:53.600 is fair to talk about the fact that liquidity will 0:13:53.640 --> 0:13:57.000 be reduced with the FED kind of removing itself, and 0:13:57.160 --> 0:14:00.440 broader market liquidity is very different today with the south 0:14:00.480 --> 0:14:03.160 side no longer playing the shock absorber that they used 0:14:03.200 --> 0:14:06.520 to be. It's also fair to um to say that, look, 0:14:07.200 --> 0:14:09.760 markets have to grapple with this kind of squeeze to 0:14:09.760 --> 0:14:13.720 to profit margins. But from a purely kind of quantitative standpoint, 0:14:13.800 --> 0:14:17.000 right the higher market right now is running at a 0:14:17.040 --> 0:14:20.000 spread duration of four point two roughly, and what that 0:14:20.040 --> 0:14:22.640 tells us is that it will take less than two 0:14:22.760 --> 0:14:26.000 hundred basis points of widening to wipe out that very 0:14:26.080 --> 0:14:29.240 juicy eight percent yield that everyone is salvating over now. 0:14:29.440 --> 0:14:32.640 And two hundred basis points or high, let me tell you, 0:14:33.160 --> 0:14:36.360 is not a lot. It can happen very very quickly. 0:14:36.800 --> 0:14:40.480 And so right now, with defaults at one percent, I 0:14:40.520 --> 0:14:43.160 think it is absolutely reasonable to expect them to go 0:14:43.360 --> 0:14:46.080 to long term averages of three and a half percent, 0:14:46.160 --> 0:14:49.400 if not through that average, and we haven't seen that yet. 0:14:49.440 --> 0:14:51.720 And it is when we start to see that reflected 0:14:51.880 --> 0:14:56.000 in the spreads that's really when those bargains are going 0:14:56.040 --> 0:14:58.160 to start to appear. I think it is way too 0:14:58.160 --> 0:15:02.240 early to talk about them now. So as a follow 0:15:02.360 --> 0:15:07.600 the last time we were in this mess much the 0:15:07.680 --> 0:15:10.520 FED came in and save the day, and that was 0:15:10.560 --> 0:15:13.040 a huge trade for a lot of people. Um, what 0:15:13.160 --> 0:15:15.920 are the chances that I don't extend to say the 0:15:15.960 --> 0:15:17.400 day again, but what are the chances they might just 0:15:17.440 --> 0:15:20.040 take the foot off the accelerator and help people out. 0:15:20.800 --> 0:15:23.520 Really important to talk about this because I think a 0:15:23.560 --> 0:15:26.680 lot of investors are treating this as yet another kind 0:15:26.680 --> 0:15:29.280 of blip in the mean reversion that the feed is 0:15:29.400 --> 0:15:33.040 engineered for close to fifteen years now, right. But the 0:15:33.120 --> 0:15:36.240 reality is that even in the pandemic, in the worst 0:15:36.280 --> 0:15:39.960 part of the FED got involved because you had blue 0:15:40.080 --> 0:15:46.120 chip companies truly struggle and unemployment soaring because they were 0:15:46.480 --> 0:15:49.800 laying off so many people, and so their involvement really 0:15:49.880 --> 0:15:54.800 was about supporting well capitalized, strong companies that fell on 0:15:54.880 --> 0:15:59.640 hard times because of a completely exogenous factor. You may 0:15:59.680 --> 0:16:03.240 re all that when one of the best programs included 0:16:03.280 --> 0:16:06.880 buying hid a t S how was met with very 0:16:06.920 --> 0:16:12.480 stringent questioning in Congress and there that ceased very quickly, 0:16:12.760 --> 0:16:14.840 but the market overall kind of took a cue that 0:16:14.840 --> 0:16:17.080 looked the FETE is. Therefore, we're in a very different 0:16:17.120 --> 0:16:21.200 environment today. The FETE has zero appetite to support you know, 0:16:21.240 --> 0:16:24.240 certainly the zombie companies, much less the rest of jun 0:16:24.280 --> 0:16:27.760 graded universe and credit. And really I think that the 0:16:27.800 --> 0:16:30.840 threshold for the FED to get involved is two fold. 0:16:31.280 --> 0:16:34.080 They will continue to choose inflation over growth. First of all, 0:16:34.120 --> 0:16:36.360 because they have no choice. They need to clam down 0:16:36.360 --> 0:16:39.560 on this inflation. It is the most regressive tax there is, 0:16:40.120 --> 0:16:42.040 and they do not want to find themselves in kind 0:16:42.040 --> 0:16:44.240 of the political corsairs. And I think Powell has made 0:16:44.240 --> 0:16:46.800 it very clear that it is important to him to 0:16:46.960 --> 0:16:49.280 him to go down in history as the person who 0:16:49.320 --> 0:16:52.600 contained inflation. So they will continue to choose inflation over 0:16:52.680 --> 0:16:56.440 growth as long as inflation remains an elevated problem. And 0:16:56.480 --> 0:16:58.800 the second thing is, I do not think they get 0:16:58.840 --> 0:17:01.200 involved in terms of any kind of support to the 0:17:01.240 --> 0:17:06.320 market until we see investment grades spreads go way north 0:17:06.359 --> 0:17:09.200 of two hundreds and right now we're roughly at one fifty. 0:17:09.800 --> 0:17:12.000 You know, we've been in the past and very serious, 0:17:12.000 --> 0:17:14.359 you know, like Great Financial Crisis invest from great spreads 0:17:14.359 --> 0:17:18.240 got closed as close to six hundred over. You do 0:17:18.280 --> 0:17:20.919 not think the FED gets involved until you know investment 0:17:20.920 --> 0:17:24.600 grade spreads probably start to push three hundred um. The 0:17:24.600 --> 0:17:26.879 FED is likely not getting involved at all as long 0:17:26.920 --> 0:17:30.000 as inflation continues to be the problem because the very thing, 0:17:30.080 --> 0:17:32.520 the only tool available to the FED is to tighten 0:17:32.600 --> 0:17:37.520 financial conditions, and by definition, tighter financial conditions mean less 0:17:37.520 --> 0:17:41.360 access to capital, mean and accelerated default rate. Right, all 0:17:41.400 --> 0:17:43.880 of these things that we as investors, or at least 0:17:43.880 --> 0:17:46.679 that you know equity investors bread, this is what the 0:17:46.680 --> 0:17:48.960 FED is trying to engineer. It's the only tool they 0:17:49.000 --> 0:17:53.040 have available to them. It's a blunt tool. So unfortunately, 0:17:53.400 --> 0:18:02.520 the fed foot is really not here for investors. So 0:18:02.560 --> 0:18:05.639 then the problem realized at the bottom end of the market. 0:18:06.000 --> 0:18:10.639 The junkie is risky, is most indebted companies that are 0:18:10.680 --> 0:18:13.560 probably having trouble with earnings the way the economy is changing, 0:18:13.560 --> 0:18:18.280 maybe their consumer related companies. But um, do we really 0:18:18.280 --> 0:18:20.919 care beyond that? I mean, is there a contagion effect? 0:18:20.960 --> 0:18:23.760 Is there a broader impact of of you know, that 0:18:23.880 --> 0:18:28.440 small part of the market blowing up? Absolutely, So it's 0:18:28.480 --> 0:18:30.800 not really just about that small part of the market. 