1 00:00:13,800 --> 00:00:16,960 Speaker 1: Hello, and welcome to What Goes Up, a Bloomberg weekly 2 00:00:17,000 --> 00:00:20,560 Speaker 1: market podcast. I'm Sara Pottek, a reporter on the Cross 3 00:00:20,560 --> 00:00:23,360 Speaker 1: Asset team, and I'm Mike Reagan, a senior editor on 4 00:00:23,400 --> 00:00:26,280 Speaker 1: the Markets Team. This week on the show, monetary and 5 00:00:26,280 --> 00:00:30,360 Speaker 1: fiscal policy measures have been described as unprecedented over and 6 00:00:30,520 --> 00:00:34,080 Speaker 1: over again. The Federal Reserve met this week and reiterated 7 00:00:34,120 --> 00:00:36,400 Speaker 1: it is quote committed to using its full range of 8 00:00:36,440 --> 00:00:39,440 Speaker 1: tools to support the U. S economy, and over in Washington, 9 00:00:39,560 --> 00:00:42,520 Speaker 1: d C. The deficit is ballooning. Is the government works 10 00:00:42,520 --> 00:00:45,000 Speaker 1: to get cash to companies in need, But what are 11 00:00:45,000 --> 00:00:48,680 Speaker 1: the long term ramifications? And should we care? I care, Sarah, 12 00:00:48,800 --> 00:00:52,080 Speaker 1: I know I care, but yeah I do. And we've 13 00:00:52,120 --> 00:00:54,800 Speaker 1: got a great guest who will give us some some 14 00:00:54,920 --> 00:00:57,920 Speaker 1: insight on all these topics. But Sarah, before I introduce them, 15 00:00:57,920 --> 00:01:00,639 Speaker 1: I need an update on your quarantine. Such way down 16 00:01:00,680 --> 00:01:03,080 Speaker 1: there in Florida, how's it, Cohen? Are you? Uh? You? 17 00:01:03,080 --> 00:01:06,319 Speaker 1: You live in large? Live in large? I must say, 18 00:01:06,360 --> 00:01:08,039 Speaker 1: as as large as you can be. I mean, at 19 00:01:08,120 --> 00:01:10,600 Speaker 1: least now I'm able to go out on my patio. 20 00:01:10,800 --> 00:01:13,039 Speaker 1: I can go on walks in the neighborhood. Of course, 21 00:01:13,080 --> 00:01:16,360 Speaker 1: staying six ft from other people. But but Florida's opening 22 00:01:16,480 --> 00:01:19,280 Speaker 1: up pretty soon. Um, not the county that I am in, 23 00:01:19,760 --> 00:01:24,360 Speaker 1: but starting on Monday, the majority of counties across the 24 00:01:24,400 --> 00:01:28,480 Speaker 1: state are going to be working on reopening. So it 25 00:01:28,520 --> 00:01:30,720 Speaker 1: should be pretty interesting. And I have heard from a 26 00:01:30,720 --> 00:01:32,720 Speaker 1: couple of people who have been out and about on 27 00:01:32,760 --> 00:01:35,960 Speaker 1: the streets more than I have that they're actually pretty crowded. 28 00:01:36,080 --> 00:01:39,840 Speaker 1: So so life life continues down here in Florida already. Well. 29 00:01:39,880 --> 00:01:42,840 Speaker 1: And they let your dad back in the house. Yes, 30 00:01:43,040 --> 00:01:45,040 Speaker 1: my my dad. For all of those of you who 31 00:01:45,080 --> 00:01:48,320 Speaker 1: are are concerned and very caring, my dad is now 32 00:01:48,440 --> 00:01:52,400 Speaker 1: back in the house. Thankfully. He no longer is exiled, 33 00:01:52,560 --> 00:01:55,080 Speaker 1: so he's very happy about that. We we had a 34 00:01:55,160 --> 00:01:58,120 Speaker 1: nice celebration when he was welcome back. That's good, you know. 35 00:01:58,200 --> 00:02:00,840 Speaker 1: I always like to get the dad perspective on this show. 36 00:02:01,920 --> 00:02:06,240 Speaker 1: A lot of dad's out there listening. But let's we 37 00:02:06,280 --> 00:02:09,640 Speaker 1: all care about the dad. Let's bring in our guest 38 00:02:09,960 --> 00:02:12,240 Speaker 1: first time on the show. Very excited to have him. 39 00:02:12,400 --> 00:02:16,760 Speaker 1: His name is Zach Griffith's. He's a macro strategist at 40 00:02:16,800 --> 00:02:20,640 Speaker 1: Wells Fargo's Security. Zack, welcome to the show. Thanks for 41 00:02:20,639 --> 00:02:23,560 Speaker 1: having me so Zach you might have heard, but we 42 00:02:23,560 --> 00:02:25,600 Speaker 1: we have a tradition on the show where at the 43 00:02:25,720 --> 00:02:28,079 Speaker 1: end of the show we talk about what we call 44 00:02:28,160 --> 00:02:31,760 Speaker 1: the craziest things we saw in markets this week, and 45 00:02:31,800 --> 00:02:35,280 Speaker 1: we usually leave it towards the end um because it's 46 00:02:35,360 --> 00:02:37,359 Speaker 1: kind of a fun, lighthearted thing. It's like having to 47 00:02:37,560 --> 00:02:41,320 Speaker 1: desert at the end of a nice healthy meal. You 48 00:02:41,400 --> 00:02:44,040 Speaker 1: got to have those vegetables first. But the craziest thing 49 00:02:44,120 --> 00:02:46,720 Speaker 1: I saw this week is kind of right in your wheelhouse. 50 00:02:46,760 --> 00:02:49,320 Speaker 1: I'm gonna jump the gun. I'm gonna serve the cake 51 00:02:49,440 --> 00:02:52,280 Speaker 1: his appetizer here and ask you what you think about 52 00:02:52,320 --> 00:02:56,520 Speaker 1: this story I came out on Thursday, uh Washington Post 53 00:02:56,560 --> 00:03:01,440 Speaker 1: story saying US officials are crafting retaliatory measures against China 54 00:03:01,560 --> 00:03:04,840 Speaker 1: over the coronavirus. Uh. You know. The notion is that 55 00:03:05,480 --> 00:03:09,440 Speaker 1: the White House thinks that China is to blame for 56 00:03:09,560 --> 00:03:12,640 Speaker 1: the virus um. So they're they're talking a bunch of 57 00:03:12,639 --> 00:03:18,520 Speaker 1: different measures, possibly uh, eliminating the sovereign immunity that countries 58 00:03:19,000 --> 00:03:21,959 Speaker 1: enjoying the court system to allow people to sue China 59 00:03:22,639 --> 00:03:25,040 Speaker 1: for damages. But the thing that really I think caught 60 00:03:25,080 --> 00:03:27,040 Speaker 1: my eye. It caused a little bit of buzz on 61 00:03:27,080 --> 00:03:30,880 Speaker 1: Thursdays this one line in the story. Some administration officials 62 00:03:30,919 --> 00:03:34,200 Speaker 1: have also discussed having the U s cancel part of 63 00:03:34,240 --> 00:03:37,680 Speaker 1: its debt obligations to China. Two people with knowledge of 64 00:03:37,720 --> 00:03:40,200 Speaker 1: internal this conversation said it was not known if the 65 00:03:40,240 --> 00:03:44,040 Speaker 1: President back the idea. Now, obviously the news flow out 66 00:03:44,040 --> 00:03:47,240 Speaker 1: of this administration is unique in that you get this 67 00:03:47,360 --> 00:03:50,680 Speaker 1: stuff floated like this, that they're considering or thinking about, 68 00:03:50,760 --> 00:03:54,520 Speaker 1: and then it's promptly denied. Larry Cudlow was out almost 69 00:03:54,520 --> 00:03:59,000 Speaker 1: instantly denying this. But boy, I just wonder, you know, 70 00:03:59,120 --> 00:04:02,360 Speaker 1: as a macro strategist, you know, especially a guy with 71 00:04:02,360 --> 00:04:05,960 Speaker 1: a rates background like yours, this must even the talk 72 00:04:06,000 --> 00:04:09,600 Speaker 1: of something like this must make the blood pressure go up. Um. 73 00:04:09,720 --> 00:04:12,880 Speaker 1: I think this was widely The reaction I saw from 74 00:04:12,880 --> 00:04:14,960 Speaker 1: everyone was that this is nuts. There's no way they 75 00:04:15,000 --> 00:04:18,800 Speaker 1: could do this. Um. But I gotta I gotta get 76 00:04:18,839 --> 00:04:21,080 Speaker 1: your take on it. Is this something that we should 77 00:04:21,080 --> 00:04:24,680 Speaker 1: really be worried about or is it just, you know, 78 00:04:24,760 --> 00:04:27,800 Speaker 1: just sound like a bunch of rumor mongering going on. 79 00:04:29,600 --> 00:04:31,960 Speaker 1: I don't think this is something we should be worried about. 