WEBVTT - Surveillance: Hunt For Yield With Goldman's Swell 0:00:00.080 --> 0:00:12.640 Ye. Welcome to the Bloomberg Surveillance Podcast and I'm Tom 0:00:12.720 --> 0:00:15.720 Keene Jay Ley. We bring you insight from the best 0:00:15.800 --> 0:00:21.240 in economics, finance, investment, and international relations. Find Bloomberg Surveillance 0:00:21.280 --> 0:00:25.720 on Apple Podcasts, SoundCloud, Bloomberg dot Com, and of course 0:00:26.079 --> 0:00:28.120 on the Bloomberg. Yeah. I don't want to oversaw it. 0:00:28.120 --> 0:00:29.640 I don't know when Mr Laidler is going to say 0:00:29.640 --> 0:00:31.440 here in a moment, but John, I looked at the 0:00:31.520 --> 0:00:34.559 pull back, if you will, that we're seeing in the market, 0:00:34.640 --> 0:00:37.239 and it only gets you at wors is like the 0:00:37.320 --> 0:00:41.960 nastack on to a centered tendency of the recent volatility. 0:00:42.200 --> 0:00:44.280 There's not a lot of gloom and doom on the tape. 0:00:44.320 --> 0:00:48.280 It's just sort of range bound center tendency. Off this morning, 0:00:49.320 --> 0:00:51.000 we know what Ben's going to say. He's going to 0:00:51.040 --> 0:00:54.440 say by but he's going to say bicyclicals. Let's bring 0:00:54.440 --> 0:00:57.160 it him right now, Ben Laidla Sama Hudson Research, see 0:00:57.240 --> 0:00:59.640 a bank right to have you with us? Uh. That 0:00:59.760 --> 0:01:02.360 is a change. Then later and it's not just about 0:01:02.360 --> 0:01:08.360 buying growth equities getting into some cyclicality. Why Ben, Because 0:01:08.360 --> 0:01:11.399 I think I think the election has held well back. 0:01:11.440 --> 0:01:14.319 I think all this talk are we gonna getus or 0:01:14.319 --> 0:01:18.920 not has just been a huge distractions has helped people back. Um, 0:01:18.959 --> 0:01:20.679 you know we're waiting for a vaccine. We don't have 0:01:20.720 --> 0:01:22.640 that yet. I think, you know, roll forward, let's get 0:01:22.640 --> 0:01:24.120 the election out of the way. That's got a bit 0:01:24.160 --> 0:01:26.679 of certainty there, and then let's look forward and what 0:01:26.720 --> 0:01:29.560 does that look like. One you're gonna get three to 0:01:29.640 --> 0:01:32.920 four percent GDP grow, if you're gonna get earnings, and 0:01:32.959 --> 0:01:36.160 you're gonna a mountain more than that off these sort 0:01:36.160 --> 0:01:40.880 of deep cyclical stops people until very recently basically being ignored. 0:01:41.000 --> 0:01:42.800 And I think those are the sort of the big 0:01:42.840 --> 0:01:46.360 beneficiaries of um, you know, the vaccine, which we're going 0:01:46.400 --> 0:01:49.040 to get something some more fiscal stimulus. I think we're 0:01:49.040 --> 0:01:51.920 gonna at something, um, you know, Biden winds and it's 0:01:51.920 --> 0:01:53.920 a blue wave you know, obviously gonna get a lot 0:01:53.960 --> 0:01:56.600 more than that. I think these are the sectors of 0:01:56.640 --> 0:01:58.520 the market which are cheap, which are out of favorite, 0:01:58.560 --> 0:02:01.440 and have just huge operation in lee bridge to this 0:02:01.520 --> 0:02:03.600 sort of base case scenario that I have from here, 0:02:03.600 --> 0:02:06.320 and it hasn't really moved yet because I think people 0:02:06.320 --> 0:02:10.360 have been very distracted by you know, by by this 0:02:10.400 --> 0:02:12.519 fiscal well of talk in the election and everything else. 0:02:12.880 --> 0:02:15.440 Then the challenge of people trying to catch up with 0:02:15.520 --> 0:02:19.640 Ben Laidler is on an absolute or relative basis, do 0:02:19.760 --> 0:02:23.600 you shift, do you shift away from big tech and 0:02:23.760 --> 0:02:28.560 tech completely, or do you do both together and still 0:02:28.560 --> 0:02:33.480 own both areas? Yeah, I mean I think you you know, 0:02:33.520 --> 0:02:36.000 you bring down those sort of quality growth sort of 0:02:36.040 --> 0:02:38.320 big tech healthcare a bit. But you know, I think 0:02:38.320 --> 0:02:41.079 that we're talking different instruments here. I mean I think 0:02:41.080 --> 0:02:43.400 that I think the tech is just a vac story. 