0:18:30.840 --> 0:18:32.960 It's about the fact that the market will start to 0:18:33.040 --> 0:18:35.639 price in, and it hasn't yet, but we'll start to 0:18:35.760 --> 0:18:38.760 price in. What does it mean, um, that you know, 0:18:38.800 --> 0:18:41.880 the default rate moves towards an average of the historic 0:18:41.920 --> 0:18:44.040 average of three and a half percent. What does it 0:18:44.119 --> 0:18:46.800 mean that, you know, companies do not have access to 0:18:46.880 --> 0:18:49.800 cheat capital anymore? What does it mean that their profit 0:18:49.880 --> 0:18:53.280 margins are squeezed? You know, very little of that is 0:18:53.320 --> 0:18:56.040 actually in the price We're starting to see it, you know, 0:18:56.400 --> 0:18:58.400 kind of come into a spread and and and push 0:18:58.480 --> 0:19:01.840 spreads wider. But as the market reckons with this reality. 0:19:02.040 --> 0:19:03.720 You know, one of the things that I always hear 0:19:03.720 --> 0:19:05.320 about is, Oh, you know how you'll doesn't have a 0:19:05.359 --> 0:19:08.480 maturity wall that's imminent, right, this normantu like the next 0:19:08.560 --> 0:19:14.359 huge maturity wall is and thereafter. But the reality markets 0:19:14.359 --> 0:19:16.840 don't work like that, right, My markets don't wait for 0:19:16.880 --> 0:19:19.280 an event. Markets price in an event. And so if 0:19:19.320 --> 0:19:22.159 the market believes that a lot of these companies are 0:19:22.160 --> 0:19:27.080 going to have difficulty tapping UM capital markets to refinance themselves, 0:19:27.119 --> 0:19:30.200 that's going to come into prices way before that maturity 0:19:30.200 --> 0:19:35.000 will materializes. So you can have almost like recessionary pricing 0:19:35.119 --> 0:19:38.359 even without an actual recession, without actually you know, double 0:19:38.400 --> 0:19:41.359 digit defaults if you will UM. It's all sort of 0:19:41.400 --> 0:19:45.320 about expectations. And if expectations around recession and around a 0:19:45.359 --> 0:19:48.120 slowdown continue to build, you're going to continue to see 0:19:48.160 --> 0:19:51.920 spread widening. And as spread winding continues, what happens investors 0:19:51.960 --> 0:19:55.800 yank their money. So much of high old exposure is 0:19:55.840 --> 0:19:59.720 in mutual funds and ETFs, right, all of these instantaneously 0:19:59.760 --> 0:20:04.000 look with instruments, and as spreads widen, investors continue to 0:20:04.040 --> 0:20:07.560 yank their money. So selling begets more selling, pressure begets 0:20:07.640 --> 0:20:10.840 more pressure. Remember, you don't have the same liquidity underpinnings 0:20:10.840 --> 0:20:13.000 in this market that you used to UM. The cell 0:20:13.040 --> 0:20:15.200 side is not there to take these bonds off your hands. 0:20:15.200 --> 0:20:18.840 So price discovery becomes very, very violent. We've seen it 0:20:18.880 --> 0:20:22.440 all before and it's going to happen again. Is there 0:20:22.480 --> 0:20:25.080 a clear trigger on the horizon and is it earnings? 0:20:25.080 --> 0:20:27.200 Is that margins? Is it something else to do with 0:20:27.240 --> 0:20:29.719 the bed and what what really is on the horizon 0:20:29.720 --> 0:20:33.399 that could tip this over? And that's really the question 0:20:33.440 --> 0:20:35.440 I think on everyone's minds is sort of what is 0:20:35.480 --> 0:20:40.680 that capitulation tipping point right? And and we never can 0:20:40.880 --> 0:20:43.399 estimate or predict what that is. There's not been a 0:20:43.440 --> 0:20:47.040 single sort of point in past UM cycles, you know, 0:20:47.359 --> 0:20:49.399 or the part of the cycle where something breaks that 0:20:49.440 --> 0:20:51.360 you could kind of look forward and say, look, this 0:20:51.440 --> 0:20:53.400 is what it's going to be. So I don't think 0:20:53.400 --> 0:20:56.000 we're going to be able to predict it, but I 0:20:56.040 --> 0:21:01.159 think all of the components are certainly there, and the 0:21:01.200 --> 0:21:04.080 components being that it's just simply not reflected in the 0:21:04.160 --> 0:21:08.320 price yet UM And as it starts to you're gonna 0:21:08.359 --> 0:21:10.960 see reevaluation in terms of you know, do I really 0:21:10.960 --> 0:21:13.280 want this in my portfolio? I thought i'd be because 0:21:13.280 --> 0:21:15.280 remember a lot of people did get into high yeld 0:21:15.320 --> 0:21:17.840 at five percent or six percent, and now they're seeing 0:21:17.840 --> 0:21:22.480 nothing but losses. And this sort of entire generational investors. 0:21:22.480 --> 0:21:25.200 You know, if we were to get into investor psychology here, UM, 0:21:25.240 --> 0:21:27.879 this entire generation of investors is not really see the 0:21:27.920 --> 0:21:31.400 market that's been continuously challenging for a prolonged period of time. 0:21:31.760 --> 0:21:38.080 So UM, I think that anything can become that tipping point. 0:21:37.840 --> 0:21:42.600 But we haven't even touched on the geopolitical um tensions obviously, 0:21:42.680 --> 0:21:46.440 but something that sends the oil prices even higher. Oil 0:21:46.480 --> 0:21:49.439 prices have seen a reprieved recently. UM. It could be 0:21:49.560 --> 0:21:52.879 any number of things, but certainly you have the makings 0:21:53.080 --> 0:21:56.840 of this sort of capitulation, and we need to see 0:21:56.840 --> 0:22:00.560 that capitulation for our mandate to start to get aggressive 0:22:00.960 --> 0:22:03.440 and start to get invested in this market. And one 0:22:03.440 --> 0:22:06.040 other point I would like to make is that when 0:22:06.080 --> 0:22:08.639 you look at you know, if we use the nineteen 0:22:08.680 --> 0:22:11.119 eighties kind of on the bat or in nine seventies 0:22:11.119 --> 0:22:14.760 and early nineteen eighties UM as a sort of parallel 0:22:14.800 --> 0:22:16.760 to the investment environment that we're in right now in 0:22:16.840 --> 0:22:19.480 terms of the high inflation, UM, you can see that 0:22:20.200 --> 0:22:24.760 assets generally struggled, particularly on a real return basis right, 0:22:24.760 --> 0:22:27.080 It was a struggle to generate a positive real return 0:22:27.680 --> 0:22:31.280 and it will probably be you know, maybe somewhat similar 0:22:31.320 --> 0:22:35.440 this time around. So getting in at the right price 0:22:35.840 --> 0:22:39.560 is really important. Buying that you know, bond at a 0:22:39.600 --> 0:22:44.080 bargain price is really important. That's really maybe the difference 0:22:44.160 --> 0:22:47.919 between generating that positive long term