80 00:04:32,040 --> 00:04:35,240 Speaker 1: And when you think about the US debt, I don't 81 00:04:35,240 --> 00:04:37,520 Speaker 1: think the Treasury or the White House is gonna want 82 00:04:37,560 --> 00:04:40,040 Speaker 1: to do anything to call into question whether or not 83 00:04:40,560 --> 00:04:43,400 Speaker 1: the US government is going to pay interest on its 84 00:04:43,400 --> 00:04:46,279 Speaker 1: debt or principle on its debt. The long term ramifications 85 00:04:46,320 --> 00:04:49,080 Speaker 1: of something like that are just it's not a path 86 00:04:49,160 --> 00:04:52,200 Speaker 1: they want to go down. And I think that it's 87 00:04:52,200 --> 00:04:55,479 Speaker 1: definitely crazy time. So you're getting a lot of news flow, 88 00:04:55,560 --> 00:04:58,560 Speaker 1: and you know, you say craziest things in markets this week. 89 00:04:58,600 --> 00:05:01,680 Speaker 1: It's hard to find something it's been happening that hasn't 90 00:05:01,800 --> 00:05:05,880 Speaker 1: happened recently or is more severe than something that's happened recently. 91 00:05:05,960 --> 00:05:08,800 Speaker 1: So I think it's it's definitely an interesting time, but 92 00:05:08,920 --> 00:05:12,159 Speaker 1: I don't I don't give too much credence to that. 93 00:05:12,360 --> 00:05:15,800 Speaker 1: I think the long termament ramifications would be too detrimental 94 00:05:15,920 --> 00:05:19,080 Speaker 1: to really consider. Two things I have to say about that. One, 95 00:05:19,120 --> 00:05:22,400 Speaker 1: it's it's kind of like this was the pre dinner drink, Mike, 96 00:05:23,160 --> 00:05:25,440 Speaker 1: and then we'll get into the vegetables, then we'll get 97 00:05:25,440 --> 00:05:27,440 Speaker 1: to the dessert. But but I also have to say, 98 00:05:28,000 --> 00:05:31,040 Speaker 1: I think that question may have been longer than the 99 00:05:31,160 --> 00:05:33,400 Speaker 1: question that you asked last week on the show, which 100 00:05:33,440 --> 00:05:35,400 Speaker 1: one of our listeners did call you out. Let's all 101 00:05:35,440 --> 00:05:39,000 Speaker 1: stop timing my questions here. I know they're long. You know, 102 00:05:39,200 --> 00:05:41,240 Speaker 1: it's like on the soap opera where all and friends. 103 00:05:41,320 --> 00:05:43,760 Speaker 1: Remember they said, you you put your hands over the 104 00:05:43,800 --> 00:05:45,520 Speaker 1: face of the person you're kissing, so you get all 105 00:05:45,520 --> 00:05:48,800 Speaker 1: the screen time. That's kind of my my idea with questions. 106 00:05:49,080 --> 00:05:52,080 Speaker 1: But uh, you know, you gotta you gotta give him, 107 00:05:52,160 --> 00:05:55,400 Speaker 1: you gotta give him some meaty questions, Sarah, so they know, Uh, 108 00:05:55,640 --> 00:05:58,600 Speaker 1: let's hear you're a very short question for Zach, then, Sarah, 109 00:05:59,000 --> 00:06:00,840 Speaker 1: I don't know, Well, won't be that short of it, 110 00:06:00,960 --> 00:06:03,360 Speaker 1: but it only shorter than yours. I can guarantee that. 111 00:06:03,960 --> 00:06:08,160 Speaker 1: But I mean, speaking speaking of debt, uh, And this 112 00:06:08,200 --> 00:06:13,160 Speaker 1: past week, you guys had a note titled Bill's Barrage continues, 113 00:06:13,600 --> 00:06:18,559 Speaker 1: and you revised upwards to the upside what you think 114 00:06:18,760 --> 00:06:22,280 Speaker 1: the deficit is going to amount to? Uh? And you 115 00:06:22,360 --> 00:06:24,440 Speaker 1: raise it to three point two trillion from two point 116 00:06:24,440 --> 00:06:27,800 Speaker 1: four trillion. Now, one line that I loved though within 117 00:06:28,160 --> 00:06:30,680 Speaker 1: the research report was you said, in total, we expect 118 00:06:30,680 --> 00:06:34,120 Speaker 1: Treasury to issue a net one point nine trillion. This 119 00:06:34,279 --> 00:06:37,520 Speaker 1: is not a misprint because everything is just so crazy 120 00:06:37,680 --> 00:06:39,880 Speaker 1: right now. But I mean, seriously, you think about the 121 00:06:39,960 --> 00:06:42,760 Speaker 1: amount of debt being issued right now, you think about 122 00:06:42,800 --> 00:06:45,440 Speaker 1: the amount of money being pumped into the system right now, 123 00:06:45,520 --> 00:06:49,520 Speaker 1: I mean, can can we continue to see this amount 124 00:06:49,560 --> 00:06:54,000 Speaker 1: of money uh and this amount of debt being uh 125 00:06:54,120 --> 00:06:58,360 Speaker 1: digested by the market in a smooth way? Yeah, that's 126 00:06:58,360 --> 00:07:01,520 Speaker 1: a great question, and it's that we've been contemplating. And 127 00:07:01,520 --> 00:07:05,359 Speaker 1: when you're talking about one point nine trillion of issuance 128 00:07:05,400 --> 00:07:08,320 Speaker 1: of any type of security in a single quarter, you 129 00:07:08,400 --> 00:07:10,560 Speaker 1: have to ask is there a market for it? And 130 00:07:10,600 --> 00:07:14,800 Speaker 1: when we think about what's happened recently in T bill issuance, 131 00:07:14,800 --> 00:07:17,400 Speaker 1: which has already been north of a trillion over the 132 00:07:17,440 --> 00:07:20,840 Speaker 1: past month alone, we look at where the demand comes from. 133 00:07:20,880 --> 00:07:23,600 Speaker 1: And if you look at inflows into government only money 134 00:07:23,640 --> 00:07:27,960 Speaker 1: market funds over roughly the past eight weeks, inflows into 135 00:07:27,960 --> 00:07:30,040 Speaker 1: those types of funds that do a lot of investing 136 00:07:30,080 --> 00:07:33,480 Speaker 1: in TE bills, primarily te bills, it's been over a 137 00:07:33,480 --> 00:07:37,480 Speaker 1: trillion as well. So the demand is there, fortunately for Treasury, 138 00:07:37,480 --> 00:07:41,040 Speaker 1: who needs to raise these funds extremely quickly for these 139 00:07:41,080 --> 00:07:45,760 Speaker 1: emergency lending programs, whether it be for unemployment insurance claims 140 00:07:45,880 --> 00:07:48,720 Speaker 1: or just to cut checks to certain Americans for a 141 00:07:48,760 --> 00:07:52,120 Speaker 1: certain amount. That is a deficit that needs to be 142 00:07:52,200 --> 00:07:54,720 Speaker 1: raised quickly, because that's money that actually goes out the 143 00:07:54,720 --> 00:07:57,200 Speaker 1: door in a very short time frame. When we think 144 00:07:57,240 --> 00:08:02,080 Speaker 1: about budget deficits historically you think about spending over the 145 00:08:02,120 --> 00:08:05,280 Speaker 1: next year. So they may do a trillion in spending, 146 00:08:05,320 --> 00:08:07,600 Speaker 1: but that's over a year, and you have time to 147 00:08:07,680 --> 00:08:10,640 Speaker 1: raise money for that. You have tax payments coming in 148 00:08:10,680 --> 00:08:14,840 Speaker 1: which those have been delayed to July, so really the 149 00:08:14,960 --> 00:08:17,280 Speaker 1: it's been remarkable how much they've had to raise, but 150 00:08:17,720 --> 00:08:19,560 Speaker 1: up to this point it does seem like there has 151 00:08:19,600 --> 00:08:22,440 Speaker 1: been a market for it. And going forward, we think 152 00:08:22,640 --> 00:08:25,800 Speaker 1: as some risk appetite comes back into the market. You 153 00:08:25,840 --> 00:08:29,600 Speaker 1: see credit spreads have fallen, equities have risen, people are 154 00:08:29,640 --> 00:08:32,080 Speaker 1: getting a little bit more comfortable and a little bit 155 00:08:32,120 --> 00:08:36,480 Speaker 1: more optimistic with some states reopening and maybe some promising 156 00:08:36,559 --> 00:08:39,680 Speaker 1: drug tests. I don't pretend to have much knowledge or 157 00:08:39,679 --> 00:08:42,000 Speaker 1: insight into how some of those things are progressing, but 158 00:08:42,320 --> 00:08:44,400 Speaker 1: you're starting to see some of that optimism. And as 159 00:08:44,440 --> 00:08:48,120 Speaker 1: people move into somewhat risk your assets, whether it even 160 00:08:48,160 --> 00:08:51,280 Speaker 1: be just prime money market funds instead of government money 161 00:08:51,280 --> 00:08:54,400 Speaker 1: market funds, we think that backstop of demand is going 162 00:08:54,440 --> 00:08:56,280 Speaker 1: to come off a bit, and that's when the FED 163 00:08:56,720 --> 00:08:58,640 Speaker 1: is going to need to come in and start shifting 164 00:08:58,800 --> 00:09:02,319 Speaker 1: its asset purchases, which has been ratcheting down quite a bit. 165 00:09:02,360 --> 00:09:06,000 Speaker 1: We think it will have to evolve treasury bills pretty soon, 166 00:09:06,280 --> 00:09:09,880 Speaker 1: as that backstop the man kind of falls off at 167 00:09:09,920 --> 00:09:12,360 Speaker 1: least a bit. Well, Zack, I'm glad you don't pretend 168 00:09:12,360 --> 00:09:15,160 Speaker 1: to be an expert on the pharmaceutical end. I don't 169 00:09:15,200 --> 00:09:19,160 Speaker 1: know how many epidemiologist experts have suddenly appeared out of 170 00:09:19,200 --> 00:09:22,520 Speaker 1: the blue to mansplain this all to us. But um, 171 00:09:23,080 --> 00:09:26,120 Speaker 1: you know, as you mentioned this, this insane amount of 172 00:09:26,120 --> 00:09:30,200 Speaker 1: supply coming and the possibility that risk appetites re emerge 173 00:09:30,520 --> 00:09:32,560 Speaker 1: at the same time, you know, the FED seems to 174 00:09:32,640 --> 00:09:36,120 Speaker 1: be willing to basically write a blank check to the 175 00:09:36,120 --> 00:09:40,880 Speaker 1: treasury market. Do you have a sense of of how 176 00:09:41,280 --> 00:09:44,600 Speaker 1: that will all play out? How aggressively would they allow 177 00:09:44,720 --> 00:09:47,800 Speaker 1: yields to rise? I mean, will they be trying to 178 00:09:48,240 --> 00:09:51,079 Speaker 1: actually keep a lid on rates in your opinion, or 179 00:09:51,679 --> 00:09:54,439 Speaker 1: more just as they described it, to keep the treasury 180 00:09:54,480 --> 00:09:59,040 Speaker 1: liquidity uh functioning as it should be given this huge supply. 181 00:09:59,080 --> 00:10:02,960 Speaker 1: I mean, um, because it's a you know, in a 182 00:10:03,040 --> 00:10:05,480 Speaker 1: normal world, you would think this much supply would just 183 00:10:05,520 --> 00:10:09,839 Speaker 1: automatically be bearish for rates um, But how do you 184 00:10:09,880 --> 00:10:12,840 Speaker 1: see the Fed's role evolving as sort of the economy 185 00:10:12,880 --> 00:10:17,240 Speaker 1: recovers in that risk appetite UH resumes. We think the 186 00:10:17,280 --> 00:10:20,360 Speaker 1: FED is going to have to continue tapering the amount 187 00:10:20,360 --> 00:10:23,079 Speaker 1: of its asset purchases. As you mentioned, We really do 188 00:10:23,480 --> 00:10:26,240 Speaker 1: believe that the whole point, or at least the majority 189 00:10:26,280 --> 00:10:28,280 Speaker 1: of the point this time around versus when they were 190 00:10:28,320 --> 00:10:32,280 Speaker 1: doing large scale asset purchases after the global financial crisis, 191 00:10:32,559 --> 00:10:36,559 Speaker 1: is restoring liquidity to the market, and they're not necessarily 192 00:10:36,600 --> 00:10:40,160 Speaker 1: focusing on keeping long term yield suppressed as they were 193 00:10:40,760 --> 00:10:42,760 Speaker 1: in Operation Twist, where what they were trying to do 194 00:10:42,840 --> 00:10:46,320 Speaker 1: is really spur economic growth. Economic growth is essentially not 195 00:10:46,440 --> 00:10:49,560 Speaker 1: possible right now. They're not looking to really jump start 196 00:10:49,600 --> 00:10:52,679 Speaker 1: the economy, but build a bridge from here to the 197 00:10:52,720 --> 00:10:55,800 Speaker 1: other side of when some of these virus concerns have 198 00:10:55,880 --> 00:10:59,160 Speaker 1: really started to pull back, economies start to reopen. So 199 00:10:59,200 --> 00:11:02,119 Speaker 1: we do think that they continue to taper their asset purchases. 200 00:11:02,559 --> 00:11:05,920 Speaker 1: We think they include bills as they digest some of 201 00:11:05,960 --> 00:11:08,480 Speaker 1: the supply. And the other thing that I would point 202 00:11:08,480 --> 00:11:10,679 Speaker 1: out is it's not necessarily even that they need to 203 00:11:11,280 --> 00:11:14,720 Speaker 1: take down this supply of T bills. We haven't seen 204 00:11:15,640 --> 00:11:19,080 Speaker 1: significant signs of any market indigestion and T bills. But 205 00:11:19,480 --> 00:11:21,760 Speaker 1: if you think about what their longer term plans for 206 00:11:21,800 --> 00:11:25,800 Speaker 1: asset purchases are, it's to be done across treasuries proportional 207 00:11:25,840 --> 00:11:28,880 Speaker 1: to what's outstanding. They haven't been doing any bills over 208 00:11:28,920 --> 00:11:31,959 Speaker 1: the past month and a half, so just adding those 209 00:11:32,280 --> 00:11:34,760 Speaker 1: into the mix is simply getting back to what they 210 00:11:34,800 --> 00:11:38,400 Speaker 1: see as their longer term framework. And so do you 211 00:11:38,480 --> 00:11:40,960 Speaker 1: see no sort of effort to control the yield curve 212 00:11:40,960 --> 00:11:44,640 Speaker 1: at all going forward? Or yeah, So that's been something 213 00:11:44,679 --> 00:11:48,319 Speaker 1: that's been talked about quite a bit, and from our perspective, 214 00:11:48,360 --> 00:11:52,240 Speaker 1: that's not necessary and not something that the FED is 215 00:11:52,280 --> 00:11:55,160 Speaker 1: looking at immediately. And you heard no mention of it 216 00:11:55,280 --> 00:11:58,480 Speaker 1: Wednesday at Chairman Paul's press conference, whether it be in 217 00:11:58,559 --> 00:12:01,480 Speaker 1: his prepared remarks or or I was very surprised to 218 00:12:01,520 --> 00:12:04,360 Speaker 1: not hear it in the question and answer sessions. So 219 00:12:05,280 --> 00:12:07,560 Speaker 1: I don't think it's something they would completely rule out, 220 00:12:07,760 --> 00:12:09,720 Speaker 1: but I also don't think it's something that they're looking 221 00:12:09,720 --> 00:12:12,160 Speaker 1: at and really focusing on right now. When you think 222 00:12:12,200 --> 00:12:15,440 Speaker 1: about a tenure treasury yield at sixty basis points. That 223 00:12:15,480 --> 00:12:19,119 Speaker 1: doesn't feel like a rate that needs to have explicit 224 00:12:19,160 --> 00:12:21,920 Speaker 1: yield curve control. And I suppose you could see some 225 00:12:22,000 --> 00:12:25,199 Speaker 1: type of implicit yield curve control as we go forward 226 00:12:25,240 --> 00:12:27,720 Speaker 1: if rates were to really back up in what they 227 00:12:27,760 --> 00:12:30,120 Speaker 1: see as an unhealthy manner, and I think that would 228 00:12:30,160 --> 00:12:33,520 Speaker 1: almost be more representation of poor liquidity like we saw 229 00:12:33,559 --> 00:12:37,240 Speaker 1: at the end of March, than some other issue getting 230 00:12:37,240 --> 00:12:39,719 Speaker 1: out of control. And so I think what they could 231 00:12:39,760 --> 00:12:42,120 Speaker 1: do in that instance is shift their purchases to the 232 00:12:42,160 --> 00:12:44,959 Speaker 1: longer end of the curve without explicitly saying we are 233 00:12:45,000 --> 00:12:49,000 Speaker 1: targeting zero point five on the tenure yield. I don't 234 00:12:49,000 --> 00:12:50,600 Speaker 1: think that's a path that they want to go down, 235 00:12:50,640 --> 00:12:53,880 Speaker 1: because when we think about the longer term implications of 236 00:12:54,640 --> 00:12:57,440 Speaker 1: putting in place yield curve control, we think that probably 237 00:12:57,520 --> 00:13:00,959 Speaker 1: reduces market liquidity, and you don't have of a quote 238 00:13:01,000 --> 00:13:03,920 Speaker 1: unquote free market. I really don't think that's a path 239 00:13:03,960 --> 00:13:06,480 Speaker 1: that the FED is looking to go down at this point, 240 00:13:06,520 --> 00:13:10,440 Speaker 1: and