WEBVTT - Treasury’s $1.9 Trillion Quarter 0:00:13.800 --> 0:00:16.960 Hello, and welcome to What Goes Up, a Bloomberg weekly 0:00:17.000 --> 0:00:20.560 market podcast. I'm Sara Pottek, a reporter on the Cross 0:00:20.560 --> 0:00:23.360 Asset team, and I'm Mike Reagan, a senior editor on 0:00:23.400 --> 0:00:26.280 the Markets Team. This week on the show, monetary and 0:00:26.280 --> 0:00:30.360 fiscal policy measures have been described as unprecedented over and 0:00:30.520 --> 0:00:34.080 over again. The Federal Reserve met this week and reiterated 0:00:34.120 --> 0:00:36.400 it is quote committed to using its full range of 0:00:36.440 --> 0:00:39.440 tools to support the U. S economy, and over in Washington, 0:00:39.560 --> 0:00:42.520 d C. The deficit is ballooning. Is the government works 0:00:42.520 --> 0:00:45.000 to get cash to companies in need, But what are 0:00:45.000 --> 0:00:48.680 the long term ramifications? And should we care? I care, Sarah, 0:00:48.800 --> 0:00:52.080 I know I care, but yeah I do. And we've 0:00:52.120 --> 0:00:54.800 got a great guest who will give us some some 0:00:54.920 --> 0:00:57.920 insight on all these topics. But Sarah, before I introduce them, 0:00:57.920 --> 0:01:00.639 I need an update on your quarantine. Such way down 0:01:00.680 --> 0:01:03.080 there in Florida, how's it, Cohen? Are you? Uh? You? 0:01:03.080 --> 0:01:06.319 You live in large? Live in large? I must say, 0:01:06.360 --> 0:01:08.039 as as large as you can be. I mean, at 0:01:08.120 --> 0:01:10.600 least now I'm able to go out on my patio. 0:01:10.800 --> 0:01:13.039 I can go on walks in the neighborhood. Of course, 0:01:13.080 --> 0:01:16.360 staying six ft from other people. But but Florida's opening 0:01:16.480 --> 0:01:19.280 up pretty soon. Um, not the county that I am in, 0:01:19.760 --> 0:01:24.360 but starting on Monday, the majority of counties across the 0:01:24.400 --> 0:01:28.480 state are going to be working on reopening. So it 0:01:28.520 --> 0:01:30.720 should be pretty interesting. And I have heard from a 0:01:30.720 --> 0:01:32.720 couple of people who have been out and about on 0:01:32.760 --> 0:01:35.960 the streets more than I have that they're actually pretty crowded. 0:01:36.080 --> 0:01:39.840 So so life life continues down here in Florida already. Well. 0:01:39.880 --> 0:01:42.840 And they let your dad back in the house. Yes, 0:01:43.040 --> 0:01:45.040 my my dad. For all of those of you who 0:01:45.080 --> 0:01:48.320 are are concerned and very caring, my dad is now 0:01:48.440 --> 0:01:52.400 back in the house. Thankfully. He no longer is exiled, 0:01:52.560 --> 0:01:55.080 so he's very happy about that. We we had a 0:01:55.160 --> 0:01:58.120 nice celebration when he was welcome back. That's good, you know. 0:01:58.200 --> 0:02:00.840 I always like to get the dad perspective on this show. 0:02:01.920 --> 0:02:06.240 A lot of dad's out there listening. But let's we 0:02:06.280 --> 0:02:09.640 all care about the dad. Let's bring in our guest 0:02:09.960 --> 0:02:12.240 first time on the show. Very excited to have him. 0:02:12.400 --> 0:02:16.760 His name is Zach Griffith's. He's a macro strategist at 0:02:16.800 --> 0:02:20.640 Wells Fargo's Security. Zack, welcome to the show. Thanks for 0:02:20.639 --> 0:02:23.560 having me so Zach you might have heard, but we 0:02:23.560 --> 0:02:25.600 we have a tradition on the show where at the 0:02:25.720 --> 0:02:28.079 end of the show we talk about what we call 0:02:28.160 --> 0:02:31.760 the craziest things we saw in markets this week, and 0:02:31.800 --> 0:02:35.280 we usually leave it towards the end um because it's 0:02:35.360 --> 0:02:37.359 kind of a fun, lighthearted thing. It's like having to 0:02:37.560 --> 0:02:41.320 desert at the end of a nice healthy meal. You 0:02:41.400 --> 0:02:44.040 got to have those vegetables first. But the craziest thing 0:02:44.120 --> 0:02:46.720 I saw this week is kind of right in your wheelhouse. 