real return and not. 0:22:49.440 --> 0:22:52.320 Just to talk to Mike's point about, you know, if 0:22:52.320 --> 0:22:54.800 you're not in these markets all day long from a 0:22:54.840 --> 0:22:58.520 cross assets white, why should you care about what's going 0:22:58.520 --> 0:23:01.080 on in credit right now? Why should you care about 0:23:01.160 --> 0:23:03.399 what's going on in credit right now? I mean, it's 0:23:03.480 --> 0:23:09.000 the backbone of everything that goes on in great question 0:23:09.080 --> 0:23:12.159 from a credit markets journalist, James, I gotta say, but 0:23:13.520 --> 0:23:15.400 that's a question a dumb guy like me should ask. 0:23:15.440 --> 0:23:17.960 But I appreciate it. I allow you for taking that 0:23:18.000 --> 0:23:21.600 bullet for me. Okay. So I mean, look, it's it's 0:23:21.600 --> 0:23:26.320 really the backbone of everything, all kind of risk taking, right, 0:23:26.359 --> 0:23:29.280 And it's the it's it's the sentiment of the investor, 0:23:29.359 --> 0:23:31.760 because if credit markets start to fall out of bed, 0:23:32.400 --> 0:23:35.280 it's certainly not going to be positive for equity markets. 0:23:35.400 --> 0:23:40.480 Right as the cost of capital rises, generally um, that 0:23:40.640 --> 0:23:43.280 is going to have dramatic impact on earnings. I mean, 0:23:43.359 --> 0:23:47.119 that's the kind of the direct mechanism that translates into, 0:23:47.160 --> 0:23:50.520 of course, your equity investment experience. So without a doubt, 0:23:50.520 --> 0:23:54.120 what happens in credit is incredibly important to the rest 0:23:54.119 --> 0:23:57.440 of the market. Well, you know what Oxon is, Sometimes 0:23:57.440 --> 0:24:00.880 a credit market stress can be so cute and so 0:24:00.960 --> 0:24:04.720 dangerous that it actually does either tip the economy into 0:24:04.800 --> 0:24:08.720 recession or perhaps exacerbate a recession. I sort of get 0:24:08.720 --> 0:24:11.520 the impression right now, though, that corporate balance sheets are 0:24:11.600 --> 0:24:15.120 are healthy enough that we don't necessarily have to really 0:24:15.160 --> 0:24:17.040 worry about either one of those issues. If we do 0:24:17.080 --> 0:24:21.040 get a recession, the effect on the from the credit 0:24:21.080 --> 0:24:23.640 markets might not be enough to really worsen it too bad. 0:24:23.720 --> 0:24:25.679 Is that? Is that too optimistic? Do you think? I 0:24:25.680 --> 0:24:28.800 think it's absolutely fair to say that corporate balance sheets 0:24:28.840 --> 0:24:31.240 are coming into this in as good a shape as 0:24:31.280 --> 0:24:34.760 we could probably desire, at least on the you know, 0:24:34.800 --> 0:24:37.719 somewhat higher, higher quality side of the credit market, right 0:24:37.720 --> 0:24:39.720 if we kind of leave those zombies and those really 0:24:39.760 --> 0:24:42.840 really um john Kie companies out of it. Yes, I 0:24:42.880 --> 0:24:45.560 think corporate balance sheets are are generally in good shape, 0:24:45.560 --> 0:24:48.520 and I think they're that you know, spreads are reflecting that, 0:24:48.640 --> 0:24:50.359 and that's really good. It goes back to what's in 0:24:50.400 --> 0:24:54.800 the price UM. But the the reality is that you 0:24:54.880 --> 0:25:00.159 can have recessionary pricing without an actual recession, and we've 0:25:00.200 --> 0:25:03.320 seen it happened time and time again. UM. And the 0:25:03.400 --> 0:25:06.919 other thing too is you can have UM stress and 0:25:07.080 --> 0:25:11.199 credit market exactly as you said, without necessarily a recession 0:25:11.320 --> 0:25:14.640 too in the broader economy. Right, So these two things, 0:25:14.760 --> 0:25:19.480 just like we've had strong financial markets UM and ascid 0:25:19.520 --> 0:25:24.280 appreciation even through periods of so so economic underpinnings right 0:25:24.320 --> 0:25:26.879 over the last twelve years, UM, we can now have 0:25:26.960 --> 0:25:29.880 the reverse. We can have you know, very anemic asset 0:25:29.920 --> 0:25:33.040 returns and asset growth against a backdrop of an okay 0:25:33.320 --> 0:25:38.320 UM economy. So UM one doesn't necessarily cause the other. 0:25:38.760 --> 0:25:42.800 I think that given that valuations are UM, you know, 0:25:42.880 --> 0:25:46.439 pretty strong, and we're we started this episode of you know, 0:25:46.480 --> 0:25:50.360 the hiking cycle and quantitative tightening which is now beginning 0:25:50.440 --> 0:25:52.880 and inflation. We started all of this. We came into 0:25:52.880 --> 0:25:57.320 all of this with elevated valuations and so it's unfortunately, 0:25:57.320 --> 0:26:01.800 it's it's going to be difficult to UM reset or 0:26:01.800 --> 0:26:04.600 it's going to take time to reset so that we 0:26:04.600 --> 0:26:08.679 can start earning those outsized returns. Everyone has gotten so 0:26:08.840 --> 0:26:11.040 used to UM. But certainly I agree with you. I 0:26:11.080 --> 0:26:15.280 think corporate balance sheets are are relatively in decent shape UM. 0:26:15.400 --> 0:26:19.040 But again, that pressure on profit margins will continue to 0:26:19.160 --> 0:26:22.480 drive spreads wider because it just needs to be reflected 0:26:22.520 --> 0:26:24.479 in the price, and at this point it is not. 0:26:25.720 --> 0:26:27.479 So what's the trade here then, A stand? I mean, 0:26:27.480 --> 0:26:29.639 we've talked in the past about going into cash, but 0:26:29.760 --> 0:26:32.760 in tempers and inflation environment, you're losing money on that cash. 0:26:32.800 --> 0:26:35.800 So what do you do? So I've been hearing about 0:26:36.000 --> 0:26:39.800 investors losing money on sitting in cash and that cash 0:26:39.880 --> 0:26:41.880 is trash for as long as I've been in this industry. 0:26:41.880 --> 0:26:44.240 But the reality is that if you have been in 0:26:44.320 --> 0:26:48.080 cash for the last you know, five years, you've essentially 0:26:48.080 --> 0:26:52.880 outperformed the Barkley the Bloomberg excuse me, Barkley's aggregate index 0:26:53.440 --> 0:26:56.199 UM over the year today, one year, three year, and 0:26:56.200 --> 0:26:59.040 depending on the day, yes, even five years and now 0:26:59.119 --> 0:27:02.720 to three years. That's a positive return versus a negative return. 