you'd have to really see some serious issues in 241 00:13:10,480 --> 00:13:12,600 Speaker 1: addition to what we've seen so far for that to 242 00:13:12,640 --> 00:13:17,240 Speaker 1: come into play. So no mention of yield curve control, 243 00:13:17,360 --> 00:13:20,520 Speaker 1: but essentially a few things that Powell did say was 244 00:13:20,640 --> 00:13:23,920 Speaker 1: that he's not worried about risk assets right now the 245 00:13:23,960 --> 00:13:26,720 Speaker 1: price of risk assets also not really to worry about 246 00:13:26,720 --> 00:13:31,000 Speaker 1: inflation at this point in time. Seeing where we stand now, though, 247 00:13:31,960 --> 00:13:34,400 Speaker 1: does it seem like the FED is almost stuck? They 248 00:13:34,440 --> 00:13:36,679 Speaker 1: have to continue to say they're going to do whatever 249 00:13:36,720 --> 00:13:38,160 Speaker 1: it takes. I mean, are we ever going to get 250 00:13:38,200 --> 00:13:41,400 Speaker 1: to the point where we can actually see a tape 251 00:13:41,440 --> 00:13:44,679 Speaker 1: erring of their balance sheet? Because we know they tried 252 00:13:44,800 --> 00:13:47,320 Speaker 1: and they weren't able to do it. I mean, but 253 00:13:47,440 --> 00:13:49,360 Speaker 1: we ever get to a point where that day actually 254 00:13:49,400 --> 00:13:52,400 Speaker 1: comes and we don't see a freak out. I think 255 00:13:52,440 --> 00:13:54,680 Speaker 1: we will get to that point, but I agree it's 256 00:13:54,800 --> 00:13:58,200 Speaker 1: probably a long ways away still, and there really is 257 00:13:58,640 --> 00:14:01,959 Speaker 1: no upside for a FED to start trying to get 258 00:14:01,960 --> 00:14:06,120 Speaker 1: ahead of itself. There's still plenty of economic damage that's 259 00:14:06,160 --> 00:14:09,040 Speaker 1: going to happen. And at least from seeing what the 260 00:14:09,080 --> 00:14:13,320 Speaker 1: actual numbers are, our economics team is expecting a decline 261 00:14:13,320 --> 00:14:16,480 Speaker 1: in GDP in the second quarter. I think that's probably 262 00:14:16,520 --> 00:14:18,760 Speaker 1: somewhere in the middle of the range of estimates. You've 263 00:14:18,800 --> 00:14:22,720 Speaker 1: seen some really remarkable numbers, and when you get into 264 00:14:22,760 --> 00:14:25,960 Speaker 1: these annualized numbers, if you think more happens in a 265 00:14:25,960 --> 00:14:28,880 Speaker 1: shorter time frame, you get a larger decline on an 266 00:14:28,880 --> 00:14:31,440 Speaker 1: annualized basis in a single quarter. But I think at 267 00:14:31,480 --> 00:14:34,240 Speaker 1: this point the FED has made it clear that they're 268 00:14:34,240 --> 00:14:35,920 Speaker 1: going to do whatever they need to do. They're going 269 00:14:36,000 --> 00:14:38,280 Speaker 1: to continue to signal that for as long as they can, 270 00:14:39,280 --> 00:14:40,840 Speaker 1: or as long as they need to, I should say, 271 00:14:41,040 --> 00:14:43,640 Speaker 1: And that's the right move right now. And I don't 272 00:14:43,640 --> 00:14:45,720 Speaker 1: think they're really going to get pushed back from anyone 273 00:14:47,280 --> 00:14:50,600 Speaker 1: regarding how accommodative there being just because of how much 274 00:14:50,720 --> 00:14:56,360 Speaker 1: the economy has contracted, how much activity in all ways 275 00:14:56,520 --> 00:14:59,920 Speaker 1: types shapes has shut down, and it's really an unprecedented 276 00:15:00,320 --> 00:15:02,560 Speaker 1: issue to deal with and they're dealing with it with 277 00:15:02,680 --> 00:15:06,040 Speaker 1: unprecedented actions, and we think that's the right way to 278 00:15:06,080 --> 00:15:08,960 Speaker 1: go about it. And it's been an impressive They've been 279 00:15:08,960 --> 00:15:12,760 Speaker 1: impressively quick and proactive, and Chairman Paul reiterated that they 280 00:15:12,760 --> 00:15:15,720 Speaker 1: will continue to do to be that way going forward, 281 00:15:15,720 --> 00:15:19,120 Speaker 1: and we think that's the right approach. So that question 282 00:15:19,200 --> 00:15:21,800 Speaker 1: was nice and long. You're learning, you're learning here and 283 00:15:21,920 --> 00:15:24,600 Speaker 1: learning learning from the best night. I also loved that 284 00:15:25,160 --> 00:15:28,280 Speaker 1: the FED press conference was over zoom. That was pretty interesting. 285 00:15:28,280 --> 00:15:30,680 Speaker 1: I was I kept expecting like a Zoom bomber to 286 00:15:30,680 --> 00:15:33,120 Speaker 1: show up, you know, like Mario dragging or something to 287 00:15:33,120 --> 00:15:35,520 Speaker 1: to show up and crash the party. You would you 288 00:15:35,520 --> 00:15:37,960 Speaker 1: would think that someone would leak the Mario Dragon or 289 00:15:38,000 --> 00:15:40,720 Speaker 1: someone like that, just leak them the code, lead them 290 00:15:40,720 --> 00:15:49,640 Speaker 1: the Zoom meeting. We don't love it. So, Zack, what 291 00:15:49,680 --> 00:15:51,840 Speaker 1: do you think about that notion of negative rates? I mean, 292 00:15:51,880 --> 00:15:54,600 Speaker 1: did we get a pretty good indication this week that 293 00:15:54,600 --> 00:15:56,880 Speaker 1: that is not something that's really on the table at 294 00:15:56,920 --> 00:15:59,280 Speaker 1: the FED? Or or is it never say never type 295 00:15:59,320 --> 00:16:02,000 Speaker 1: of situation? Well? I do think it's a never say 296 00:16:02,040 --> 00:16:04,760 Speaker 1: never type of situation. But one thing the FED has 297 00:16:04,760 --> 00:16:09,160 Speaker 1: been adamant about throughout this whole process is negative rates 298 00:16:09,240 --> 00:16:11,440 Speaker 1: is not something they want to do. It's something they 299 00:16:11,440 --> 00:16:14,440 Speaker 1: looked at during the global financial crisis. They didn't think 300 00:16:14,880 --> 00:16:18,720 Speaker 1: it was the right approach. Then all comments by FED 301 00:16:18,760 --> 00:16:21,840 Speaker 1: policymakers we have heard recently would suggest they don't think 302 00:16:21,880 --> 00:16:25,800 Speaker 1: it's the right approach. Now again, I would agree it's 303 00:16:25,840 --> 00:16:28,800 Speaker 1: probably a never say never time and you've seen some 304 00:16:28,880 --> 00:16:32,720 Speaker 1: remarkable things, including the introduction of corporate bond purchases to 305 00:16:32,800 --> 00:16:37,720 Speaker 1: their mix, to their toolbox. But I think negative rates 306 00:16:38,120 --> 00:16:41,400 Speaker 1: is out of the question for now, and perhaps that changes, 307 00:16:41,440 --> 00:16:44,360 Speaker 1: but we don't expect it to. I mean, after the meeting, 308 00:16:44,360 --> 00:16:45,840 Speaker 1: there are a lot of people who are very quick 309 00:16:45,880 --> 00:16:48,400 Speaker 1: to throw their hands up, say this was a non event. Uh, 310 00:16:48,520 --> 00:16:52,520 Speaker 1: nothing new, nothing really surprising here. But I want to 311 00:16:52,520 --> 00:16:56,440 Speaker 1: get your take after we did get a statement after 312 00:16:56,600 --> 00:17:01,360 Speaker 1: hearing from Powell, were there any new details surrounding either 313 00:17:01,440 --> 00:17:04,280 Speaker 1: previous facilities that the FED has announced um that you 314 00:17:04,280 --> 00:17:06,800 Speaker 1: may be picked up on, or or any hints on 315 00:17:07,080 --> 00:17:09,439 Speaker 1: what could be to come down the line in the future, 316 00:17:09,680 --> 00:17:12,840 Speaker 1: should we need more than we've already gotten In the 317 00:17:12,960 --> 00:17:15,240 Speaker 1: Q and A session, we did get a little bit 318 00:17:15,240 --> 00:17:19,320 Speaker 1: of additional information at least on timeline for the corporate 319 00:17:19,359 --> 00:17:23,240 Speaker 1: credit facilities, and it sounds like those are actually should 320 00:17:23,240 --> 00:17:26,760 Speaker 1: be up and running quite soon based on Chairman Paul's comments. 