1 00:00:18,200 --> 00:00:20,520 Speaker 1: Hello, and welcome to Credit Edge of Weekly Markets Podcast. 2 00:00:20,560 --> 00:00:23,079 Speaker 1: My name is James Crombie. I'm a senior editor at Bloomberg. 3 00:00:23,120 --> 00:00:25,680 Speaker 1: This week, we're very pleased to welcome Alan McKnight, chief 4 00:00:25,680 --> 00:00:28,120 Speaker 1: investment officer at Regent's Bank. How are you Ellen? 5 00:00:28,600 --> 00:00:30,240 Speaker 2: Doing great this morning, James, thanks for having me. 6 00:00:30,280 --> 00:00:31,720 Speaker 1: Thank you so much for joining us today. We're very 7 00:00:31,720 --> 00:00:33,960 Speaker 1: excited to hear your credit market views, and we're also 8 00:00:34,280 --> 00:00:36,159 Speaker 1: delighted to have back on the show. Matt Goointner with 9 00:00:36,159 --> 00:00:37,000 Speaker 1: Bloomberg Intelligence. 10 00:00:37,040 --> 00:00:39,160 Speaker 3: Hello, Matt, Hi, everyone, thanks for having me back. 11 00:00:39,720 --> 00:00:41,640 Speaker 1: So just set the scene a little bit here. Credit 12 00:00:41,680 --> 00:00:44,720 Speaker 1: markets are projecting an air of calm. Spreads US super tight. 13 00:00:44,760 --> 00:00:47,440 Speaker 1: There's not very much difference between investment grade and junk 14 00:00:47,479 --> 00:00:50,200 Speaker 1: bonds when it comes to risk premia. On debt rated 15 00:00:50,200 --> 00:00:52,400 Speaker 1: double B you're getting paid as much for default risk 16 00:00:52,440 --> 00:00:56,040 Speaker 1: as you were in twenty nineteen. The gap between doubleby 17 00:00:56,040 --> 00:00:58,440 Speaker 1: and triple B rated bonds hasn't been this tite since 18 00:00:58,480 --> 00:01:02,160 Speaker 1: before the pandemic. The good old returns are okay, but 19 00:01:02,200 --> 00:01:03,840 Speaker 1: it's not really the year of the bond a lot 20 00:01:03,880 --> 00:01:06,720 Speaker 1: of people had expected. That's mostly because of rates which 21 00:01:06,760 --> 00:01:09,959 Speaker 1: remain elevated, undermining total returns and also keeping pressure on 22 00:01:10,000 --> 00:01:12,880 Speaker 1: weak companies that have a lot of debt. Shorter duration 23 00:01:12,959 --> 00:01:15,319 Speaker 1: assets like high yield and floating rate loans are doing 24 00:01:15,319 --> 00:01:17,600 Speaker 1: all right, though not as good as equities, and we've 25 00:01:17,640 --> 00:01:20,080 Speaker 1: seen a ton of issuance, most of it for refinancing, 26 00:01:20,120 --> 00:01:23,679 Speaker 1: so net supply is still thin and portfolio managers have 27 00:01:23,720 --> 00:01:26,360 Speaker 1: a lot of cash to reinvest. That's a very bullish 28 00:01:26,360 --> 00:01:29,560 Speaker 1: technical factor that we should discuss today. Credit markets are 29 00:01:29,600 --> 00:01:32,160 Speaker 1: supported also by strength in the US economy, which is 30 00:01:32,160 --> 00:01:34,600 Speaker 1: good for US companies, but corporate bonds in Europe and 31 00:01:34,640 --> 00:01:37,280 Speaker 1: Asia are actually doing better than in America, boosting the 32 00:01:37,319 --> 00:01:42,480 Speaker 1: case for geographic diversification. And while technically credit markets have legs, 33 00:01:42,600 --> 00:01:46,560 Speaker 1: fundamentally there's more and more to worry about inflation, recession risk, 34 00:01:46,720 --> 00:01:51,520 Speaker 1: debt defaults, bankruptcies, commercial