0:02:43.720 --> 0:02:45.520 You know, it's with a long time. It's going to 0:02:45.600 --> 0:02:47.880 continue to look very good with these bound sheeets, with 0:02:47.919 --> 0:02:51.079 the structural growth outlook. But absolutely, I mean it's it's 0:02:51.080 --> 0:02:54.200 where everybody now there needs to be a ship. But 0:02:54.280 --> 0:02:56.120 you know, the seconds I'm asking, I'm telling people to 0:02:56.160 --> 0:02:59.120 shift into you know, industrial, stalk out real estate. I 0:02:59.120 --> 0:03:01.480 mean these are pretty small sectors. Um, you know, a 0:03:01.520 --> 0:03:02.919 little bit of money is going to go a very 0:03:02.960 --> 0:03:04.760 long way, and I think you're gonna get an awful 0:03:04.760 --> 0:03:07.160 lot of bang for your buck just because I mean 0:03:07.280 --> 0:03:09.000 just look at what's going on in third quarter earnings 0:03:09.080 --> 0:03:10.720 right now, which we're all sort of ignoring because there's 0:03:10.720 --> 0:03:15.200 a lot else going on. Um, you know, these cyclical sectors, industrials, energy, 0:03:15.720 --> 0:03:19.000 You have beaten expectations by over a dent so far. 0:03:19.080 --> 0:03:21.680 I mean, you're just getting huge leverage on the upside. 0:03:22.120 --> 0:03:24.640 There is, of course, the counter argument that the pandemic 0:03:24.800 --> 0:03:27.680 is accelerating and worsening dramatically in Europe and in places 0:03:27.720 --> 0:03:29.920 in the United States with a record number of cases, 0:03:30.360 --> 0:03:32.080 and that we're not out of the woods. Even if 0:03:32.080 --> 0:03:33.519 we get a vaccine, the rule out is going to 0:03:33.560 --> 0:03:37.760 be complicated, The efficacy is questionable. So how long can 0:03:37.800 --> 0:03:41.400 we stay in this environment with a pandemic still very 0:03:41.480 --> 0:03:44.440 much present and pushing people away from the public realm? 0:03:44.760 --> 0:03:46.280 How long does that have to go on before you 0:03:46.360 --> 0:03:50.440 change your view? Yeah, I mean I think that the 0:03:50.480 --> 0:03:52.920 relative surprise and the which is certainly given me, you know, 0:03:53.160 --> 0:03:55.200 a lot of a lot of hope has really just 0:03:55.240 --> 0:03:58.280 been the resilience of of the of the consumer, the 0:03:58.320 --> 0:04:00.800 resilience of the economic activity. I mean, just at a 0:04:00.880 --> 0:04:03.800 U s p M I for October last week at 0:04:03.840 --> 0:04:07.080 fifty five, I mean, very expansionary, you know, savings right, 0:04:07.120 --> 0:04:09.640 sort of retail sales are sort of back to pre 0:04:09.840 --> 0:04:12.520 sort of pandemic levels. I mean, we're in pretty good 0:04:12.560 --> 0:04:15.200 shape here. I mean I'm not naive enough to think 0:04:15.240 --> 0:04:19.000 that you know this, uh you know, this can go 0:04:19.000 --> 0:04:20.880 on forever. But I think, you know, the story so 0:04:20.960 --> 0:04:23.640 far has been one of just extreme resilience, and I 0:04:23.680 --> 0:04:25.839 certainly think that can go forward a little bit further. 0:04:26.040 --> 0:04:27.719 I mean, at some point, you know, we do need 0:04:28.240 --> 0:04:30.120 we do need some more physical stimulus. And and I 0:04:30.120 --> 0:04:32.520 think we're seeing, you know, everywhere that this second wave 0:04:32.680 --> 0:04:35.720 is uh you know, is having less deaths and less 0:04:35.720 --> 0:04:39.000 impact on economic activity. But but your points well taken, 0:04:39.000 --> 0:04:40.520 I mean obviously can't go on forever. I mean, I 0:04:40.560 --> 0:04:42.120 am looking for a vaccine. I am looking for some 0:04:42.120 --> 0:04:44.360 more physical stimulus, and I am looking for this sort 0:04:44.360 --> 0:04:46.840 of second wave to have less of an impact than, 0:04:47.000 --> 0:04:51.040 certainly than the first wave did. Equity features, as Ben speaks, 0:04:51.080 --> 0:04:53.359 ticking higher still negative, I hate tense. If one per 0:04:53.400 --> 0:04:55.360 cent on the SMP five hundred, Ben, just to wrap 0:04:55.400 --> 0:04:59.200 this conversation up, the correlation between cases increasing in the 0:04:59.279 --> 0:05:02.600 United States and what you think happens with consumer engagement. 