321 00:17:26,800 --> 00:17:31,200 Speaker 1: And in addition, he commented on the main street learning facilities, 322 00:17:31,240 --> 00:17:33,679 Speaker 1: and I thought there was some interesting comments there and 323 00:17:33,720 --> 00:17:38,080 Speaker 1: we actually did get Thursday morning, they released additional information 324 00:17:38,320 --> 00:17:41,280 Speaker 1: expanding the availability of the main street learning facilities to 325 00:17:42,119 --> 00:17:45,720 Speaker 1: more companies, larger companies. So he did allude to that 326 00:17:45,760 --> 00:17:47,560 Speaker 1: a bit, and he also alluded to the fact that 327 00:17:47,960 --> 00:17:50,919 Speaker 1: this these types of facilities are going to go to 328 00:17:51,000 --> 00:17:54,480 Speaker 1: a lot of different companies, so they're gonna have various 329 00:17:54,600 --> 00:17:57,440 Speaker 1: term sheets and tried to sort of piece it out, 330 00:17:57,480 --> 00:17:59,680 Speaker 1: and that's why something like that is taking a bit 331 00:17:59,760 --> 00:18:01,960 Speaker 1: long or so. I think that was an interesting look 332 00:18:02,000 --> 00:18:04,600 Speaker 1: into what we can expect down the road for some 333 00:18:04,680 --> 00:18:07,359 Speaker 1: of these main street learning facilities and how they're looking 334 00:18:07,400 --> 00:18:10,800 Speaker 1: to tailor them to different businesses. And then I think 335 00:18:10,960 --> 00:18:14,520 Speaker 1: it's reasonable to expect that the corporate credit facilities could 336 00:18:14,560 --> 00:18:18,200 Speaker 1: be coming online relatively shortly, and when we think about 337 00:18:18,280 --> 00:18:21,600 Speaker 1: what that means for the market, it's almost hard to 338 00:18:21,920 --> 00:18:25,359 Speaker 1: separate simply them announcing them and what that's done for 339 00:18:25,440 --> 00:18:28,919 Speaker 1: the corporate credit market and what bringing them online will do. 340 00:18:29,080 --> 00:18:34,200 Speaker 1: You've seen primary markets are certainly open for corporate credit borrowers. 341 00:18:34,240 --> 00:18:36,679 Speaker 1: You've seen a remarkable amount of issuance at the end 342 00:18:36,720 --> 00:18:39,639 Speaker 1: of March in early April. So I think some of 343 00:18:39,640 --> 00:18:42,480 Speaker 1: these facilities have had their desired impacts already without even 344 00:18:42,560 --> 00:18:45,639 Speaker 1: becoming operational, and that could be an additional boost to 345 00:18:46,320 --> 00:18:48,760 Speaker 1: market liquidity once they do. But you've seen a lot 346 00:18:48,800 --> 00:18:50,760 Speaker 1: of progress so far that I think the Fed's got 347 00:18:50,760 --> 00:19:08,480 Speaker 1: to be pretty happy with. It's like I was looking 348 00:19:08,520 --> 00:19:10,520 Speaker 1: over some of the notes from your team, some of 349 00:19:10,520 --> 00:19:16,000 Speaker 1: your recent notes. UH one um uh position you guys 350 00:19:16,080 --> 00:19:19,239 Speaker 1: have that it's kind of interesting. Interesting to me is 351 00:19:19,760 --> 00:19:23,440 Speaker 1: um you say that this rally in the dollar uh 352 00:19:23,720 --> 00:19:26,199 Speaker 1: is running out of steam and you expect sort of 353 00:19:26,240 --> 00:19:30,280 Speaker 1: a weaker dollar over I guess the medium to longer term. 354 00:19:30,320 --> 00:19:31,840 Speaker 1: And I bring it up because boy, I've read a 355 00:19:31,840 --> 00:19:34,399 Speaker 1: lot of dollar parish dollar takes over the years, and 356 00:19:34,640 --> 00:19:37,360 Speaker 1: it's a it's a it's a very very dangerous thing 357 00:19:37,400 --> 00:19:40,480 Speaker 1: to predict. But um, I think it makes sense with 358 00:19:40,520 --> 00:19:43,679 Speaker 1: the dollar being so strong, if that risk appetite does resume. 359 00:19:44,359 --> 00:19:48,720 Speaker 1: UM that this seems like it's in a sense and 360 00:19:48,840 --> 00:19:52,479 Speaker 1: overdone rally in the dollar. But unpack that for us 361 00:19:52,480 --> 00:19:55,680 Speaker 1: a little bit. Why you guys feel that way? Is 362 00:19:55,720 --> 00:19:58,639 Speaker 1: it kind of that whole dollar smile notion? You know 363 00:19:58,680 --> 00:20:02,240 Speaker 1: that the dollar dollar is very wrong when the economy 364 00:20:02,280 --> 00:20:04,920 Speaker 1: is very weak and strong when the US is booming, 365 00:20:04,920 --> 00:20:08,000 Speaker 1: but in that middle time, Um, there's room for it 366 00:20:08,040 --> 00:20:13,200 Speaker 1: to weakend. Yeah, So when we look for some US 367 00:20:13,280 --> 00:20:16,080 Speaker 1: dollar weakness over the medium to longer term, that that 368 00:20:16,240 --> 00:20:20,080 Speaker 1: is sort of a nod to improved risk appetite, and 369 00:20:20,800 --> 00:20:25,640 Speaker 1: more importantly, improved funding conditions U S dollar funding conditions 370 00:20:25,640 --> 00:20:29,600 Speaker 1: abroad and here in the US, and you've seen the 371 00:20:29,680 --> 00:20:33,439 Speaker 1: FED pump a ton of liquidity into the market, whether 372 00:20:33,480 --> 00:20:36,320 Speaker 1: it be here in the US or abroad. I think 373 00:20:36,359 --> 00:20:39,480 Speaker 1: the FX swap lines have been tapped for roughly four 374 00:20:39,880 --> 00:20:43,880 Speaker 1: billion dollars. So we think that as some of the 375 00:20:43,920 --> 00:20:47,240 Speaker 1: global commerce starts to pick up again, you get US 376 00:20:47,320 --> 00:20:53,120 Speaker 1: dollars flowing throughout the world through typical economic ways. That's 377 00:20:53,119 --> 00:20:57,000 Speaker 1: going to improve funding conditions and remove some of the 378 00:20:57,080 --> 00:20:59,760 Speaker 1: U S dollars scarcely that you've seen all the while, 379 00:21:00,200 --> 00:21:03,760 Speaker 1: some of these funding measures that the FED has enacted 380 00:21:03,760 --> 00:21:05,639 Speaker 1: are probably gonna be slow to come off, So you're 381 00:21:05,640 --> 00:21:08,280 Speaker 1: gonna have what will probably be at least a short 382 00:21:08,320 --> 00:21:11,679 Speaker 1: time period of an abundance of dollars in the system. 383 00:21:11,760 --> 00:21:15,520 Speaker 1: As the FED recalibrates, the economy opens back up, opens 384 00:21:15,560 --> 00:21:19,920 Speaker 1: back up, and you see some of this concern and 385 00:21:20,320 --> 00:21:23,520 Speaker 1: risk off tone fade more broadly. And I think one 386 00:21:23,520 --> 00:21:25,439 Speaker 1: of the biggest risks to that, and it's it's a 387 00:21:25,440 --> 00:21:28,160 Speaker 1: big risk to our rates call as well, is if 388 00:21:28,160 --> 00:21:31,639 Speaker 1: you see some of these states opening up and it 389 00:21:31,680 --> 00:21:34,840 Speaker 1: goes poorly, perhaps you see a big spike in cases 390 00:21:35,080 --> 00:21:38,800 Speaker 1: or even you have fewer people coming out than expected 391 00:21:38,880 --> 00:21:41,159 Speaker 1: and spending money, and and it's really going to be 392 00:21:41,240 --> 00:21:45,320 Speaker 1: a slow grind back to a new normal of sorts, 393 00:21:45,359 --> 00:21:48,119 Speaker 1: and people aren't spending money the way that you would expect, 394 00:21:48,200 --> 00:21:51,040 Speaker 1: and you see you or an L shaped recovery, whatever 395 00:21:51,080 --> 00:21:53,199 Speaker 1: you want to call it. I think that's going to 396 00:21:53,240 --> 00:21:57,840 Speaker 1: be key in the direction of most financial markets going forward, 397 00:21:57,920 --> 00:22:01,000 Speaker 1: is is how do some of these preliminary openings go. 398 00:22:01,520 --> 00:22:03,760 Speaker 1: And if they are quite poor or if they go 399 00:22:03,880 --> 00:22:07,159 Speaker 1: quite poorly, then you're gonna see probably another bout of 400 00:22:07,240 --> 00:22:09,960 Speaker 1: risk off which would actually strengthen the dollars. So it's 401 00:22:10,000 --> 00:22:12,640 Speaker 1: it's kind of balancing those risks. But we do think 402 00:22:12,680 --> 00:22:15,200 Speaker 1: that if if things go reasonably well, you start to 403 00:22:15,240 --> 00:22:19,400 Speaker 1: see risk appetite continue to improve, then you might have 404 00:22:19,440 --> 00:22:21,800 Speaker 1: an oversupply of dollars at least for a short time. 405 00:22:21,840 --> 00:22:24,879 Speaker 1: As as the federy calibrates, Zach, what do you and 406 00:22:24,880 --> 00:22:27,440 Speaker 1: your team make of, say, the tenure pretty much being 407 00:22:27,600 --> 00:22:30,600 Speaker 1: it's been anchored, it seems around the sixty basis points 408 00:22:30,640 --> 00:22:34,800 Speaker 1: level or so. I mean, we've seen this immense rally 409 00:22:34,840 --> 00:22:38,359 Speaker 1: in the stock market. Yet at the same time you 410 00:22:38,440 --> 00:22:41,600 Speaker 1: look at the rates market, and not a whole lot 411 00:22:42,080 --> 00:22:44,240 Speaker 1: is going on. I mean to you, guys, is it 412 00:22:44,280 --> 00:22:48,080 Speaker 1: surprising that we haven't seen much more movement there. It's 413 00:22:48,080 --> 00:22:51,000 Speaker 1: a bit surprising, we we thought, and we still expect 414 00:22:51,040 --> 00:22:53,280 Speaker 1: the yields to move a little bit higher even in 415 00:22:53,320 --> 00:22:57,040 Speaker 1: the near term, before moving even higher towards the end 416 00:22:57,080 --> 00:22:59,160 Speaker 1: of the year, with our year end target being one 417 00:22:59,200 --> 00:23:02,440 Speaker 1: point to five scent, which seems kind of crazy right now. 418 00:23:02,480 --> 00:23:05,040 Speaker 1: But if you think about where we are and if 419 00:23:05,080 --> 00:23:07,720 Speaker 1: things in the economy start to improve, the FED is 420 00:23:07,720 --> 00:23:10,359 Speaker 1: buying less, we think that's very much in reach. So 421 00:23:10,440 --> 00:23:12,800 Speaker 1: I think it's a bit surprising when you consider how 422 00:23:12,920 --> 00:23:17,800 Speaker 1: much equities have rallied, credit spreads have come in, that 423 00:23:18,400 --> 00:23:21,359 Speaker 1: additional risk appetite does not seem to have flowed through 424 00:23:21,840 --> 00:23:24,200 Speaker 1: to the treasury market. And perhaps some of that is 425 00:23:24,280 --> 00:23:26,240 Speaker 1: due to the fact that the FED has been buying 426 00:23:26,240 --> 00:23:29,320 Speaker 1: in such remarkable quantities that that really puts a hard 427 00:23:29,400 --> 00:23:33,120 Speaker 1: ceiling on yields. But they've really dialed back the amount, 428 00:23:33,359 --> 00:23:36,000 Speaker 1: and we think that's one of the contributing factors to 429 00:23:36,680 --> 00:23:39,240 Speaker 1: why rates should rise at least a touch from here 430 00:23:39,240 --> 00:23:42,000 Speaker 1: over the next two to three weeks. And when we 431 00:23:42,040 --> 00:23:46,920 Speaker 1: think about some of these odd correlations across markets. That's 432 00:23:46,960 --> 00:23:50,159 Speaker 1: sort of an indication that while things have improved, you 433 00:23:50,240 --> 00:23:53,560 Speaker 1: probably aren't back to perhaps where the FED would like 434 00:23:53,640 --> 00:23:57,320 Speaker 1: to be. If you have days when treasure yields are 435 00:23:57,440 --> 00:24:01,560 Speaker 1: falling but equities are also falling, so you know, it's 436 00:24:01,600 --> 00:24:04,840 Speaker 1: not your typical risk on risk off relationship or using 437 00:24:04,840 --> 00:24:07,440 Speaker 1: that as a little bit of a barometer for health 438 00:24:07,440 --> 00:24:10,840 Speaker 1: of balance sheets, health of ability to transfer risk, and 439 00:24:10,960 --> 00:24:13,720 Speaker 1: sort of the function of markets more broadly. So you're 440 00:24:13,760 --> 00:24:15,719 Speaker 1: you're starting to see some of that thought. Back at 441 00:24:15,720 --> 00:24:18,000 Speaker 1: the end of March, you saw some of these really 442 00:24:18,040 --> 00:24:21,840 Speaker 1: odd correlations with with markets moving in the same direction. 443 00:24:21,920 --> 00:24:24,159 Speaker 1: But I think all of the fed's measures are starting 444 00:24:24,200 --> 00:24:27,240 Speaker 1: to have their desired impact and you're seeing improvement there, 445 00:24:27,560 --> 00:24:29,640 Speaker 1: but maybe not quite to where they'd like to be. 446 00:24:30,200 --> 00:24:33,240 Speaker 1: And that's sort of one of the issues restricting yields 447 00:24:33,280 --> 00:24:36,399 Speaker 1: probably is that some of these correlations aren't back to 448 00:24:36,440 --> 00:24:39,399 Speaker 1: what you would consider normal. I was gonna ask you 449 00:24:39,400 --> 00:24:42,159 Speaker 1: about that, is they liquidity issues in the in the 450 00:24:42,200 --> 00:24:46,440 Speaker 1: bond market, um sort of mission mission accomplished at this point, 451 00:24:46,440 --> 00:24:50,760 Speaker 1: are you still seeing any any liquidity problems? I mean, 452 00:24:51,720 --> 00:24:55,479 Speaker 1: treasuries being one thing, but elsewhere in the bond markets 453 00:24:55,520 --> 00:24:59,320 Speaker 1: as well. It seems as though liquidity has improved quite 454 00:24:59,359 --> 00:25:02,360 Speaker 1: a bit. And I think when we look at all 455 00:25:02,440 --> 00:25:05,800 Speaker 1: that's going on, there's this focus on returning to normal, 456 00:25:05,920 --> 00:25:08,679 Speaker 1: but these aren't normal times. There's only so much you 457 00:25:08,720 --> 00:25:13,600 Speaker 1: can expect from the FED, from the Treasury to get 458 00:25:13,680 --> 00:25:17,200 Speaker 1: things operating as close to normal as possible. But normal 459 00:25:17,280 --> 00:25:19,840 Speaker 1: it's just is not going to be within reach when 460 00:25:20,240 --> 00:25:23,600 Speaker 1: you have economies shut down this way. So I think 461 00:25:23,720 --> 00:25:26,040 Speaker 1: for the most part, you could say that the FEDS 462 00:25:26,160 --> 00:25:30,920 Speaker 1: operations in treasuries and agency mbs have been quite successful. 463 00:25:31,600 --> 00:25:34,480 Speaker 1: But if you do see, like we talked about, another 464 00:25:34,560 --> 00:25:37,560 Speaker 1: bout of risk off, if some of these reopenings go poorly, 465 00:25:37,640 --> 00:25:42,160 Speaker 1: if expectations for perhaps a treatment or a vaccine really 466 00:25:42,200 --> 00:25:44,840 Speaker 1: fall off the table, then that could really go in 467 00:25:44,880 --> 00:25:47,200 Speaker 1: the other direction. And the FED is shown that it's 468 00:25:47,280 --> 00:25:50,560 Speaker 1: not going to hesitate to ramp up whatever measures, alter, 469 00:25:50,680 --> 00:25:53,160 Speaker 1: whatever measures, do, whatever they have to do to address 470 00:25:53,560 --> 00:25:58,560 Speaker 1: any strings in the market wherever they may show up. Mike, 471 00:25:58,600 --> 00:26:01,760 Speaker 1: I think we've had enough vegetables. I think we should 472 00:26:01,760 --> 00:26:04,960 Speaker 1: be allowed to get to dessert. Nor well, you know me, sir, 473 00:26:05,040 --> 00:26:06,720 Speaker 1: I like to have to desserts. So even though I 474 00:26:06,760 --> 00:26:11,840 Speaker 1: gave one crazy thing earlier, I'm prepared the second helping. 475 00:26:11,880 --> 00:26:13,320 Speaker 1: But I will let you kick it. I will let 476 00:26:13,359 --> 00:26:16,920 Speaker 1: you kick it off. Go ahead, alright, mine is a 477 00:26:17,040 --> 00:26:20,399 Speaker 1: very odd one this week. I will just say that 478 00:26:20,560 --> 00:26:23,520 Speaker 1: up front. So central banks have gone virtual. There is 479 00:26:23,560 --> 00:26:26,239 Speaker 1: a story in the Financial Times, and I'm just going 480 00:26:26,280 --> 00:26:29,119 Speaker 1: to read you a few excerpts. So the headline is 481 00:26:29,359 --> 00:26:33,520 Speaker 1: virtual rate cut forces Nintendo gamers into risk your assets. 