0:02:46.760 --> 0:02:49.320 I'm gonna jump the gun. I'm gonna serve the cake 0:02:49.440 --> 0:02:52.280 his appetizer here and ask you what you think about 0:02:52.320 --> 0:02:56.520 this story I came out on Thursday, uh Washington Post 0:02:56.560 --> 0:03:01.440 story saying US officials are crafting retaliatory measures against China 0:03:01.560 --> 0:03:04.840 over the coronavirus. Uh. You know. The notion is that 0:03:05.480 --> 0:03:09.440 the White House thinks that China is to blame for 0:03:09.560 --> 0:03:12.640 the virus um. So they're they're talking a bunch of 0:03:12.639 --> 0:03:18.520 different measures, possibly uh, eliminating the sovereign immunity that countries 0:03:19.000 --> 0:03:21.959 enjoying the court system to allow people to sue China 0:03:22.639 --> 0:03:25.040 for damages. But the thing that really I think caught 0:03:25.080 --> 0:03:27.040 my eye. It caused a little bit of buzz on 0:03:27.080 --> 0:03:30.880 Thursdays this one line in the story. Some administration officials 0:03:30.919 --> 0:03:34.200 have also discussed having the U s cancel part of 0:03:34.240 --> 0:03:37.680 its debt obligations to China. Two people with knowledge of 0:03:37.720 --> 0:03:40.200 internal this conversation said it was not known if the 0:03:40.240 --> 0:03:44.040 President back the idea. Now, obviously the news flow out 0:03:44.040 --> 0:03:47.240 of this administration is unique in that you get this 0:03:47.360 --> 0:03:50.680 stuff floated like this, that they're considering or thinking about, 0:03:50.760 --> 0:03:54.520 and then it's promptly denied. Larry Cudlow was out almost 0:03:54.520 --> 0:03:59.000 instantly denying this. But boy, I just wonder, you know, 0:03:59.120 --> 0:04:02.360 as a macro strategist, you know, especially a guy with 0:04:02.360 --> 0:04:05.960 a rates background like yours, this must even the talk 0:04:06.000 --> 0:04:09.600 of something like this must make the blood pressure go up. Um. 0:04:09.720 --> 0:04:12.880 I think this was widely The reaction I saw from 0:04:12.880 --> 0:04:14.960 everyone was that this is nuts. There's no way they 0:04:15.000 --> 0:04:18.800 could do this. Um. But I gotta I gotta get 0:04:18.839 --> 0:04:21.080 your take on it. Is this something that we should 0:04:21.080 --> 0:04:24.680 really be worried about or is it just, you know, 0:04:24.760 --> 0:04:27.800 just sound like a bunch of rumor mongering going on. 0:04:29.600 --> 0:04:31.960 I don't think this is something we should be worried about. 0:04:32.040 --> 0:04:35.240 And when you think about the US debt, I don't 0:04:35.240 --> 0:04:37.520 think the Treasury or the White House is gonna want 0:04:37.560 --> 0:04:40.040 to do anything to call into question whether or not 0:04:40.560 --> 0:04:43.400 the US government is going to pay interest on its 0:04:43.400 --> 0:04:46.279 debt or principle on its debt. The long term ramifications 0:04:46.320 --> 0:04:49.080 of something like that are just it's not a path 0:04:49.160 --> 0:04:52.200 they want to go down. And I think that it's 0:04:52.200 --> 0:04:55.479 definitely crazy time. So you're getting a lot of news flow, 0:04:55.560 --> 0:04:58.560 and you know, you say craziest things in markets this week. 0:04:58.600 --> 0:05:01.680 It's hard to find something it's been happening that hasn't 0:05:01.800 --> 0:05:05.880 happened recently or is more severe than something that's happened recently. 0:05:05.960 --> 0:05:08.800 So I think it's it's definitely an interesting time, but 0:05:08.920 --> 0:05:12.159 I don't I don't give too much credence to that. 0:05:12.360 --> 0:05:15.800 I think the long termament ramifications would be too detrimental 0:05:15.920 --> 0:05:19.080 to really consider. Two things I have to say about that. One, 0:05:19.120 --> 0:05:22.400 it's it's kind of like this was the pre dinner drink, Mike, 0:05:23.160 --> 0:05:25.440 and then we'll get into the vegetables, then we'll get 0:05:25.440 --> 0:05:27.440 to the dessert. But but I also have to say, 0:05:28.000 --> 0:05:31.040 I think that question may have been longer than the 0:05:31.160 --> 0:05:33.400 question that you asked last week on the show, which 0:05:33.440 --> 0:05:35.400 one of our listeners did call you out. Let's all 0:05:35.440 --> 0:05:39.000 stop timing my questions here. I know they're long. You know, 0:05:39.200 --> 0:05:41.240 it's like on the soap opera where all and friends. 