0:05:02.839 --> 0:05:07.400 How loose or tight will that be? UM? I think, well, 0:05:07.760 --> 0:05:09.880 my previous point, I think that's a lot looser than 0:05:09.920 --> 0:05:11.800 it was previously. I mean, I think, you know, we've 0:05:11.839 --> 0:05:14.240 just learned to live with this to a certain degree. Um, 0:05:14.480 --> 0:05:16.800 those that have jobs, which clearly is not you know, 0:05:16.839 --> 0:05:18.680 it's not everybody, but those that do have a lot 0:05:18.680 --> 0:05:22.400 more money in their pocket than than they have done historically. 0:05:23.040 --> 0:05:25.560 So so again, you know, I think the consumer is 0:05:25.600 --> 0:05:27.520 going to be pretty resilient. Here's certainly for the next 0:05:27.520 --> 0:05:29.360 couple of months. I mean, at some point we are 0:05:29.360 --> 0:05:31.200 going to need we are going to need more stimulus. 0:05:31.240 --> 0:05:33.120 We are going to need these sort of cases to 0:05:33.160 --> 0:05:36.280 come down. But I think what we've seen so far 0:05:36.440 --> 0:05:37.640 is that, you know, we have a little bit of 0:05:37.640 --> 0:05:42.240 time here. Been great to catch up. As always staying bullish. 0:05:42.320 --> 0:05:49.599 Ben Later of Twahudson Research, Our next guest is really 0:05:49.640 --> 0:05:53.120 good look identifying when you come out of those ranges, 0:05:53.200 --> 0:05:56.440 and we haven't. We can bring Mike Swelling now, please 0:05:56.520 --> 0:05:59.400 bring the head a global fixed income portfolio management might 0:05:59.440 --> 0:06:01.320 greater to catch out with the SA I'm sure you've 0:06:01.320 --> 0:06:02.839 had a part of that. Can we just start with 0:06:02.880 --> 0:06:04.880 this ten year treasury range have been stuck in for 0:06:05.279 --> 0:06:07.919 a number of months now between fifty basis points and 0:06:08.360 --> 0:06:10.800 ninety five at a high end in early June. Might 0:06:10.920 --> 0:06:12.400 you think you've got the set up in front of 0:06:12.440 --> 0:06:16.440 us to break out of that, Sure, Jonathan, I don't 0:06:16.480 --> 0:06:18.640 think I can match last week's piano in my office 0:06:18.680 --> 0:06:20.279 is not large enough per piano, but like a play 0:06:20.520 --> 0:06:25.440 because if that makes your week um. In terms of 0:06:25.480 --> 0:06:29.280 the range on the bond market, I think that the 0:06:29.800 --> 0:06:32.160 death of the bond market rally has been just that 0:06:32.279 --> 0:06:35.800 story has been written way too many times. They're still 0:06:36.080 --> 0:06:40.800 they're still yield, They're still balanced in fix income relative 0:06:40.839 --> 0:06:42.880 to equities and other risk assets. And as long as 0:06:42.920 --> 0:06:46.120 you have investors that are long risk assets and need 0:06:46.480 --> 0:06:49.000 some level of diversification, as long as rates are zero 0:06:49.120 --> 0:06:52.840 negative almost everywhere in the world, the tenure Treasury at 0:06:52.839 --> 0:06:56.680 eighty basis points offers number one, balance for your portfolio 0:06:56.720 --> 0:06:59.720 and some hash efficacy. And secondly, there is yield in 0:06:59.720 --> 0:07:02.080 the thick thincome market. An eighty basis point may not 0:07:02.160 --> 0:07:04.679 sound like a lot, but if it rallies to thirty, 0:07:05.080 --> 0:07:08.320 that's a significant, significant total return. So I think that 0:07:08.680 --> 0:07:11.200 people are writing off the bottom market too early, and 0:07:11.240 --> 0:07:13.120 I think that right now with the tenure at eighty 0:07:13.120 --> 0:07:15.480 basis points, there is value there with a bit on 0:07:15.560 --> 0:07:17.760 hold for the pursuable future, and that's right where I 0:07:17.800 --> 0:07:21.320 wanted to go is within the internals of the market. 