0:27:03.119 --> 0:27:05.560 So I think that we have to sort of dispense 0:27:05.600 --> 0:27:08.480 with these absolutes and really think about it. This is 0:27:08.520 --> 0:27:11.080 like one of the craziest things to me, frankly, about 0:27:11.240 --> 0:27:16.400 how our industry functions. Because in fixed income you absolutely 0:27:16.560 --> 0:27:21.720 have very identifiable tops. When the tenure was at fifty 0:27:21.760 --> 0:27:25.560 basis point, it had nowhere to go but up. So 0:27:25.680 --> 0:27:29.280 why are we not, like, why aren't there wide splayer spread, 0:27:29.359 --> 0:27:32.560 you know, alarm bells um sounding off about this? Did 0:27:32.560 --> 0:27:36.080 you do you remember hearing that? No, that the rhetoric 0:27:36.240 --> 0:27:38.800 was the same cash it's trash and you should be invested, 0:27:38.880 --> 0:27:41.159 and because something else you yield more than treasury, you 0:27:41.200 --> 0:27:44.120 should buy that even though you know valuations there were 0:27:44.200 --> 0:27:46.960 equally over priced. So I think that instead of resorting 0:27:47.000 --> 0:27:49.440 to these absolutes, we have to really think about what's 0:27:49.480 --> 0:27:53.679 priced in and we have to think about Yes, inflation 0:27:53.840 --> 0:27:56.720 right now is a serious problem. And yes, you are 0:27:56.760 --> 0:28:00.160 earning eight percent in high yield versus you know, still 0:28:00.400 --> 0:28:05.600 significantly less in cash. But what is your price appreciation 0:28:05.800 --> 0:28:10.600 or what is your capital preservation potential? Right? And which 0:28:10.640 --> 0:28:12.920 of those are most important to you? Because maybe they're 0:28:12.920 --> 0:28:15.360 not important to you, but again to us, as absolute 0:28:15.400 --> 0:28:19.399 return investors, we focus on capital preservation first. And so 0:28:19.560 --> 0:28:22.359 given all of the push and pull forces in the 0:28:22.400 --> 0:28:24.480 markets today, we look at it and say, look, we 0:28:24.520 --> 0:28:27.440 think that the risks are skewed to the downside. So 0:28:27.480 --> 0:28:31.080 we prefer to have a lot of liquidity in our 0:28:31.119 --> 0:28:34.360 portfolio because right now it serves as a free option 0:28:34.520 --> 0:28:37.760 essentially on as any class in the world, and we 0:28:37.840 --> 0:28:40.480 think that the opportunities that will continue to get better 0:28:41.520 --> 0:28:45.520 on balanced, just like it has for the entire you know, 0:28:45.680 --> 0:28:48.280 six months of this year, and we've been hearing people 0:28:48.320 --> 0:28:51.600 about getting invested in January and February and March and 0:28:51.680 --> 0:28:54.120 in April, and it continues to get better, and we 0:28:54.160 --> 0:28:56.560 think that spreads will continue to go wider. So for 0:28:56.680 --> 0:28:59.680 us right now, again it's absolute return investors that are 0:29:00.120 --> 0:29:05.000 trying to manage and outperform cash irrespective of whether the 0:29:05.120 --> 0:29:08.200 regime is a benevolent one for bonds or not. Right 0:29:08.200 --> 0:29:12.040 we're not investing versus a market risk driven benchmark. We're 0:29:12.040 --> 0:29:16.360 investing versus capital preservation essentially, and so for us, we 0:29:16.400 --> 0:29:20.080 believe that a focus on capital preservation continues to be warranted, 0:29:20.360 --> 0:29:23.959 and we prefer to being very liquid structures at this 0:29:24.000 --> 0:29:28.200 point in a combination of liquidity, high quality floating rate 0:29:28.640 --> 0:29:31.440 to continue to like that trade and really for us, 0:29:31.520 --> 0:29:34.240 this is still a capital preservation part of the cycle, 0:29:34.280 --> 0:29:36.120 although I think we're closer to the end of it 0:29:36.160 --> 0:29:38.640 than we were a couple of months ago, and you know, 0:29:38.720 --> 0:29:40.680 probably in the next month or two, we're going to 0:29:40.800 --> 0:29:44.600 start to transition into the start to get aggressive, start 0:29:44.680 --> 0:29:48.040 to go after those returns part of the cycle UM 0:29:48.080 --> 0:29:50.560 as we see spreads widen and some of these more 0:29:50.600 --> 0:29:54.200 barish expectations get reflected in the price. But at this point, 0:29:54.440 --> 0:29:56.920 absolutely we think that capital preservation is still the name 0:29:56.920 --> 0:30:01.280 of the game. Why not in this environment by apple 0:30:01.360 --> 0:30:06.640 bonds for training at thirty points discounts to you know, 0:30:06.640 --> 0:30:08.800 there's someone very long dated obviously, but why not go 0:30:08.920 --> 0:30:15.160 into very high rated investment rate, very cheap bonds. So 0:30:15.240 --> 0:30:19.040 we don't have a problem with someone doing that if 0:30:19.080 --> 0:30:23.840 they're doing it in a portfolio that is ladder. Generally, 0:30:23.880 --> 0:30:27.360 I think that you know, right now a portfolio there 0:30:27.440 --> 0:30:30.720 is a ladder portfolio is an approach that we don't 0:30:30.720 --> 0:30:32.480 really have a ton of problem with. I think where 0:30:32.520 --> 0:30:35.880 investors are going to UM struggle is, you know, frankly, 0:30:35.960 --> 0:30:40.080 mutual funds, because mutual funds have a UM perpetual maturity 0:30:40.360 --> 0:30:42.920 and so unlike a physical bond that you own, right 0:30:42.920 --> 0:30:45.880 there's no maturity that you mature up to UM or 0:30:45.960 --> 0:30:50.160 down to. You're sort of stuck at that price until um, 0:30:50.200 --> 0:30:53.160 the market gives you a better one UM. And that's 0:30:53.200 --> 0:30:56.080 really where that's really why kind of the losses that 0:30:56.280 --> 0:30:58.920 mutual fund investors have experienced, the real losses that they 0:30:59.080 --> 0:31:01.360 went and tried to sell right now, they will have 0:31:01.480 --> 0:31:05.640 label turn those paper losses into real lasses UM. But 0:31:05.760 --> 0:31:07.600 we do not have a problem with someone buying you know, 0:31:07.920 --> 0:31:11.480 deeply discounted bonds at this point, UM and and putting 0:31:11.480 --> 0:31:14.720 them into a ladder portfolio. We think that's okay. UM. 0:31:14.760 --> 0:31:18.320 You know, deeply discounted stuff. There's really not a ton 0:31:18.360 --> 0:31:21.200 of it out there um at this point. And if 0:31:21.240 --> 0:31:24.760 something is deeply discounted right now, there's generally a pretty 0:31:24.800 --> 0:31:28.200 good reason for why it is trading at that price. UM. 0:31:28.320 --> 0:31:30.680 Some of the market, you know, sectors that we've been 0:31:30.720 --> 0:31:32.840 looking at that we think are starting to look more 0:31:33.000 --> 0:31:36.960 right for getting invested are kind of around the edges 0:31:37.000 --> 0:31:40.120 of fixing comp and have more equity correlated risks, So 0:31:40.200 --> 0:31:43.760 things like convertibles, things like closed down funds UM. Both 0:31:43.800 --> 0:31:46.680 of those tend to you know, track equity risk more 0:31:46.720 --> 0:31:50.480 closely and have a higher beta to equity, and we're seeing, 0:31:50.520 --> 0:31:53.920 you know, significant discounts