0:05:41.320 --> 0:05:43.760 Remember they said, you you put your hands over the 0:05:43.800 --> 0:05:45.520 face of the person you're kissing, so you get all 0:05:45.520 --> 0:05:48.800 the screen time. That's kind of my my idea with questions. 0:05:49.080 --> 0:05:52.080 But uh, you know, you gotta you gotta give him, 0:05:52.160 --> 0:05:55.400 you gotta give him some meaty questions, Sarah, so they know, Uh, 0:05:55.640 --> 0:05:58.600 let's hear you're a very short question for Zach, then, Sarah, 0:05:59.000 --> 0:06:00.840 I don't know, Well, won't be that short of it, 0:06:00.960 --> 0:06:03.360 but it only shorter than yours. I can guarantee that. 0:06:03.960 --> 0:06:08.160 But I mean, speaking speaking of debt, uh, And this 0:06:08.200 --> 0:06:13.160 past week, you guys had a note titled Bill's Barrage continues, 0:06:13.600 --> 0:06:18.559 and you revised upwards to the upside what you think 0:06:18.760 --> 0:06:22.280 the deficit is going to amount to? Uh? And you 0:06:22.360 --> 0:06:24.440 raise it to three point two trillion from two point 0:06:24.440 --> 0:06:27.800 four trillion. Now, one line that I loved though within 0:06:28.160 --> 0:06:30.680 the research report was you said, in total, we expect 0:06:30.680 --> 0:06:34.120 Treasury to issue a net one point nine trillion. This 0:06:34.279 --> 0:06:37.520 is not a misprint because everything is just so crazy 0:06:37.680 --> 0:06:39.880 right now. But I mean, seriously, you think about the 0:06:39.960 --> 0:06:42.760 amount of debt being issued right now, you think about 0:06:42.800 --> 0:06:45.440 the amount of money being pumped into the system right now, 0:06:45.520 --> 0:06:49.520 I mean, can can we continue to see this amount 0:06:49.560 --> 0:06:54.000 of money uh and this amount of debt being uh 0:06:54.120 --> 0:06:58.360 digested by the market in a smooth way? Yeah, that's 0:06:58.360 --> 0:07:01.520 a great question, and it's that we've been contemplating. And 0:07:01.520 --> 0:07:05.359 when you're talking about one point nine trillion of issuance 0:07:05.400 --> 0:07:08.320 of any type of security in a single quarter, you 0:07:08.400 --> 0:07:10.560 have to ask is there a market for it? And 0:07:10.600 --> 0:07:14.800 when we think about what's happened recently in T bill issuance, 0:07:14.800 --> 0:07:17.400 which has already been north of a trillion over the 0:07:17.440 --> 0:07:20.840 past month alone, we look at where the demand comes from. 0:07:20.880 --> 0:07:23.600 And if you look at inflows into government only money 0:07:23.640 --> 0:07:27.960 market funds over roughly the past eight weeks, inflows into 0:07:27.960 --> 0:07:30.040 those types of funds that do a lot of investing 0:07:30.080 --> 0:07:33.480 in TE bills, primarily te bills, it's been over a 0:07:33.480 --> 0:07:37.480 trillion as well. So the demand is there, fortunately for Treasury, 0:07:37.480 --> 0:07:41.040 who needs to raise these funds extremely quickly for these 0:07:41.080 --> 0:07:45.760 emergency lending programs, whether it be for unemployment insurance claims 0:07:45.880 --> 0:07:48.720 or just to cut checks to certain Americans for a 0:07:48.760 --> 0:07:52.120 certain amount. That is a deficit that needs to be 0:07:52.200 --> 0:07:54.720 raised quickly, because that's money that actually goes out the 0:07:54.720 --> 0:07:57.200 door in a very short time frame. When we think 0:07:57.240 --> 0:08:02.080 about budget deficits historically you think about spending over the 0:08:02.120 --> 0:08:05.280 next year. So they may do a trillion in spending, 0:08:05.320 --> 0:08:07.600 but that's over a year, and you have time to 0:08:07.680 --> 0:08:10.640 raise money for that. You have tax payments coming in 0:08:10.680 --> 0:08:14.840 which those have been delayed to July, so really the 0:08:14.960 --> 0:08:17.280 it's been remarkable how much they've had to raise, but 0:08:17.720 --> 0:08:19.560 up to this point it does seem like there has 