0:07:21.360 --> 0:07:23.280 We do that in the equity market all the time. 0:07:23.720 --> 0:07:27.360 What do you see on your desks of the appetite 0:07:27.480 --> 0:07:29.480 and the bid ask. I mean, there's a lot of 0:07:29.480 --> 0:07:31.920 money out there, I get that, But what are the 0:07:31.960 --> 0:07:35.800 internals you see in that bid that demand for fixed 0:07:35.800 --> 0:07:41.520 income paper? So we'll see a lot of the fixed 0:07:41.560 --> 0:07:45.840 income universe way overweight duration or way overweight treasuries. What 0:07:45.960 --> 0:07:47.680 we look at is we look at a lot of 0:07:47.680 --> 0:07:49.960 the funds that are out there and to see how 0:07:50.040 --> 0:07:53.080 much where they stand relative to the benchmark. And you're 0:07:53.080 --> 0:07:57.440 seeing investors right now anywhere between flat and somewhat short duration. 0:07:57.560 --> 0:08:01.760 So that from a technical standpoint is a very positive 0:08:01.760 --> 0:08:05.080 technical for for the bottom market. I would say that 0:08:05.120 --> 0:08:08.000 the other very very important point is kind of the 0:08:08.440 --> 0:08:11.000 volatility that we're seeing now in equity markets and that 0:08:11.040 --> 0:08:14.120 we're likely to see going into your end. It's likely 0:08:14.160 --> 0:08:17.640 to have a positive impact on the treasury market as 0:08:17.680 --> 0:08:20.200 investors look for flight to quality, and a near term 0:08:20.200 --> 0:08:23.280 it may even have a positive u uh tail wind 0:08:23.320 --> 0:08:25.559 towards the dollar as well as the flight to quality 0:08:25.640 --> 0:08:28.000 currency Here's what I'm struggling with, Mike. You say that 0:08:28.000 --> 0:08:30.800 there is probably going to be buying of treasuries, and 0:08:30.880 --> 0:08:32.920 you know, I was reading your notes and your bullish 0:08:32.920 --> 0:08:36.200 on high yield, your bush on the riskiest credit. Isn't 0:08:36.200 --> 0:08:38.160 there a contradiction here that if people are looking for 0:08:38.160 --> 0:08:42.280 the safety of treasuries at sub one yields, why would 0:08:42.280 --> 0:08:43.960 they be confident that they're going to get any of 0:08:43.960 --> 0:08:49.640 their money back with a high yield bond. Well, first off, um, 0:08:49.840 --> 0:08:54.240 there is a lot of merit to owning growth related 0:08:54.240 --> 0:08:57.000 assets and things like high yield that are have not 0:08:57.200 --> 0:09:00.600 benefited as much from the FED coming in buying everything 0:09:00.640 --> 0:09:03.600 in the investment grade universe, buying treasuries and buying mortgages. 0:09:03.880 --> 0:09:05.439 They've kind of been left out there, and there's still 0:09:05.480 --> 0:09:10.599 a decent amount of yield in the hospital market. The 0:09:10.640 --> 0:09:16.079 benefit of treasuries paired with credit is very, very significant. 0:09:16.280 --> 0:09:19.640 When you go long duration paired with credit, you actually 0:09:19.640 --> 0:09:22.320 create better balance in a portfolios. So the event that 0:09:22.360 --> 0:09:25.360 there is a risk off, actually treasuries would rally, and 0:09:25.400 --> 0:09:28.000 then the event that there is a improvement in growth 0:09:28.000 --> 0:09:30.600 and treasuries made back up, you would see credit spreads 0:09:30.600 --> 0:09:33.760 tighten very significantly. So number one, I don't think that 0:09:33.760 --> 0:09:37.560 that's an inconsistency. Secondly, I think that when you invest 0:09:37.600 --> 0:09:40.440 in things like high yield and other fixt income related 0:09:40.480 --> 0:09:42.840 assets that are not treasuries or agency mortgages that are 0:09:42.920 --> 0:09:45.600 very liquids, you think longer term and longer term, we 0:09:45.640 --> 0:09:48.920 do believe that you're gonna have um improvements in care 0:09:49.000 --> 0:09:51.920 for COVID, We're gonna get back to better growth next year, 0:09:52.160 --> 0:09:53.960 and so as a result, you want to stay long 0:09:54.000 --> 0:09:56.720 growth related assets. But as we look at what's setting 0:09:56.800 --> 0:09:59.760 up right now in terms of the potential for election volatility, 0:10:00.120 --> 0:10:02.480 the potential for funding issues at the end of the year, 0:10:02.480 --> 0:10:04.920 as banks are not in a great capital position