there, and I think that that 0:31:54.200 --> 0:31:56.120 is maybe at the top of our shopping list in 0:31:56.120 --> 0:31:59.440 the foreseeable future. Um. But we'll see how how the 0:31:59.480 --> 0:32:03.280 rest of this market place out, Axana, Can I actually 0:32:03.280 --> 0:32:06.160 ask you to go back to the basics, if I 0:32:06.200 --> 0:32:08.560 can call it? That? I know in some notes recently 0:32:08.800 --> 0:32:10.840 you had been saying recession is the only thing that's 0:32:10.880 --> 0:32:13.720 capable of shutting down inflation, and at the same time 0:32:13.760 --> 0:32:16.120 you said there's no easy way out of this, and 0:32:16.160 --> 0:32:18.400 this is not yet in the price So maybe can 0:32:18.440 --> 0:32:24.600 you just go over what specifically you're actually projecting. Yeah, 0:32:24.880 --> 0:32:27.600 so we've gone that obviously through a number of years 0:32:27.600 --> 0:32:33.160 of central bank support, and it's been UM said many times, 0:32:33.320 --> 0:32:36.240 and I certainly believed that view as well, that really 0:32:36.280 --> 0:32:38.440 the only thing that could have shut down that central 0:32:38.480 --> 0:32:42.160 bank party, if you will, was inflation, and we didn't 0:32:42.160 --> 0:32:44.760 see it for many years, and therefore the central banks 0:32:44.760 --> 0:32:47.200 had no impetus to stop the support that they were 0:32:47.240 --> 0:32:51.239 providing to the markets into financial assets, and then we 0:32:51.320 --> 0:32:55.120 saw this inflation sort of you know, roar back to life, Um, 0:32:55.240 --> 0:32:57.600 and at this point it's really hard to see. How 0:32:57.640 --> 0:33:00.680 does it glide back down effortlessly the way you know 0:33:00.760 --> 0:33:04.760 FED um forecasts are promising us that it will UM. 0:33:04.800 --> 0:33:07.280 And even some former FED officials have come out and said, look, 0:33:07.320 --> 0:33:10.280 this is really not these these forecasts are not realistic. 0:33:10.320 --> 0:33:13.160 You know, we're not gonna see inflation glide back sort 0:33:13.200 --> 0:33:16.440 of effortlessly UM in a soft Lenning scenario by the 0:33:16.560 --> 0:33:18.960 end of next year. UM. Yes, it can go back 0:33:19.160 --> 0:33:23.040 to significantly lower levels, to single digit levels via recession. 0:33:23.920 --> 0:33:28.040 And some of the inflation mechanisms are nearly recessionary right 0:33:28.080 --> 0:33:32.480 in terms of inflation crimps consumer spending, makes it more 0:33:32.480 --> 0:33:36.200 difficult for consumers or or reduces consumer sentiment, I should say, 0:33:36.280 --> 0:33:39.880 And we're seeing that. UM. So it seems that the 0:33:39.920 --> 0:33:43.000 most natural way for this inflation to calm down is 0:33:43.000 --> 0:33:46.040 a recession. And that means again that has to be 0:33:46.080 --> 0:33:52.240 priced into credit valuations, which we're not really seeing yet. UM. 0:33:52.280 --> 0:33:55.640 Although I think the consensus in the marketplace right now 0:33:55.720 --> 0:33:58.360 is to the tune of we're going to see in 0:33:58.840 --> 0:34:03.040 recession in three but that's not really yet being reflected 0:34:03.040 --> 0:34:07.720 in the price I don't think UM. And if we 0:34:08.200 --> 0:34:12.880 do see a recession. Unfortunately, it will coincide with still 0:34:12.920 --> 0:34:17.400 elevated UM inflation levels. So it's not really clear to 0:34:17.440 --> 0:34:20.480 me that long dated bonds are going to be necessarily 0:34:20.480 --> 0:34:23.520 a great hedge in that environment for your risk, for 0:34:23.600 --> 0:34:27.160 the riskier parts of your portfolio. UM. And finally, you know, 0:34:27.280 --> 0:34:29.480 the said is as I said, you know, there are 0:34:29.480 --> 0:34:31.920 tools are quite blunt. The only thing they can do 0:34:32.040 --> 0:34:35.759 is tighten financial conditions, raise the cost of capital. And 0:34:35.800 --> 0:34:39.279 those things are you know, inadvertently perhaps, but they are 0:34:39.360 --> 0:34:43.759 also contributing to recession, risks becoming elevated and to the 0:34:43.800 --> 0:34:46.600 reality of recession, which is what Powell told us recently, right, 0:34:46.600 --> 0:34:49.600 he said that the possibility of recession is rising, as 0:34:49.680 --> 0:34:52.359 much as he doesn't want that to be the case. Um, 0:34:52.400 --> 0:35:10.799 he's being very transparent about that. You know. Uh. On 0:35:10.800 --> 0:35:13.560 one thing we haven't touched on, which is so important 0:35:13.560 --> 0:35:16.600 to credit markets is issuance. UM. And I have seen 0:35:16.680 --> 0:35:20.880 some stories recently of companies either sort of postponing or 0:35:20.920 --> 0:35:25.360 canceling deals or maybe tapping credit lines instead of issuing 0:35:25.400 --> 0:35:28.400 corporate bonds. How do you see that unfolding in the 0:35:28.440 --> 0:35:31.080 near future and and sort of what the effect on 0:35:31.120 --> 0:35:34.719 the market would be if people corporates get a little 0:35:34.719 --> 0:35:39.839 gun shy about issuance. Yeah, we saw you know that 0:35:40.440 --> 0:35:45.040 boots deal. Get next right, the Walgrains boots um deal, 0:35:45.320 --> 0:35:47.920 and we're going to see more of that. And essentially, 0:35:47.960 --> 0:35:50.719 you know, credit markets in terms of issuance, it's been 0:35:51.040 --> 0:35:54.880 very very slim um and and in many cases simply 0:35:54.880 --> 0:35:57.840 shot down. And on one hand, you know, there is 0:35:57.920 --> 0:36:02.239 an opinion out there that that is going to maybe 0:36:02.400 --> 0:36:06.520 keep spreads tighter because you still have some demand right 0:36:06.600 --> 0:36:08.840 for this paper, but it's not being issued at the 0:36:08.880 --> 0:36:12.240 same clips, so maybe the demand kind of overrides supply. 