0:08:19.600 --> 0:08:22.440 been a market for it. And going forward, we think 0:08:22.640 --> 0:08:25.800 as some risk appetite comes back into the market. You 0:08:25.840 --> 0:08:29.600 see credit spreads have fallen, equities have risen, people are 0:08:29.640 --> 0:08:32.080 getting a little bit more comfortable and a little bit 0:08:32.120 --> 0:08:36.480 more optimistic with some states reopening and maybe some promising 0:08:36.559 --> 0:08:39.680 drug tests. I don't pretend to have much knowledge or 0:08:39.679 --> 0:08:42.000 insight into how some of those things are progressing, but 0:08:42.320 --> 0:08:44.400 you're starting to see some of that optimism. And as 0:08:44.440 --> 0:08:48.120 people move into somewhat risk your assets, whether it even 0:08:48.160 --> 0:08:51.280 be just prime money market funds instead of government money 0:08:51.280 --> 0:08:54.400 market funds, we think that backstop of demand is going 0:08:54.440 --> 0:08:56.280 to come off a bit, and that's when the FED 0:08:56.720 --> 0:08:58.640 is going to need to come in and start shifting 0:08:58.800 --> 0:09:02.319 its asset purchases, which has been ratcheting down quite a bit. 0:09:02.360 --> 0:09:06.000 We think it will have to evolve treasury bills pretty soon, 0:09:06.280 --> 0:09:09.880 as that backstop the man kind of falls off at 0:09:09.920 --> 0:09:12.360 least a bit. Well, Zack, I'm glad you don't pretend 0:09:12.360 --> 0:09:15.160 to be an expert on the pharmaceutical end. I don't 0:09:15.200 --> 0:09:19.160 know how many epidemiologist experts have suddenly appeared out of 0:09:19.200 --> 0:09:22.520 the blue to mansplain this all to us. But um, 0:09:23.080 --> 0:09:26.120 you know, as you mentioned this, this insane amount of 0:09:26.120 --> 0:09:30.200 supply coming and the possibility that risk appetites re emerge 0:09:30.520 --> 0:09:32.560 at the same time, you know, the FED seems to 0:09:32.640 --> 0:09:36.120 be willing to basically write a blank check to the 0:09:36.120 --> 0:09:40.880 treasury market. Do you have a sense of of how 0:09:41.280 --> 0:09:44.600 that will all play out? How aggressively would they allow 0:09:44.720 --> 0:09:47.800 yields to rise? I mean, will they be trying to 0:09:48.240 --> 0:09:51.079 actually keep a lid on rates in your opinion, or 0:09:51.679 --> 0:09:54.439 more just as they described it, to keep the treasury 0:09:54.480 --> 0:09:59.040 liquidity uh functioning as it should be given this huge supply. 0:09:59.080 --> 0:10:02.960 I mean, um, because it's a you know, in a 0:10:03.040 --> 0:10:05.480 normal world, you would think this much supply would just 0:10:05.520 --> 0:10:09.839 automatically be bearish for rates um, But how do you 0:10:09.880 --> 0:10:12.840 see the Fed's role evolving as sort of the economy 0:10:12.880 --> 0:10:17.240 recovers in that risk appetite UH resumes. We think the 0:10:17.280 --> 0:10:20.360 FED is going to have to continue tapering the amount 0:10:20.360 --> 0:10:23.079 of its asset purchases. As you mentioned, We really do 0:10:23.480 --> 0:10:26.240 believe that the whole point, or at least the majority 0:10:26.280 --> 0:10:28.280 of the point this time around versus when they were 0:10:28.320 --> 0:10:32.280 doing large scale asset purchases after the global financial crisis, 0:10:32.559 --> 0:10:36.559 is restoring liquidity to the market, and they're not necessarily 0:10:36.600 --> 0:10:40.160 focusing on keeping long term yield suppressed as they were 0:10:40.760 --> 0:10:42.760 in Operation Twist, where what they were trying to do 0:10:42.840 --> 0:10:46.320 is really spur economic growth. Economic growth is essentially not 0:10:46.440 --> 0:10:49.560 possible right now. They're not looking to really jump start 0:10:49.600 --> 0:10:52.679 the economy, but build a bridge from here to the 0:10:52.720 --> 0:10:55.800 other side of when some of these virus concerns have 0:10:55.880 --> 0:10:59.160 really started to pull back, economies start to reopen. So 0:10:59.200 --> 0:11:02.119 we do think that they continue to taper their asset purchases. 