to 0:10:05.000 --> 0:10:06.840 be able to provide a lot of liquid into markets, 0:10:07.040 --> 0:10:09.040 we actually want to be in a position where we 0:10:09.080 --> 0:10:11.400 have a little duration going into that. But you're also 0:10:11.400 --> 0:10:13.199 in a position where you have dry powder and take 0:10:13.240 --> 0:10:16.120 advantage of this location coming into at the end of 0:10:16.120 --> 0:10:18.080 the year. Hold on a second, let's unpack some of 0:10:18.080 --> 0:10:19.880 that you said dislocation into the end of the year. 0:10:19.920 --> 0:10:22.559 In other words, you're expecting some of the riskier credit 0:10:22.600 --> 0:10:27.040 to potentially sell off and potentially significantly heading into your end, 0:10:27.040 --> 0:10:28.959 and then you're gonna be buying what's your entry point. 0:10:29.920 --> 0:10:34.600 So I'm trying to divide the fixing com universe into two. 0:10:35.040 --> 0:10:38.360 One is the credit related assets, where you're relying upon 0:10:39.120 --> 0:10:42.480 growth improving next year, earning is improving on the margin 0:10:42.600 --> 0:10:46.280 and just getting paid back. And in trading credit, it's 0:10:46.400 --> 0:10:49.000 very hard to jump in and jump out pre election, 0:10:49.120 --> 0:10:52.079 post election going into your end. So long term, we 0:10:52.200 --> 0:10:55.480 still very much like owning credit. In the very mere term, though, 0:10:55.679 --> 0:10:58.480 we look at factors like volatility, and so we look 0:10:58.480 --> 0:11:00.400 at we look at vis we look at bit offer 0:11:00.440 --> 0:11:03.040 spread as Tom was talking about earlier, and we get 0:11:03.040 --> 0:11:06.160 a little concerned that there's gonna be bolatility going to 0:11:06.200 --> 0:11:08.679 the election, and it's likely to be baltilly going to 0:11:08.800 --> 0:11:11.120 your funding stamp on. So what we've done is instead 0:11:11.120 --> 0:11:14.160 of reducing positions in credit related assets which are going 0:11:14.200 --> 0:11:16.920 to be dependent upon growth and longer term, we're trying 0:11:16.920 --> 0:11:19.400 to free up balance sheet and portfolios to be in 0:11:19.400 --> 0:11:21.800 a position to take a match just location, and that 0:11:21.880 --> 0:11:25.040 may be even things that basic at um cash futures 0:11:25.040 --> 0:11:27.320 basis in the treasury market, something that blew up during 0:11:27.320 --> 0:11:29.959 the COVID crisis, blew up in previous funding crisis where 0:11:30.000 --> 0:11:32.360 you can earn very very attractive a term by deploying 0:11:32.400 --> 0:11:35.240 your on your balunt on radio and television. This morning 0:11:35.240 --> 0:11:38.040 our simulcast Michael Swell with us with Goldman Sex out 0:11:38.040 --> 0:11:41.560 of Brandis and LS a few years back. Mike Swell 0:11:42.080 --> 0:11:44.440 right now at LESA and I know with John Farrow's 0:11:44.440 --> 0:11:48.440 interview after interview, everybody says they're buying China debt. All 0:11:48.480 --> 0:11:51.960 my radars up just because everybody seems to be in 0:11:52.000 --> 0:11:55.440 the trade. What's the risk or what's the thought you 0:11:55.559 --> 0:11:58.840 have on what could be out there in two thousand 0:12:00.559 --> 0:12:05.440 for the certitude of owning China debt? Well, I think 0:12:05.440 --> 0:12:10.800 we have two factors that are risk to owning Chinese debt. 0:12:10.960 --> 0:12:14.520 One is the risk that growth and that the Chinese 0:12:14.520 --> 0:12:18.040 economy is very insular and continues to recover at a 0:12:18.120 --> 0:12:21.000 pace very different than the rest of the global economy, 0:12:21.240 --> 0:12:23.559 and the event that that does occur, that could create 0:12:23.600 --> 0:12:28.599 a situation where the Chinese Central Bank provides less accommodation 0:12:28.840 --> 0:12:31.200 and you actually see rates rides and inflation pick up 0:12:31.280 --> 0:12:34.120 in China. That's a that's a real risk. The other 0:12:34.240 --> 0:12:37.080 risk is that um from a credit standpoint, people get 0:12:37.080 --> 0:12:39.360 concerned again about China kind of the