0:36:13.160 --> 0:36:16.759 But the reality is that what is a shutdown um 0:36:16.960 --> 0:36:21.439 credit market? Essentially right, noitions means that there's no bid 0:36:21.480 --> 0:36:24.400 at the price that the company wants to actually issue 0:36:24.440 --> 0:36:25.880 that debt. And I'll give you an example. A few 0:36:25.920 --> 0:36:28.520 weeks ago, I think it was Carnival Um that came 0:36:28.560 --> 0:36:31.720 to market and had to borrow at ten and quarter 0:36:31.800 --> 0:36:34.560 to ten and a half percent, whereas a few months 0:36:34.560 --> 0:36:37.240 before that, I would assume they're borrowing it was probably 0:36:37.280 --> 0:36:40.160 five to six percent. So a few months nearly doubled 0:36:40.320 --> 0:36:43.080 their cross of capital. And so you know, companies that 0:36:43.120 --> 0:36:45.480 can afford not to do that. They don't want to 0:36:45.480 --> 0:36:49.040 do that, but that's not really a healthy that's certainly 0:36:49.040 --> 0:36:53.080 not a healthy market. And in that environment, market participants 0:36:53.120 --> 0:36:55.840 will be pricing in the fact that, look, you can't 0:36:55.880 --> 0:36:58.840 finance yourself in this market, and that's also going to 0:36:58.880 --> 0:37:01.600 find its way into valuations and it's going to push 0:37:01.600 --> 0:37:03.960 spreads wider. And I don't think that that's actually a 0:37:03.960 --> 0:37:08.200 constructive um dynamic for credit market and AXNA. Just to 0:37:08.239 --> 0:37:10.600 wrap things up, since we tend to focus so much 0:37:10.719 --> 0:37:14.000 on the stock market on the podcast, I know our 0:37:14.080 --> 0:37:17.200 our colleague Katie Greifeld at Bloomberg she had written recently 0:37:17.200 --> 0:37:19.840 the rising rates across the fixed income landscape are chipping 0:37:19.840 --> 0:37:24.200 away at the there's no alternative mantra that we tend 0:37:24.239 --> 0:37:26.080 to hear in the stock markets. I wanted to ask 0:37:26.120 --> 0:37:29.920 you if credit is becoming more attractive than the stock 0:37:29.960 --> 0:37:36.600 market even so, Um, yes, I think the higher rates 0:37:36.640 --> 0:37:40.440 is certainly shipping away at Tina, there is not alternative, 0:37:41.440 --> 0:37:45.239 certainly chipping away of that. But again, just like you know, 0:37:45.360 --> 0:37:47.839 you don't simply but I mean, I don't know who 0:37:47.880 --> 0:37:50.160 are these people that are simply buying stocks for the 0:37:50.200 --> 0:37:52.160 divondend field, right I mean, it's all it's always about 0:37:52.160 --> 0:37:54.760 the price, and I think in fixed income it also 0:37:54.920 --> 0:37:56.440 has to be about the price. I think it is 0:37:56.560 --> 0:38:01.399 because we've forgotten that price matters, and investors were buying 0:38:01.480 --> 0:38:04.200 HI bonds at one oh seven or even higher, you know, 0:38:04.920 --> 0:38:08.280 many dollars above part that they're sitting on the losses 0:38:08.360 --> 0:38:10.440 that they're sitting on right now. So I think price 0:38:10.520 --> 0:38:14.279 absolutely still matters, and especially in an environment where we 0:38:14.360 --> 0:38:18.040 are at such tiny default levels that they almost have 0:38:18.239 --> 0:38:21.120 nowhere to go but up, which means that again, paper 0:38:21.200 --> 0:38:24.319 losses have the ability to become realized, you know, real 0:38:24.400 --> 0:38:27.480 actual losses. UM. I don't think you can look at 0:38:27.520 --> 0:38:29.680 the yield and isolation. I think at the end of 0:38:29.680 --> 0:38:32.200 the day, you have to really look at what it 0:38:32.320 --> 0:38:35.160 is priced in UM, your respect of what you're buying. 0:38:36.600 --> 0:38:40.600 Great stuff, box SONA. We UH really appreciate your insights. Uh, 0:38:41.040 --> 0:38:44.040 price matters. I'll tell you what matters on this podcast too, 0:38:44.360 --> 0:38:47.640 is the craziest things we all saw in markets. Uh. 0:38:48.000 --> 0:38:49.880 This week our tradition, and we can't let you go 0:38:50.280 --> 0:38:53.560 until we per year. Yours your favorite crazy thing of 0:38:53.560 --> 0:38:56.600 the week. I'll get us started though, rare attempt where 0:38:56.640 --> 0:38:59.400 I get us started. Um well, don as you know, 0:39:00.200 --> 0:39:03.759 one of my favorite asset classes are these ridiculous collectibles 0:39:03.840 --> 0:39:07.080 that people pay ridiculous amounts of money for it auction. 0:39:07.719 --> 0:39:09.920 I think I found the most ridiculous one of all 0:39:10.040 --> 0:39:13.399 time from the New York Times, better than the vh 0:39:13.680 --> 0:39:16.000 vhs you you had the other week that went for 0:39:19.200 --> 0:39:22.919 Here's the headline from the Times. Dead roaches that eight 0:39:23.040 --> 0:39:27.480 moon dust went off went up for auction. Then NASA objected. 0:39:27.520 --> 0:39:31.959 I'll read that again, dead roaches that eight moon dust 0:39:32.239 --> 0:39:35.920 went up for auction, and NASA objected. What happened is 0:39:36.000 --> 0:39:40.040 in ninety nine when uh, the U S astronauts landed 0:39:40.080 --> 0:39:41.920 on the Moon. If you do believe that that happened, 0:39:41.920 --> 0:39:45.000 there's some conspiracy theories out there that it did not happen. 0:39:45.120 --> 0:39:47.360 That's a that's a topic for a different podcast. But 0:39:47.760 --> 0:39:50.480 assuming it happened, Uh, they brought back a bunch of 0:39:50.560 --> 0:39:53.680 moon rocks and moon dust and they fed it to 0:39:54.200 --> 0:39:58.120 you know, uh, cockroaches and I guess you know mice 0:39:58.280 --> 0:40:01.240 and goldfish too, just see if it would be toxic 0:40:01.360 --> 0:40:03.640 to them. Um there, you know, is one of the 0:40:03.719 --> 0:40:07.920 experiments they performed afterward. Uh so one of the scientists 0:40:08.000 --> 0:40:11.239 who performed this experiment with the cockroaches. I don't know 0:40:11.320 --> 0:40:13.080 how they got them to eat the moon moon dust. 0:40:13.840 --> 0:40:15.560 Maybe they put some hot sauce on it or something. 0:40:15.680 --> 0:40:19.640 But she kept she kept the roaches. She determined that 0:40:19.719 --> 0:40:22.040 they were not harmful to the roaches, but she kept 0:40:22.080 --> 0:40:25.000 them in a safe for years and years, and then 0:40:25.040 --> 0:40:29.160 they went up first auction. Uh NASA heard about this 0:40:29.360 --> 0:40:32.319 and they put the kibosh on the auction, saying, those 0:40:32.360 --> 0:40:36.359 are our roaches. You cannot sell those roaches. But as 0:40:36.440 --> 0:40:39.279 you can probably guess, it's time to play prices, right 0:40:39.520 --> 0:40:43.800 and ask you what price do you think the highest 0:40:43.840 --> 0:40:47.640 bid was for these dead roaches that eight moon dust 0:40:48.080 --> 0:40:50.000 before the auction was canceled. It's kind of a tricky 0:40:50.080 --> 0:40:54.359 one because we don't have true price discovery. But first 0:40:55.120 --> 0:40:57.240 you go first. I mean, who would buy dead roaches? 