0:11:02.559 --> 0:11:05.920 We think they include bills as they digest some of 0:11:05.960 --> 0:11:08.480 the supply. And the other thing that I would point 0:11:08.480 --> 0:11:10.679 out is it's not necessarily even that they need to 0:11:11.280 --> 0:11:14.720 take down this supply of T bills. We haven't seen 0:11:15.640 --> 0:11:19.080 significant signs of any market indigestion and T bills. But 0:11:19.480 --> 0:11:21.760 if you think about what their longer term plans for 0:11:21.800 --> 0:11:25.800 asset purchases are, it's to be done across treasuries proportional 0:11:25.840 --> 0:11:28.880 to what's outstanding. They haven't been doing any bills over 0:11:28.920 --> 0:11:31.959 the past month and a half, so just adding those 0:11:32.280 --> 0:11:34.760 into the mix is simply getting back to what they 0:11:34.800 --> 0:11:38.400 see as their longer term framework. And so do you 0:11:38.480 --> 0:11:40.960 see no sort of effort to control the yield curve 0:11:40.960 --> 0:11:44.640 at all going forward? Or yeah, So that's been something 0:11:44.679 --> 0:11:48.319 that's been talked about quite a bit, and from our perspective, 0:11:48.360 --> 0:11:52.240 that's not necessary and not something that the FED is 0:11:52.280 --> 0:11:55.160 looking at immediately. And you heard no mention of it 0:11:55.280 --> 0:11:58.480 Wednesday at Chairman Paul's press conference, whether it be in 0:11:58.559 --> 0:12:01.480 his prepared remarks or or I was very surprised to 0:12:01.520 --> 0:12:04.360 not hear it in the question and answer sessions. So 0:12:05.280 --> 0:12:07.560 I don't think it's something they would completely rule out, 0:12:07.760 --> 0:12:09.720 but I also don't think it's something that they're looking 0:12:09.720 --> 0:12:12.160 at and really focusing on right now. When you think 0:12:12.200 --> 0:12:15.440 about a tenure treasury yield at sixty basis points. That 0:12:15.480 --> 0:12:19.119 doesn't feel like a rate that needs to have explicit 0:12:19.160 --> 0:12:21.920 yield curve control. And I suppose you could see some 0:12:22.000 --> 0:12:25.199 type of implicit yield curve control as we go forward 0:12:25.240 --> 0:12:27.720 if rates were to really back up in what they 0:12:27.760 --> 0:12:30.120 see as an unhealthy manner, and I think that would 0:12:30.160 --> 0:12:33.520 almost be more representation of poor liquidity like we saw 0:12:33.559 --> 0:12:37.240 at the end of March, than some other issue getting 0:12:37.240 --> 0:12:39.719 out of control. And so I think what they could 0:12:39.760 --> 0:12:42.120 do in that instance is shift their purchases to the 0:12:42.160 --> 0:12:44.959 longer end of the curve without explicitly saying we are 0:12:45.000 --> 0:12:49.000 targeting zero point five on the tenure yield. I don't 0:12:49.000 --> 0:12:50.600 think that's a path that they want to go down, 0:12:50.640 --> 0:12:53.880 because when we think about the longer term implications of 0:12:54.640 --> 0:12:57.440 putting in place yield curve control, we think that probably 0:12:57.520 --> 0:13:00.959 reduces market liquidity, and you don't have of a quote 0:13:01.000 --> 0:13:03.920 unquote free market. I really don't think that's a path 0:13:03.960 --> 0:13:06.480 that the FED is looking to go down at this point, 0:13:06.520 --> 0:13:10.440 and you'd have to really see some serious issues in 0:13:10.480 --> 0:13:12.600 addition to what we've seen so far for that to 0:13:12.640 --> 0:13:17.240 come into play. So no mention of yield curve control, 0:13:17.360 --> 0:13:20.520 but essentially a few things that Powell did say was 0:13:20.640 --> 0:13:23.920 that he's not worried about risk assets right now the 0:13:23.960 --> 0:13:26.720 price of risk assets also not really to worry about 0:13:26.720 --> 0:13:31.000 inflation at this point in time. Seeing where we stand now, though, 0:13:31.960 --> 0:13:34.400 does it seem like the FED is almost stuck? They 0:13:34.440 --> 0:13:36.679 have to continue to say they're going to do whatever 0:13:36.720 --> 0:13:38.160 it takes. I mean, are we ever going to get 0:13:38.200 --> 0:13:41.400 to the point where we can actually see