482 00:26:34,119 --> 00:26:39,440 Speaker 1: Shock among users as Animal crossings Bank of Nook slashes 483 00:26:39,600 --> 00:26:41,800 Speaker 1: rates ten year zero. So so this is this is 484 00:26:42,240 --> 00:26:44,760 Speaker 1: the start of the story. It says savers at the 485 00:26:44,800 --> 00:26:47,640 Speaker 1: Bank of Nook are being driven to speculate on turnips 486 00:26:47,680 --> 00:26:50,240 Speaker 1: and tarantulas as the most popular video game of the 487 00:26:50,280 --> 00:26:54,920 Speaker 1: coronavirus era mimics global central bankers by making steep cuts 488 00:26:54,920 --> 00:26:58,800 Speaker 1: and interest rates. The estimated twelve million players of Nintendo's 489 00:26:58,800 --> 00:27:03,520 Speaker 1: cartoon fantasy Animal crossing New Horizons were informed last week 490 00:27:03,560 --> 00:27:06,160 Speaker 1: about the move in which the Bank of Nook slash 491 00:27:06,240 --> 00:27:09,920 Speaker 1: the interest paid on savings from around zero point five 492 00:27:09,960 --> 00:27:14,120 Speaker 1: percent to just zero point zero five. And it details 493 00:27:14,200 --> 00:27:17,080 Speaker 1: players of this game on Reddit saying things like I'm 494 00:27:17,119 --> 00:27:20,280 Speaker 1: never going to financially recover that from this. I would 495 00:27:20,440 --> 00:27:24,280 Speaker 1: sat an incoming talks about how there's this stock market 496 00:27:24,480 --> 00:27:26,959 Speaker 1: s t a l K where people have to bet 497 00:27:27,320 --> 00:27:30,200 Speaker 1: on turnips and people have to go out and buy 498 00:27:30,200 --> 00:27:35,480 Speaker 1: tarantula's now because people aren't making enough and their savings 499 00:27:35,520 --> 00:27:39,760 Speaker 1: accounts um. And it's absolutely hysterical that a video game 500 00:27:40,080 --> 00:27:42,639 Speaker 1: decided to take a central bank. You know there was 501 00:27:42,640 --> 00:27:45,720 Speaker 1: a video game such bank um and cut their interest 502 00:27:45,800 --> 00:27:48,399 Speaker 1: rates to almost zero. Talk about going out on the 503 00:27:48,520 --> 00:27:53,359 Speaker 1: risk spectrum when you're buying tarantulas is you don't even 504 00:27:53,400 --> 00:27:55,840 Speaker 1: know what you're getting there. I'm assuming there's an end 505 00:27:56,080 --> 00:27:58,720 Speaker 1: the Bank of Nook and audit the Bank of Nook. 506 00:27:59,080 --> 00:28:03,480 Speaker 1: Uh movement ready, I don't know, but the face of 507 00:28:03,520 --> 00:28:07,120 Speaker 1: Bank of Nook looks to be a raccoon, So you'd 508 00:28:07,119 --> 00:28:09,840 Speaker 1: have to have it out with the raccoon, all right, 509 00:28:10,720 --> 00:28:14,199 Speaker 1: Zach Sarah. Sarah clearly brought her a game when it 510 00:28:14,200 --> 00:28:17,440 Speaker 1: comes to the craziest things this week, like no pressure. 511 00:28:17,440 --> 00:28:19,439 Speaker 1: That's a tough one the top, but let's hear you 512 00:28:19,480 --> 00:28:21,760 Speaker 1: got I'm impressed. I I don't know how I follow 513 00:28:21,880 --> 00:28:24,760 Speaker 1: that up. That's that is phenomenal. I gotta I gotta 514 00:28:24,800 --> 00:28:27,000 Speaker 1: give you that I I told you off the bat, 515 00:28:27,840 --> 00:28:30,840 Speaker 1: Thank you. I really tried on this one. So mine 516 00:28:30,920 --> 00:28:34,920 Speaker 1: is definitely less interesting and perhaps less crazy than that. 517 00:28:35,040 --> 00:28:38,680 Speaker 1: But I've been watching what's going on with three month 518 00:28:38,800 --> 00:28:42,720 Speaker 1: libor US dollar three month librar. It's fallen I think 519 00:28:42,760 --> 00:28:46,800 Speaker 1: about thirty three basis points this week alone, and thirteen 520 00:28:46,800 --> 00:28:51,720 Speaker 1: basis points from Wednesday to Thursday, and it's been a 521 00:28:51,800 --> 00:28:54,960 Speaker 1: huge move. It's down almost ninety basis points in the 522 00:28:55,000 --> 00:28:58,120 Speaker 1: month of April. And I was going back to see 523 00:28:58,160 --> 00:29:00,760 Speaker 1: how when was the last time it's fallen this much 524 00:29:00,800 --> 00:29:03,360 Speaker 1: in a short time, And sure enough, it's only been 525 00:29:03,400 --> 00:29:06,520 Speaker 1: about a month and a half. You go back to March, 526 00:29:06,600 --> 00:29:10,160 Speaker 1: when expectations for rate cuts really started to come into 527 00:29:10,840 --> 00:29:14,680 Speaker 1: effect and into focus. Three month dollar library was falling 528 00:29:14,760 --> 00:29:17,440 Speaker 1: quite a bit then. But I think this time around, 529 00:29:17,440 --> 00:29:20,480 Speaker 1: it's showing that funding markets in the US are improving. 530 00:29:20,800 --> 00:29:23,760 Speaker 1: You're seeing CPU rates come down. The Fed's got to 531 00:29:23,800 --> 00:29:25,880 Speaker 1: be happy with what's going on there. I think credits 532 00:29:25,920 --> 00:29:27,800 Speaker 1: starting to flow. In the very front end, which is 533 00:29:28,080 --> 00:29:30,720 Speaker 1: one of the first places that we saw issues crop up, 534 00:29:30,840 --> 00:29:35,920 Speaker 1: is corporations started to lose the ability to raise cash 535 00:29:35,960 --> 00:29:38,960 Speaker 1: through commercial paper and draw down their revolvers. So I 536 00:29:39,000 --> 00:29:41,880 Speaker 1: think that's another encouraging sign. And it's been quite a 537 00:29:41,880 --> 00:29:44,840 Speaker 1: move over a very short time, so that's it's definitely 538 00:29:44,840 --> 00:29:46,680 Speaker 1: I think something the FED will be happy with and 539 00:29:46,720 --> 00:29:49,400 Speaker 1: something we've been keeping an eye on. Yeah, I was 540 00:29:49,400 --> 00:29:51,720 Speaker 1: gonna say, was that that spiking library? You think is 541 00:29:51,760 --> 00:29:55,760 Speaker 1: that primarily because so many corporations we're drawing down their 542 00:29:55,800 --> 00:30:00,360 Speaker 1: their revolvers. Yeah, I think that's what you saw back then, 543 00:30:00,520 --> 00:30:03,560 Speaker 1: is you know, think, you know, people, we're starting to 544 00:30:03,600 --> 00:30:06,280 Speaker 1: get really concerned with our corporation is going to make 545 00:30:06,320 --> 00:30:08,640 Speaker 1: any money? Are they going to have any money in 546 00:30:08,680 --> 00:30:10,680 Speaker 1: a very short time? So I think that's that was 547 00:30:10,720 --> 00:30:13,840 Speaker 1: the big story back then. And as all of these 548 00:30:13,840 --> 00:30:16,480 Speaker 1: measures come on line, and if you think about the 549 00:30:16,480 --> 00:30:19,680 Speaker 1: commercial paper funding facility, that's priced that oh I as 550 00:30:19,760 --> 00:30:22,480 Speaker 1: plus one ten for the best borrowers. That's way above 551 00:30:22,560 --> 00:30:26,000 Speaker 1: where market rates are. But it seems just the existence 552 00:30:26,000 --> 00:30:30,240 Speaker 1: of this backstop facility has really improved markets. And if 553 00:30:30,280 --> 00:30:32,479 Speaker 1: you look at the Fed's balance sheet, only three billion 554 00:30:33,000 --> 00:30:35,920 Speaker 1: has been taken down by that commercial paper funding facility, 555 00:30:36,040 --> 00:30:40,520 Speaker 1: So it's having the desired effect again without really being operational. 