other side, and 0:12:39.720 --> 0:12:42.319 while the central bank has the ability to lower rate, 0:12:42.679 --> 0:12:44.760 you could have a situation where there's credit concern. I 0:12:44.800 --> 0:12:48.240 think that's less of a concern. In the end, rates 0:12:48.360 --> 0:12:51.480 are attractive in China. Rates are in the three and 0:12:51.520 --> 0:12:53.800 a quarter area. They're meaningfully higher than they are on 0:12:53.840 --> 0:12:55.840 the rest of the globe. We don't expect to see 0:12:55.840 --> 0:12:58.760 inflation running away in China, and so the real rate 0:12:59.040 --> 0:13:02.440 in a country like is actually somewhat attractive. I'm not 0:13:02.520 --> 0:13:04.720 overly concerned. That doesn't feel like a crowd of trade. 0:13:04.760 --> 0:13:06.959 Aren't a lot of investors that have the ability to 0:13:07.000 --> 0:13:09.680 be able to invest in China debt that you're that 0:13:09.760 --> 0:13:11.520 you're overly concerned that it can be one of these 0:13:11.559 --> 0:13:15.520 crowd of trade. But obviously, Mike Well, I got a question. 0:13:15.600 --> 0:13:19.040 You were a ginormous basketball player at Brandeis. Did you 0:13:19.120 --> 0:13:22.280 really cut practice once because you wanted to go see 0:13:22.320 --> 0:13:26.320 Al Gore? Did you really do that? Oh my god, 0:13:26.360 --> 0:13:33.160 you really did? Um nineteen eight the eight election, and uh, 0:13:33.240 --> 0:13:36.400 actually it was true. I actually worked on one of 0:13:36.400 --> 0:13:39.560 the presidents of campaigns and was very active and involved. 0:13:39.559 --> 0:13:42.600 There were about eight Democratic candidates at the time, and um, 0:13:42.640 --> 0:13:44.400 I actually did go to the coach, and the coach 0:13:44.480 --> 0:13:46.719 getting rolled his eyes and said, we don't do that here, 0:13:46.720 --> 0:13:49.040 We're here for basketball, and coach, no, I want to 0:13:49.040 --> 0:13:50.719 see I want to be out Gore. I want to 0:13:50.720 --> 0:13:53.960 hear about that new Green Deal thirty five years ago. 0:13:54.320 --> 0:13:56.640 Green Deal, it was really a thing, and so actually 0:13:56.679 --> 0:14:00.079 it is. And John Farrell I would say that. And 0:14:00.240 --> 0:14:02.640 ice basketball back then was the real deal. What are 0:14:02.640 --> 0:14:05.080 they doing final four? No, but it was a real deal, 0:14:05.280 --> 0:14:08.120 very competitive program. I would I would love to know 0:14:08.160 --> 0:14:10.800 what David Solomon would have to say if Greg if 0:14:10.800 --> 0:14:12.640 Mike gave him a quick cold and said I want 0:14:12.640 --> 0:14:14.560 to go to see a I say and talk about 0:14:14.600 --> 0:14:18.080 the great deal, you might not say that. I'm worried 0:14:22.360 --> 0:14:29.000 coming sex. Thank you, thank you very much. Right now 0:14:29.040 --> 0:14:31.560 to get things started, Gregory Peters joins us. He's with 0:14:31.640 --> 0:14:36.320 p JAM with real portfolio management, Money at Risk, FIST 0:14:36.440 --> 0:14:39.480 income ahead of multisector and strategy and he's one of 0:14:39.680 --> 0:14:42.480 Trophy set of awards over the years and and all 0:14:42.520 --> 0:14:46.520 that as well. Greg, I love, love, love what you say. 0:14:46.520 --> 0:14:51.360 This is a market assisting bondholders and not stockholders. What 0:14:51.400 --> 0:14:53.920 do you mean by that that policy and all of 0:14:54.000 --> 0:14:58.760 finance and capitalisms working for bond holders right now. Yeah. 0:14:58.800 --> 0:15:01.320 So I think we're in this environment still and we're 0:15:01.320 --> 0:15:04.520 talking about the path of the virus and rolling shutdowns 0:15:04.520 --> 0:15:07.480 and pullbacks and fiscal similus. I think what that really 0:15:07.560 --> 0:15:12.880 does at its core, it's really keep companies conservative, right, 0:15:12.920 --> 0:15:17.240 and being conservative benefits bond holders over equity holders. And 0:15:17.280 --> 0:15:20.720 so what you're continuing to see our companies worried about 0:15:20.760 --> 0:15:24.120 the path of the virus rightfully, so uh and so 0:15:24.240 --> 