a tape 0:13:41.440 --> 0:13:44.679 erring of their balance sheet? Because we know they tried 0:13:44.800 --> 0:13:47.320 and they weren't able to do it. I mean, but 0:13:47.440 --> 0:13:49.360 we ever get to a point where that day actually 0:13:49.400 --> 0:13:52.400 comes and we don't see a freak out. I think 0:13:52.440 --> 0:13:54.680 we will get to that point, but I agree it's 0:13:54.800 --> 0:13:58.200 probably a long ways away still, and there really is 0:13:58.640 --> 0:14:01.959 no upside for a FED to start trying to get 0:14:01.960 --> 0:14:06.120 ahead of itself. There's still plenty of economic damage that's 0:14:06.160 --> 0:14:09.040 going to happen. And at least from seeing what the 0:14:09.080 --> 0:14:13.320 actual numbers are, our economics team is expecting a decline 0:14:13.320 --> 0:14:16.480 in GDP in the second quarter. I think that's probably 0:14:16.520 --> 0:14:18.760 somewhere in the middle of the range of estimates. You've 0:14:18.800 --> 0:14:22.720 seen some really remarkable numbers, and when you get into 0:14:22.760 --> 0:14:25.960 these annualized numbers, if you think more happens in a 0:14:25.960 --> 0:14:28.880 shorter time frame, you get a larger decline on an 0:14:28.880 --> 0:14:31.440 annualized basis in a single quarter. But I think at 0:14:31.480 --> 0:14:34.240 this point the FED has made it clear that they're 0:14:34.240 --> 0:14:35.920 going to do whatever they need to do. They're going 0:14:36.000 --> 0:14:38.280 to continue to signal that for as long as they can, 0:14:39.280 --> 0:14:40.840 or as long as they need to, I should say, 0:14:41.040 --> 0:14:43.640 And that's the right move right now. And I don't 0:14:43.640 --> 0:14:45.720 think they're really going to get pushed back from anyone 0:14:47.280 --> 0:14:50.600 regarding how accommodative there being just because of how much 0:14:50.720 --> 0:14:56.360 the economy has contracted, how much activity in all ways 0:14:56.520 --> 0:14:59.920 types shapes has shut down, and it's really an unprecedented 0:15:00.320 --> 0:15:02.560 issue to deal with and they're dealing with it with 0:15:02.680 --> 0:15:06.040 unprecedented actions, and we think that's the right way to 0:15:06.080 --> 0:15:08.960 go about it. And it's been an impressive They've been 0:15:08.960 --> 0:15:12.760 impressively quick and proactive, and Chairman Paul reiterated that they 0:15:12.760 --> 0:15:15.720 will continue to do to be that way going forward, 0:15:15.720 --> 0:15:19.120 and we think that's the right approach. So that question 0:15:19.200 --> 0:15:21.800 was nice and long. You're learning, you're learning here and 0:15:21.920 --> 0:15:24.600 learning learning from the best night. I also loved that 0:15:25.160 --> 0:15:28.280 the FED press conference was over zoom. That was pretty interesting. 0:15:28.280 --> 0:15:30.680 I was I kept expecting like a Zoom bomber to 0:15:30.680 --> 0:15:33.120 show up, you know, like Mario dragging or something to 0:15:33.120 --> 0:15:35.520 to show up and crash the party. You would you 0:15:35.520 --> 0:15:37.960 would think that someone would leak the Mario Dragon or 0:15:38.000 --> 0:15:40.720 someone like that, just leak them the code, lead them 0:15:40.720 --> 0:15:49.640 the Zoom meeting. We don't love it. So, Zack, what 0:15:49.680 --> 0:15:51.840 do you think about that notion of negative rates? I mean, 0:15:51.880 --> 0:15:54.600 did we get a pretty good indication this week that 0:15:54.600 --> 0:15:56.880 that is not something that's really on the table at 0:15:56.920 --> 0:15:59.280 the FED? Or or is it never say never type 0:15:59.320 --> 0:16:02.000 of situation? Well? I do think it's a never say 0:16:02.040 --> 0:16:04.760 never type of situation. But one thing the FED has 0:16:04.760 --> 0:16:09.160 been adamant about throughout this whole process is negative rates 0:16:09.240 --> 0:16:11.440 is not something they want to do. It's something they 0:16:11.440 --> 0:16:14.440 looked at during the global financial crisis. They didn't think 0:16:14.880 --> 0:16:18.720 it was the right approach. Then all comments by FED 0:16:18.760 --> 