556 00:30:40,600 --> 00:30:42,680 Speaker 1: And I think the fed's got to be pleased with that. 557 00:30:43,840 --> 00:30:46,520 Speaker 1: I wonder how many of those revolvers were drawn down 558 00:30:46,520 --> 00:30:49,200 Speaker 1: in sort of a moment of conic where you were 559 00:30:49,200 --> 00:30:52,160 Speaker 1: worried that the corporate market, bond market was not going 560 00:30:52,200 --> 00:30:54,280 Speaker 1: to be open anytime soon. And maybe there's a little 561 00:30:54,280 --> 00:30:55,840 Speaker 1: regret on on some of the part of the some 562 00:30:55,960 --> 00:30:58,239 Speaker 1: of those people. I would imagine if you see, if 563 00:30:58,240 --> 00:31:00,840 Speaker 1: you've seen what happened at the end March and April, 564 00:31:01,160 --> 00:31:03,719 Speaker 1: the markets were wide open. I think we notched record 565 00:31:03,760 --> 00:31:06,640 Speaker 1: weeks of primary issuance, two to three weeks in a row. 566 00:31:07,400 --> 00:31:10,760 Speaker 1: And really anecdotally we've heard these companies drew down their 567 00:31:10,840 --> 00:31:12,880 Speaker 1: revolvers so that they have the cash and then parked 568 00:31:12,920 --> 00:31:16,480 Speaker 1: them back at the bank. So I think you're starting 569 00:31:16,480 --> 00:31:18,920 Speaker 1: to see some of that thought as people are more 570 00:31:18,960 --> 00:31:21,520 Speaker 1: confident that they have access to the capital markets, and 571 00:31:21,560 --> 00:31:24,640 Speaker 1: that should be good for financial markets and good for 572 00:31:24,720 --> 00:31:27,080 Speaker 1: economic prospects. As we get to the other side of 573 00:31:27,080 --> 00:31:31,400 Speaker 1: this virus fallout, well, you know, we're crazy times when 574 00:31:31,440 --> 00:31:33,400 Speaker 1: you see a massive move like that Jack, and you 575 00:31:33,440 --> 00:31:35,680 Speaker 1: look back to what is this the biggest sense and 576 00:31:35,720 --> 00:31:37,600 Speaker 1: it's only a month ago. I know that happens to 577 00:31:37,640 --> 00:31:39,680 Speaker 1: me almost every single day where I'm like, oh, this 578 00:31:39,720 --> 00:31:42,320 Speaker 1: has got to be something. Two weeks I was thinking 579 00:31:42,320 --> 00:31:44,400 Speaker 1: to myself when I was looking into this, I'm like, 580 00:31:44,480 --> 00:31:47,920 Speaker 1: what is even crazy? We've struggled. We've struggled. It's true. 581 00:31:49,880 --> 00:31:53,920 Speaker 1: That's why I've had to go to virtual video games. 582 00:31:54,200 --> 00:31:58,960 Speaker 1: Getting creative over here. All right, Mike, I'll give you 583 00:31:59,040 --> 00:32:02,600 Speaker 1: my bonus crazy thing. Uh Zach. You might not agree 584 00:32:02,640 --> 00:32:05,320 Speaker 1: with me, but as Sara knows, I consider the gambling 585 00:32:05,360 --> 00:32:08,080 Speaker 1: markets to be legitimate markets. I know, I know uh 586 00:32:08,120 --> 00:32:11,640 Speaker 1: many on Wall Street to not like to conflate the two, 587 00:32:11,720 --> 00:32:15,760 Speaker 1: but uh t purposes of crazy things, I do so. 588 00:32:16,280 --> 00:32:18,960 Speaker 1: New York Coast, once again, a great source of crazy 589 00:32:19,680 --> 00:32:23,000 Speaker 1: market stories, brings us the tale of a guy in 590 00:32:23,160 --> 00:32:28,120 Speaker 1: Canada who got into a game of rock paper scissors 591 00:32:28,160 --> 00:32:30,840 Speaker 1: with his buddy. It was a high stakes game of 592 00:32:30,920 --> 00:32:33,680 Speaker 1: rock paper scissors, mind you, and this guy lost five 593 00:32:34,120 --> 00:32:38,760 Speaker 1: thousand dollars playing rock paper scissors with his buddy. The 594 00:32:38,800 --> 00:32:41,520 Speaker 1: crazy part is he actually paid up. He took out 595 00:32:41,520 --> 00:32:46,240 Speaker 1: a mortgage on his house to uh pay this guy um. 596 00:32:46,280 --> 00:32:48,080 Speaker 1: But then of course it ended up in the in 597 00:32:48,160 --> 00:32:54,360 Speaker 1: the courts, uh and a court basically invalidated this gambling 598 00:32:54,400 --> 00:32:57,480 Speaker 1: debt uh and the decision that forced this guy to 599 00:32:57,520 --> 00:32:59,920 Speaker 1: take out the mortgage uh and and the reason why 600 00:33:00,160 --> 00:33:03,880 Speaker 1: because they view gambling it has to be on something 601 00:33:03,920 --> 00:33:07,560 Speaker 1: that involves skill, and rock paper scissors does not involve skill. 602 00:33:08,000 --> 00:33:12,200 Speaker 1: So they invalidated this guy's half a million dollar rock 603 00:33:12,240 --> 00:33:16,320 Speaker 1: paper scissors loss. I got mixed feelings on this. So 604 00:33:16,360 --> 00:33:18,640 Speaker 1: if this one to court, if this one to court, 605 00:33:18,720 --> 00:33:21,840 Speaker 1: then this had to have happened before coronavirus happened, right, 606 00:33:21,880 --> 00:33:26,080 Speaker 1: I think yeah? So the the the actual rock paper 607 00:33:26,080 --> 00:33:28,760 Speaker 1: scissors game and question was like in two thousand and eleven, 608 00:33:29,360 --> 00:33:32,240 Speaker 1: and then this SIT's okay because my immediate my immediate 609 00:33:32,320 --> 00:33:35,880 Speaker 1: question was how are people together playing rock paper scissors 610 00:33:36,000 --> 00:33:39,760 Speaker 1: right now? Shouldn't be happening. I guess we can do 611 00:33:39,800 --> 00:33:41,760 Speaker 1: it over you do whatever? Zoom? Sorry? Right? You ready 612 00:33:42,640 --> 00:33:47,280 Speaker 1: for one million dollars Saturday? You ready ready? Rock paper scissors? Shoot? 613 00:33:48,640 --> 00:33:55,760 Speaker 1: You get the grants? What do you have? Perss million bucks? 614 00:33:57,560 --> 00:34:02,520 Speaker 1: Because my life savings and much more. I'm gonna say, 615 00:34:02,560 --> 00:34:05,000 Speaker 1: you guys gotta I gotta come on and bring my 616 00:34:05,080 --> 00:34:07,600 Speaker 1: a game or whatever is better than a game for 617 00:34:07,760 --> 00:34:09,840 Speaker 1: my craziest thing. You guys just blew me out of 618 00:34:09,880 --> 00:34:15,319 Speaker 1: the water big time next time. You know, yeah, yeah, 619 00:34:16,480 --> 00:34:20,799 Speaker 1: Now Mike's dishing out the truth. But look, Mike, Mike 620 00:34:20,920 --> 00:34:23,239 Speaker 1: stretches the rules a little bit, then I gotta catch up. 621 00:34:23,280 --> 00:34:25,400 Speaker 1: Then Mike stretches the rule, and I gotta catch up. 622 00:34:25,480 --> 00:34:28,000 Speaker 1: This is an ongoing cycle we have. Well now, I know, 623 00:34:28,400 --> 00:34:32,799 Speaker 1: very friendly competition between Sarah and I are over this. Well, 624 00:34:33,560 --> 00:34:36,160 Speaker 1: high expectations for you next time. I'll give her the 625 00:34:36,239 --> 00:34:41,399 Speaker 1: rare w on this one with the Bank of Noah. Well, 626 00:34:41,560 --> 00:34:44,680 Speaker 1: high expectations of you even higher next time, Zach so 627 00:34:44,800 --> 00:34:47,040 Speaker 1: Zach Griffith, thanks so much for coming on the show today. 628 00:34:47,160 --> 00:34:57,840 Speaker 1: Thank you. What goes Up? We'll be back next week. 629 00:34:58,080 --> 00:35:00,600 Speaker 1: Until then, you can find us on the Blue Terminal 630 00:35:00,680 --> 00:35:04,040 Speaker 1: website and app or wherever you get your podcasts. We'd 631 00:35:04,040 --> 00:35:05,880 Speaker 1: love it if you took the time to rate interview 632 00:35:05,920 --> 00:35:09,120 Speaker 1: the show on Apple Podcasts so more listeners can find us, 633 00:35:09,480 --> 00:35:12,000 Speaker 1: and you can find us on Twitter, follow me at 634 00:35:12,280 --> 00:35:16,080 Speaker 1: at Sarah Ponzack. Mike is a reaganonymous. You can also 635 00:35:16,160 --> 00:35:20,040 Speaker 1: follow Bloomberg Podcast at podcast and remember we also have 636 00:35:20,160 --> 00:35:23,480 Speaker 1: our very own Bloomberg Podcast hotline, which is six four 637 00:35:23,600 --> 00:35:28,400 Speaker 1: six three two four three zero. What goes Up is 638 00:35:28,440 --> 00:35:31,600 Speaker 1: produced by Tobur Foreheads. The head of Bloomberg Podcast is 639 00:35:31,640 --> 00:35:34,480 Speaker 1: Francesca Levie. Thanks for listening, See you next time.