0:15:28.280 they're retrenching, uh and and and so you're not going 0:15:28.320 --> 0:15:32.440 to see the same type of activity where bond holders 0:15:32.480 --> 0:15:35.880 are put to the side, uh and equity holders are 0:15:35.920 --> 0:15:39.400 put forward. So I think that's the environment that we're in. 0:15:40.560 --> 0:15:45.520 I know it's perverse, but that's bond market investing. We've 0:15:45.520 --> 0:15:48.800 seen some huge bond issuance, some huge bond supply through 0:15:49.680 --> 0:15:52.400 through this pandemic from both investments gride and high. Can 0:15:52.440 --> 0:15:54.960 you do a distinction on what that money is being 0:15:55.040 --> 0:15:57.520 used for this time around and whether that plays into 0:15:57.520 --> 0:16:01.720 the argument you're making. That absolutely plays into the argument. 0:16:01.800 --> 0:16:05.040 So at the surface level, you see the headlines of 0:16:05.080 --> 0:16:08.160 all these issuance it's it's somewhat scared. But then when 0:16:08.200 --> 0:16:10.880 you look a little deeper, what you see or that 0:16:10.960 --> 0:16:15.080 companies are actually terming out their existing debt at lower 0:16:15.120 --> 0:16:19.280 coupons and paying down their higher coupon short debt. So 0:16:19.560 --> 0:16:21.840 in effect, what they're doing is that they're putting their 0:16:21.880 --> 0:16:25.160 balances in better shape, not worse shape. At the same 0:16:25.200 --> 0:16:29.520 time they are preparing for additional liquidity measures. And so 0:16:29.600 --> 0:16:33.000 those two things put together, I think put bond holders 0:16:33.040 --> 0:16:35.360 in a better place, not a worth place. So it's 0:16:35.400 --> 0:16:38.600 really what you're using the proceeds for. It's not like 0:16:38.640 --> 0:16:40.960 you're using the proceeds like you have in the past 0:16:41.040 --> 0:16:44.040 to buy back equity, right, So you're not doing that, 0:16:44.080 --> 0:16:48.080 and I think that intent and that purpose really benefits 0:16:48.280 --> 0:16:50.600 being a bond holder in here. Greg the credit market 0:16:50.760 --> 0:16:54.640 not a monolith. You've got investment grade corporate issuers perhaps 0:16:54.640 --> 0:16:57.320 doing what you say. On the high yield side, I've 0:16:57.360 --> 0:17:00.000 read an increasing number of articles about pick toggle deals. 0:17:00.080 --> 0:17:02.040 Basically if they don't want to pay their interests, they 0:17:02.080 --> 0:17:04.320 just put it on their debt balance. You see also 0:17:04.400 --> 0:17:08.680 recap divida a dividend recapitalizations. Basically private equity firms having 0:17:08.680 --> 0:17:12.080 their portfolio companies borrow more money to give them a payout. 0:17:12.280 --> 0:17:16.920 How does this fit into the conservativeness that you're talking about. Yeah, 0:17:16.920 --> 0:17:19.080 so I think you're always going to see that type 0:17:19.200 --> 0:17:22.240 of transaction, but it's not really happening in Moss. And 0:17:22.280 --> 0:17:24.679 so you can always pick to a certain deal that 0:17:24.760 --> 0:17:28.159 happened that's maybe pushing the limits, but it doesn't really 0:17:28.160 --> 0:17:31.760 tell you the broader story. And the broader story is 0:17:31.920 --> 0:17:34.320 the one that I just described, So I think that's 0:17:34.359 --> 0:17:37.800 the important piece of the puzzle. Don't don't get drawn 0:17:37.840 --> 0:17:41.480 in by these idiosyncratic kind of news stories. The broader 0:17:41.520 --> 0:17:44.640 story is want of balance sheet repair, and I think 0:17:44.840 --> 0:17:48.960 that's the driver. Let's push the politics through this conversation 0:17:48.960 --> 0:17:52.040 as well, correct going forward sector to sector, what you're 0:17:52.040 --> 0:17:54.439 looking at the moment and the kind of permitations that 0:17:54.520 --> 0:17:56.640 you guys are talking about A page Jim. As far 0:17:56.640 --> 0:18:00.760 as the election is concerned, Yeah, so the action obviously 0:18:01.240 --> 0:18:04.160 is that the four Really it boils down to what's 0:18:04.240 --> 0:18:08.800 the new regulatory construct