0:40:57.280 --> 0:40:58.840 And where did she keep them? By the way, in 0:40:58.880 --> 0:41:03.000 a freezer in a fireproof safe in her basement. Oh 0:41:03.080 --> 0:41:07.320 my gosh. Okay, I will go with fifty five dollars 0:41:10.040 --> 0:41:12.839 on what's your bid for dead rutches that eate moon dust? 0:41:13.840 --> 0:41:16.600 Like you said, there's no price discovery in that market, 0:41:17.200 --> 0:41:24.000 single issue market, Um I have absolutely no idea, and 0:41:24.239 --> 0:41:26.720 I can't even imagin why anyone would want some dead roaches, 0:41:26.760 --> 0:41:31.400 no matter what they ate. Um, I have no idea. 0:41:31.640 --> 0:41:33.279 I'm gonna go with let's just for the sake of 0:41:33.280 --> 0:41:37.640 the why not. Okay, so you're out bidding Volda on 0:41:37.680 --> 0:41:39.960 the dead roaches. That James, what's your bid for the 0:41:40.040 --> 0:41:43.839 dead roaches? That eight moon does? Think? Uh? Six months 0:41:43.880 --> 0:41:49.560 ago probably a million bucks now, Tan Ground. That's a 0:41:49.640 --> 0:41:52.000 great point. It's a great point. You know, it is 0:41:52.080 --> 0:41:55.439 not a very satisfying one because we did not see 0:41:55.480 --> 0:41:57.719 the winning bid for the auction. NASA came in and 0:41:57.760 --> 0:42:00.160 spoiled it. High spid was forty So you guys, we're 0:42:00.160 --> 0:42:02.880 both pretty pretty close. Wow. They expected it to go 0:42:03.000 --> 0:42:06.080 much higher, of course, as auctioneers tend to. But so 0:42:06.160 --> 0:42:11.640 we were close here. You guys are pretty close. Roaches, 0:42:12.600 --> 0:42:14.600 I think James right though that a year or two 0:42:14.640 --> 0:42:19.000 ago they probably would have gotten seven figures. But uh, 0:42:19.200 --> 0:42:21.719 the times are tough now, you know. It's uh, it's 0:42:21.800 --> 0:42:25.360 it's a different market, different valuations across all asset classes, 0:42:25.400 --> 0:42:29.080 including dead roaches. About you, Bill Donna, what's the what's 0:42:29.120 --> 0:42:32.200 the craziest thing you've seen mine has to do with 0:42:32.280 --> 0:42:35.560 the CEO. There's this wonderful Bloomberg story that I read 0:42:35.640 --> 0:42:38.520 about Andrew for Micah. I hope I'm pronouncing his name right. 0:42:38.560 --> 0:42:41.360 He's a chief executive officer of Jupiter Fund Management. He 0:42:41.480 --> 0:42:44.040 had announced that he's leaving his company, and what he 0:42:44.080 --> 0:42:46.680 told Bloomberg is I just want to go sit at 0:42:46.719 --> 0:42:50.160 the beach and do nothing. I'm not thinking about anything else, 0:42:51.040 --> 0:42:54.160 which I love. It's like everybody's thinking this, but nobody 0:42:54.200 --> 0:42:56.360 wants to admit that. Nobody wants to say it. He 0:42:56.480 --> 0:42:59.080 just wants to sit at the beach. I think that's 0:42:59.120 --> 0:43:00.840 the sanest thing. I hear it all week, not the 0:43:00.880 --> 0:43:04.160 craziest things. Onto something. All these people on Twitter are like, oh, 0:43:04.360 --> 0:43:06.880 you know, I think he's based in the UK, like 0:43:07.000 --> 0:43:11.120 in America. CEO says like he'll retire, then he'll go 0:43:11.239 --> 0:43:13.760 back to doing like ten other jobs. This guy literally 0:43:13.840 --> 0:43:18.120 just wants to sit on the beach. I took my 0:43:18.200 --> 0:43:20.920 hat to him too. That guy's a role model for us, 0:43:20.960 --> 0:43:23.640 all I believe. How about you, ox On, have you 0:43:23.680 --> 0:43:28.400 seen anything crazy recently? So I certainly cannot top the roaches, 0:43:28.520 --> 0:43:30.560 but I will um and I you know, I think 0:43:30.680 --> 0:43:34.560 that The stuff that I see that is crazy is daily. 0:43:34.640 --> 0:43:37.839 But at the same time it is very um much 0:43:37.920 --> 0:43:40.440 more broad than anything that's kind of specific to this 0:43:40.520 --> 0:43:42.719 week or last week. And it is certainly in the 0:43:42.960 --> 0:43:45.840 phones in the realm of like, let's just be sane, 0:43:46.239 --> 0:43:49.919 you know, and and and and I want to offer 0:43:50.000 --> 0:43:51.880 some sanity here and for me that the stuff that 0:43:51.920 --> 0:43:55.239 really is crazy is how investors in fix income are 0:43:55.400 --> 0:43:57.960 so desperately trying to fight this FED. Right when the 0:43:58.000 --> 0:43:59.960 FED was on your side, the mantra was don't fight 0:44:00.200 --> 0:44:03.080 the FED, and so I offer the same advice. Now 0:44:03.200 --> 0:44:05.480 the FED is only at the starting point of this 0:44:05.640 --> 0:44:08.960 high cycling hiking cycle. We do not know what quantitative 0:44:09.040 --> 0:44:11.400 tipening is going to bring. Frankly, we didn't talk about that, 0:44:11.520 --> 0:44:13.680 but that's a wild card in and of itself. A 0:44:13.800 --> 0:44:17.520 recession fears are are rising um and the FED is 0:44:17.560 --> 0:44:20.960 telling you that they're choosing inflation over growth over and over. 0:44:21.360 --> 0:44:24.160 Don't fight the FED. But at the same time, to 0:44:24.520 --> 0:44:26.920 James's point, they did kind of set that precedent with 0:44:27.000 --> 0:44:29.960 the corporate credit facility in the pandemic and sort of 0:44:30.000 --> 0:44:33.080 broke the seal on that, uh, that idea of buying 0:44:33.480 --> 0:44:36.120 corporate credit. If if times get bet enough, is there 0:44:36.560 --> 0:44:38.800 is that in the price to some degree? Do you 0:44:38.880 --> 0:44:41.959 think that that they might one day return? I think 0:44:42.080 --> 0:44:48.040 that that is what's key keeping a lid on the 0:44:48.239 --> 0:44:50.840 spread widening for the time being. And I think, you know, 0:44:50.880 --> 0:44:52.880 we talked about what is going to be that tipping 0:44:52.960 --> 0:44:55.200 point for the capitulation. I think it's going to be 0:44:55.320 --> 0:44:59.200 this realization that, look, the FED put is a lot 0:44:59.280 --> 0:45:02.000 of basis point doubt if it's even alive anymore. It 0:45:02.160 --> 0:45:04.959 is not here now. It's not here for probably several 0:45:05.040 --> 0:45:08.000 hundred basis points of high whining certainly, and you know 0:45:08.040 --> 0:45:11.640 at least probably another hundred base points whining of investment grade. 