0:16:21.840 policymakers we have heard recently would suggest they don't think 0:16:21.880 --> 0:16:25.800 it's the right approach. Now again, I would agree it's 0:16:25.840 --> 0:16:28.800 probably a never say never time and you've seen some 0:16:28.880 --> 0:16:32.720 remarkable things, including the introduction of corporate bond purchases to 0:16:32.800 --> 0:16:37.720 their mix, to their toolbox. But I think negative rates 0:16:38.120 --> 0:16:41.400 is out of the question for now, and perhaps that changes, 0:16:41.440 --> 0:16:44.360 but we don't expect it to. I mean, after the meeting, 0:16:44.360 --> 0:16:45.840 there are a lot of people who are very quick 0:16:45.880 --> 0:16:48.400 to throw their hands up, say this was a non event. Uh, 0:16:48.520 --> 0:16:52.520 nothing new, nothing really surprising here. But I want to 0:16:52.520 --> 0:16:56.440 get your take after we did get a statement after 0:16:56.600 --> 0:17:01.360 hearing from Powell, were there any new details surrounding either 0:17:01.440 --> 0:17:04.280 previous facilities that the FED has announced um that you 0:17:04.280 --> 0:17:06.800 may be picked up on, or or any hints on 0:17:07.080 --> 0:17:09.439 what could be to come down the line in the future, 0:17:09.680 --> 0:17:12.840 should we need more than we've already gotten In the 0:17:12.960 --> 0:17:15.240 Q and A session, we did get a little bit 0:17:15.240 --> 0:17:19.320 of additional information at least on timeline for the corporate 0:17:19.359 --> 0:17:23.240 credit facilities, and it sounds like those are actually should 0:17:23.240 --> 0:17:26.760 be up and running quite soon based on Chairman Paul's comments. 0:17:26.800 --> 0:17:31.200 And in addition, he commented on the main street learning facilities, 0:17:31.240 --> 0:17:33.679 and I thought there was some interesting comments there and 0:17:33.720 --> 0:17:38.080 we actually did get Thursday morning, they released additional information 0:17:38.320 --> 0:17:41.280 expanding the availability of the main street learning facilities to 0:17:42.119 --> 0:17:45.720 more companies, larger companies. So he did allude to that 0:17:45.760 --> 0:17:47.560 a bit, and he also alluded to the fact that 0:17:47.960 --> 0:17:50.919 this these types of facilities are going to go to 0:17:51.000 --> 0:17:54.480 a lot of different companies, so they're gonna have various 0:17:54.600 --> 0:17:57.440 term sheets and tried to sort of piece it out, 0:17:57.480 --> 0:17:59.680 and that's why something like that is taking a bit 0:17:59.760 --> 0:18:01.960 long or so. I think that was an interesting look 0:18:02.000 --> 0:18:04.600 into what we can expect down the road for some 0:18:04.680 --> 0:18:07.359 of these main street learning facilities and how they're looking 0:18:07.400 --> 0:18:10.800 to tailor them to different businesses. And then I think 0:18:10.960 --> 0:18:14.520 it's reasonable to expect that the corporate credit facilities could 0:18:14.560 --> 0:18:18.200 be coming online relatively shortly, and when we think about 0:18:18.280 --> 0:18:21.600 what that means for the market, it's almost hard to 0:18:21.920 --> 0:18:25.359 separate simply them announcing them and what that's done for 0:18:25.440 --> 0:18:28.919 the corporate credit market and what bringing them online will do. 0:18:29.080 --> 0:18:34.200 You've seen primary markets are certainly open for corporate credit borrowers. 0:18:34.240 --> 0:18:36.679 You've seen a remarkable amount of issuance at the end 0:18:36.720 --> 0:18:39.639 of March in early April. So I think some of 0:18:39.640 --> 0:18:42.480 these facilities have had their desired impacts already without even 0:18:42.560 --> 0:18:45.639 becoming operational, and that could be an additional boost to 0:18:46.320 --> 0:18:48.760 market liquidity once they do. But you've seen a lot 0:18:48.800 --> 0:18:50.760 of progress so far that I think the Fed's got 0:18:50.760 --> 0:19:08.480 to be pretty happy with. It's like I was looking 0:19:08.520 --> 0:19:10.520 over some of the notes from your team, some of 0:19:10.520 --> 0:19:16.000 your recent notes. UH one