and the tax construct? Um uh 0:18:08.880 --> 0:18:11.840 and so look, I mean I would I think it's 0:18:11.880 --> 0:18:15.760 a still worthy of kind of examination, But I just 0:18:15.800 --> 0:18:18.480 say a couple of things. Uh. First, and foremost is 0:18:18.520 --> 0:18:20.560 that I do think if you do have this kind 0:18:20.560 --> 0:18:24.040 of blue suite that seems to have really uh captivated 0:18:24.040 --> 0:18:27.720 the market in here, that does benefit the consumer as 0:18:27.760 --> 0:18:31.320 it could kind of fuel continued kind of wage growth 0:18:31.320 --> 0:18:34.960 and just economic growth. Um. But but the one area 0:18:35.000 --> 0:18:37.200 that we see differently than maybe the equity market in 0:18:37.280 --> 0:18:41.840 some other areas um is the financials. Uh So, to me, 0:18:42.080 --> 0:18:45.120 it's really hard to see a situation where there could 0:18:45.160 --> 0:18:48.920 be much more regulation to damage kind of the ability 0:18:48.960 --> 0:18:52.159 for financials to operate. So so my comment has been 0:18:52.200 --> 0:18:54.879 it's hard to kill the patient twice, and so I 0:18:54.880 --> 0:18:59.040 think it's really a pretty benign environment all else equal, 0:18:59.320 --> 0:19:01.760 if there is a leadership change on the financial side. 0:19:01.960 --> 0:19:05.760 And then finally on the energy front, this is highly controversial. 0:19:06.119 --> 0:19:08.720 Many investors are looking at energy. Obviously it was a 0:19:08.760 --> 0:19:11.720 center at the last debate, but the truth in the 0:19:11.800 --> 0:19:15.160 matter of the energy companies haven't really benefited either equity 0:19:15.200 --> 0:19:18.960 holders or bond holders over the past several years. So 0:19:19.280 --> 0:19:22.000 some kind of change in alteration in the spending mix 0:19:22.000 --> 0:19:25.680 and maybe being less profligate is isn't such a bad thing. 0:19:25.800 --> 0:19:30.359 So I'm actually pretty excited over the alpha opportunities within 0:19:30.440 --> 0:19:35.159 the energy space going forward, Greg, the great understanding is 0:19:35.200 --> 0:19:37.840 it bonds as a hedge don't work anymore, so I 0:19:37.840 --> 0:19:41.280 gotta go find something else, whether it's preferred bank prefers, etcetera, 0:19:41.680 --> 0:19:45.920 or forty seven other intangible assets as well. Is that 0:19:46.320 --> 0:19:48.600 gonna happen? I mean, a bond is a bond if 0:19:48.600 --> 0:19:50.880 fixed income as a hedge is is just what it is, 0:19:51.160 --> 0:19:54.520 a predictable stream of of cash flows. Can there be 0:19:54.720 --> 0:19:59.200 an alternative? I think there can, but it's way too early. 0:19:59.320 --> 0:20:02.320 So I agree with with Mike Swell who was on previously. 0:20:02.480 --> 0:20:05.320 I think it's way too early to call the death 0:20:05.359 --> 0:20:07.720 of the bond market. But this is really picking up 0:20:07.720 --> 0:20:10.840 steam as a story. But it you know, I mean, 0:20:10.880 --> 0:20:15.440 we're in an environment where real yields are negative, right, 0:20:15.480 --> 0:20:19.000 so the fact that you're getting you know, seventy fifty 0:20:19.040 --> 0:20:21.080 basis points depending on where you are in the curve, 0:20:21.160 --> 0:20:23.440 that matters a lot relative to that. So I still 0:20:23.480 --> 0:20:26.960 think bonds add a lot of value to the portfolil uh. 0:20:27.000 --> 0:20:30.760 And there's a thing called risk adjustment, So you are, um, 0:20:30.800 --> 0:20:33.240 you know, getting a return for a lot less risk, 0:20:33.280 --> 0:20:36.560 and I think that matters. So there's this big storyline 0:20:36.600 --> 0:20:38.960 going on around the death of the bond market, and 0:20:39.040 --> 0:20:42.040 sixty forty is dead. I think it's way too early 0:20:42.119 --> 0:20:45.919 for that. Uh. And bonds do what they're supposed to do. 0:20:46.080 --> 0:20:49.760 You see it today, UH, and I'll believe you know, 0:20:49.840 --> 0:20:52.800 you'll continue to see it. So UH. I'm so bullish 0:20:53.040 --> 0:20:55.800 on the outlook for bonds. And in fact, I mean 0:20:55.840 --> 0:20:57.840