0:45:12.000 --> 0:45:14.239 So it's it's not there for you. The feed is 0:45:14.280 --> 0:45:16.759 not there for you. This market has to learn to 0:45:16.880 --> 0:45:20.000 stand on its own fundamentals and on its own merit 0:45:20.440 --> 0:45:23.320 like it used to be. Yeah, I would say the 0:45:23.360 --> 0:45:25.960 second craziest thing I've seen this week Bildanna is we 0:45:26.000 --> 0:45:28.560 actually got James to come on the podcast for once. 0:45:28.600 --> 0:45:31.080 He's he was very shy about coming on, but but 0:45:31.160 --> 0:45:33.520 we got him on. So so James, your turn. What's 0:45:33.520 --> 0:45:37.480 the craziest thing you've seen in markets recently? A couple 0:45:37.480 --> 0:45:39.320 of things that fed today's saying they didn't know what 0:45:39.400 --> 0:45:43.960 inflation was. That's pretty scary crazy, um. But sticking with credit, 0:45:44.040 --> 0:45:45.719 I mean, I do look at bond prices all day 0:45:45.760 --> 0:45:49.360 long of geek um, and you rarely see bond prices 0:45:49.440 --> 0:45:50.960 moved in the morning when you come in more than 0:45:51.000 --> 0:45:53.840 a point or so if you stare it, you know 0:45:54.280 --> 0:45:58.319 the feed. Recently, we've seen bonds dropping ten points, twenty points, 0:45:58.800 --> 0:46:03.240 forty points in one trade, um, And that's that's crazy 0:46:03.280 --> 0:46:07.080 price action. That speaks to some of the points well 0:46:07.520 --> 0:46:11.160 eximate during this podcast. You know the Boston Beyond today 0:46:12.120 --> 0:46:15.839 ten points, those bonds yielding, how you distressed the still 0:46:15.960 --> 0:46:20.360 rated sorry single beat plus um. The same thing happened 0:46:20.400 --> 0:46:23.760 to Party City recently, whole bunch of retailers, and I'm 0:46:23.800 --> 0:46:26.520 pulling the bond white outs. We haven't seen this sort 0:46:26.520 --> 0:46:28.839 of price action. I don't think you know, you can 0:46:29.000 --> 0:46:34.120 disagree outside I've seen this sort of level extreme. I 0:46:34.239 --> 0:46:36.719 agree with you. I would also add to that, you 0:46:36.800 --> 0:46:39.000 know what you alluded to, what you just refer to. 0:46:39.200 --> 0:46:41.440 Those are bond prices that we can sort of very 0:46:41.560 --> 0:46:45.360 readily observed because they're in the public corporate space. But 0:46:45.480 --> 0:46:47.439 then there are parts of the bond market right where 0:46:47.760 --> 0:46:50.759 pricing is is much more over the counter, if you will, right, 0:46:50.840 --> 0:46:54.000 so um areas like mortgage credit, for example, there's a 0:46:54.080 --> 0:46:57.440 whole area out there where you know, the family and 0:46:57.480 --> 0:47:00.640 Freddie step back from providing guarantees to the number of 0:47:00.680 --> 0:47:03.000 mortgages and throw them back into the market to kind 0:47:03.040 --> 0:47:05.360 of live on their own um and price on their 0:47:05.400 --> 0:47:08.440 own without the government guarantee. And we're seeing um to 0:47:08.640 --> 0:47:11.799 various degree stresses in in that part of the mortgage market, 0:47:11.880 --> 0:47:14.080 even though we're not really seeing stress in the housing 0:47:14.120 --> 0:47:16.880 market yet yet. Mortgage rates are higher, and yes, we 0:47:17.000 --> 0:47:19.960 expect to slow down and housing, but certainly they're none 0:47:20.000 --> 0:47:22.880 of the systemic problems that existed there back in two 0:47:22.920 --> 0:47:25.400 thousand and eight. But we're seeing, yes, bonds that are 0:47:25.480 --> 0:47:27.719 off ten twenty points in this mortgage credit space. This 0:47:27.840 --> 0:47:30.800 is kind of like the non agency part, particularly the 0:47:30.960 --> 0:47:33.840 you know, lower than the most pristine parts of that market. 0:47:34.160 --> 0:47:38.719 So without a doubt, there are some canarreas. Usually how 0:47:39.400 --> 0:47:43.719 repricing broad repricing start, they start in more esoteric um 0:47:43.880 --> 0:47:46.520 parts of the market like that, and with kind of 0:47:46.680 --> 0:47:48.759 some you know, credits here and there, that are may 0:47:48.800 --> 0:47:52.239 be weaker and then transition to a broader repricing. So 0:47:52.360 --> 0:47:54.360 I think we're just at the starting of this. Is 0:47:54.400 --> 0:47:58.279 it a summer liquidity issue at all? To or now 0:47:59.280 --> 0:48:01.200 um liquid of the issue to the extent that it 0:48:01.280 --> 0:48:03.399 can be that it is, you know, seasonal, I think 0:48:03.480 --> 0:48:06.279 will be a huge issue. You know. One of the 0:48:06.360 --> 0:48:10.279 things that Jamie Diamond wrote a shareholder Leo alluded to 0:48:10.360 --> 0:48:13.680 the fact that market liquidity is very different. That sells 0:48:13.760 --> 0:48:15.400 to the cell side is not there for you like 0:48:15.520 --> 0:48:18.080 it used to be, and it makes for a significantly 0:48:18.120 --> 0:48:20.200 less liquid market. And just to give you an idea, 0:48:20.560 --> 0:48:23.120 you know, the top five corporate bond etf so things 0:48:23.200 --> 0:48:25.759 like l q D and g J and K and 0:48:25.920 --> 0:48:29.160 h y G like that, the top largest corporate bond ets, 0:48:29.200 --> 0:48:34.040 their total assets are several times bigger than the corporates 0:48:34.080 --> 0:48:36.799 the street is inventory. So these things, you know, start 0:48:36.880 --> 0:48:40.239 to really redeem in size, and you know, dramatically, there's 0:48:40.280 --> 0:48:42.480 really no other side to take that down, so you're 0:48:42.480 --> 0:48:46.040 gonna have very dramatic prices covery downwards. So, yes, liquidity 0:48:46.120 --> 0:48:49.320 plays a huge role. The way this market operates, the 0:48:49.400 --> 0:48:52.680 liquidity it has on any given day is so different 0:48:52.800 --> 0:48:56.600 than pre two eight and the FED plugged that hole 0:48:56.800 --> 0:49:00.400 repeatedly for a very long time, and they're not anymore. 0:49:00.520 --> 0:49:03.480 They're not at this time. So liquidity has completely shifted 0:49:03.520 --> 0:49:06.640 to the buy side, but the bye side is fully 0:49:06.680 --> 0:49:09.440 invested across the entire cycle. They have to sell something 0:49:09.520 --> 0:49:11.800 to buy something, and so we just think it's a 0:49:11.840 --> 0:49:14.759 completely different market and that's why we want to be 0:49:15.000 --> 0:49:19.000 the liquidity providers um that will be very, very sorely 0:49:19.080 --> 0:49:23.480 needed as this group pricing gets going well. Axada, We 0:49:23.680 --> 0:49:27.320 really again appreciate your insights. Hopefully we can have you 0:49:27.440 --> 0:49:31.399 back again sometime to talk markets again, and please bring 0:49:31.520 --> 0:49:33.719 Jamie Diamond along if if you see him, Tom Tom, 0:49:33.800 --> 0:49:36.800 He's invited to sounds great, Thanks so much, thank you, 0:49:37.239 --> 0:49:46.920 thanks very much. What Goes Up will be back next 0:49:46.960 --> 0:49:48.520 week and so then you can find us on the 0:49:48.560 --> 0:49:52.360 Bloomberg Terminal website and app or wherever you get your podcast. 0:49:53.239 --> 0:49:54.759 We love it if you took the time to rate 0:49:54.840 --> 0:49:57.800 and review the show on Apple Podcasts, so more listeners 0:49:57.840 --> 0:49:59.959 can find us, and you can find us on schoo, 0:50:00.560 --> 0:50:04.840 follow me at reag Anonymous, Goldana hirach Is at Coldanna Hirich. 0:50:05.560 --> 0:50:10.080 You can also Follow Bloomberg Podcasts at Podcasts. What Goes 0:50:10.160 --> 0:50:12.760 Up is produced by Stacy Wang. The head of Bloomberg 0:50:12.840 --> 0:50:15.560 podcast is Francesco Levie. Thanks for listening. To see you 0:50:15.680 --> 0:50:16.080 next time.