um uh position you guys 0:19:16.080 --> 0:19:19.239 have that it's kind of interesting. Interesting to me is 0:19:19.760 --> 0:19:23.440 um you say that this rally in the dollar uh 0:19:23.720 --> 0:19:26.199 is running out of steam and you expect sort of 0:19:26.240 --> 0:19:30.280 a weaker dollar over I guess the medium to longer term. 0:19:30.320 --> 0:19:31.840 And I bring it up because boy, I've read a 0:19:31.840 --> 0:19:34.399 lot of dollar parish dollar takes over the years, and 0:19:34.640 --> 0:19:37.360 it's a it's a it's a very very dangerous thing 0:19:37.400 --> 0:19:40.480 to predict. But um, I think it makes sense with 0:19:40.520 --> 0:19:43.679 the dollar being so strong, if that risk appetite does resume. 0:19:44.359 --> 0:19:48.720 UM that this seems like it's in a sense and 0:19:48.840 --> 0:19:52.479 overdone rally in the dollar. But unpack that for us 0:19:52.480 --> 0:19:55.680 a little bit. Why you guys feel that way? Is 0:19:55.720 --> 0:19:58.639 it kind of that whole dollar smile notion? You know 0:19:58.680 --> 0:20:02.240 that the dollar dollar is very wrong when the economy 0:20:02.280 --> 0:20:04.920 is very weak and strong when the US is booming, 0:20:04.920 --> 0:20:08.000 but in that middle time, Um, there's room for it 0:20:08.040 --> 0:20:13.200 to weakend. Yeah, So when we look for some US 0:20:13.280 --> 0:20:16.080 dollar weakness over the medium to longer term, that that 0:20:16.240 --> 0:20:20.080 is sort of a nod to improved risk appetite, and 0:20:20.800 --> 0:20:25.640 more importantly, improved funding conditions U S dollar funding conditions 0:20:25.640 --> 0:20:29.600 abroad and here in the US, and you've seen the 0:20:29.680 --> 0:20:33.439 FED pump a ton of liquidity into the market, whether 0:20:33.480 --> 0:20:36.320 it be here in the US or abroad. I think 0:20:36.359 --> 0:20:39.480 the FX swap lines have been tapped for roughly four 0:20:39.880 --> 0:20:43.880 billion dollars. So we think that as some of the 0:20:43.920 --> 0:20:47.240 global commerce starts to pick up again, you get US 0:20:47.320 --> 0:20:53.120 dollars flowing throughout the world through typical economic ways. That's 0:20:53.119 --> 0:20:57.000 going to improve funding conditions and remove some of the 0:20:57.080 --> 0:20:59.760 U S dollars scarcely that you've seen all the while, 0:21:00.200 --> 0:21:03.760 some of these funding measures that the FED has enacted 0:21:03.760 --> 0:21:05.639 are probably gonna be slow to come off, So you're 0:21:05.640 --> 0:21:08.280 gonna have what will probably be at least a short 0:21:08.320 --> 0:21:11.679 time period of an abundance of dollars in the system. 0:21:11.760 --> 0:21:15.520 As the FED recalibrates, the economy opens back up, opens 0:21:15.560 --> 0:21:19.920 back up, and you see some of this concern and 0:21:20.320 --> 0:21:23.520 risk off tone fade more broadly. And I think one 0:21:23.520 --> 0:21:25.439 of the biggest risks to that, and it's it's a 0:21:25.440 --> 0:21:28.160 big risk to our rates call as well, is if 0:21:28.160 --> 0:21:31.639 you see some of these states opening up and it 0:21:31.680 --> 0:21:34.840 goes poorly, perhaps you see a big spike in cases 0:21:35.080 --> 0:21:38.800 or even you have fewer people coming out than expected 0:21:38.880 --> 0:21:41.159 and spending money, and and it's really going to be 0:21:41.240 --> 0:21:45.320 a slow grind back to a new normal of sorts, 0:21:45.359 --> 0:21:48.119 and people aren't spending money the way that you would expect, 0:21:48.200 --> 0:21:51.040 and you see you or an L shaped recovery, whatever 0:21:51.080 --> 0:21:53.199 you want to call it. I think that's going to 0:21:53.240 --> 0:21:57.840 be key in the direction of most financial markets going forward, 0:21:57.920 --> 0:22:01.000 is is how do some of these preliminary openings go. 0:22:01.520 --> 0:22:03.760 And if they are quite poor or if they go 0:22:03.880 --> 0:22:07.159 quite poorly, then you're gonna see probably another bout of 0:22:07.240 --> 0:22:09.960 risk off which would actually strengthen the dollars. So it's 0:22:10.000 --> 0:22:12.640