real estate, stress, war, geopolitics. Plus 35 00:01:51,560 --> 00:01:54,280 Speaker 1: everyone's loaded up on US assets going into a very 36 00:01:54,320 --> 00:01:58,800 Speaker 1: noisy presidential election. I've used the word complacency a few 37 00:01:58,800 --> 00:02:03,040 Speaker 1: times on this show, given market valuations, but then again, 38 00:02:03,280 --> 00:02:05,520 Speaker 1: there's just this wall of cash. If you bet against it, 39 00:02:05,560 --> 00:02:08,040 Speaker 1: you're potentially not You're potentially going to miss out on 40 00:02:08,080 --> 00:02:10,760 Speaker 1: another big rally. So I want to start there, alan 41 00:02:10,919 --> 00:02:12,480 Speaker 1: what's your take, What do you expect to see in 42 00:02:12,480 --> 00:02:14,240 Speaker 1: credit markets in the second half. Where do we go 43 00:02:14,240 --> 00:02:14,680 Speaker 1: from here? 44 00:02:15,480 --> 00:02:17,880 Speaker 2: Well, I think as you laid out both the opportunities 45 00:02:17,880 --> 00:02:20,120 Speaker 2: and the risk there right now, certainly the market has 46 00:02:20,120 --> 00:02:22,440 Speaker 2: been incredibly tight this year, particularly in light of a 47 00:02:22,480 --> 00:02:25,560 Speaker 2: slowing global economy, and so as we think about the 48 00:02:25,639 --> 00:02:27,720 Speaker 2: back end of twenty four and start looking out into 49 00:02:27,760 --> 00:02:30,600 Speaker 2: twenty five, we think that you could actually continue to 50 00:02:30,600 --> 00:02:32,560 Speaker 2: do well on the investment grade side and on the 51 00:02:32,639 --> 00:02:35,760 Speaker 2: high yield side, albeit we're going to see spreads widening 52 00:02:35,800 --> 00:02:37,360 Speaker 2: a little bit as we get through the election and 53 00:02:37,400 --> 00:02:41,120 Speaker 2: we start to really focus in on what policy is 54 00:02:41,160 --> 00:02:44,080 Speaker 2: going to be. To your point, on the wall of 55 00:02:44,160 --> 00:02:47,520 Speaker 2: cash that is sitting out there, it's really remarkable to 56 00:02:47,600 --> 00:02:50,360 Speaker 2: us just how much capital is on the sidelines and 57 00:02:50,440 --> 00:02:52,400 Speaker 2: is waiting to be deployed. And I think part of 58 00:02:52,440 --> 00:02:55,480 Speaker 2: that is visible via the supply that we've seen in 59 00:02:55,480 --> 00:02:58,200 Speaker 2: the credit markets, where we've seen up over twenty five 60 00:02:58,200 --> 00:03:00,040 Speaker 2: percent on a year of year basis in terms of 61 00:03:00,120 --> 00:03:02,800 Speaker 2: supply coming in, and the demand has been insatiable, and 62 00:03:02,840 --> 00:03:06,680 Speaker 2: the coverage audit has been has not skipped a beat. 63 00:03:06,720 --> 00:03:08,520 Speaker 2: And so I think to that end as we go 64 00:03:08,560 --> 00:03:10,040 Speaker 2: to the end of the year next year, it does 65 00:03:10,840 --> 00:03:14,520 Speaker 2: make us wonder will that wall of capital continue to 66 00:03:14,600 --> 00:03:18,160 Speaker 2: fund these deals. We haven't seen a hiccup in it yet, 67 00:03:18,160 --> 00:03:20,800 Speaker 2: but that's something that we're we're watching closely. 68 00:03:21,720 --> 00:03:24,000 Speaker 3: This is a Matt with the Bloomberg Intelligence So I'm 69 00:03:24,040 --> 00:03:26,480 Speaker 3: one of the five hundred analysts and strategies here with 70 00:03:26,520 --> 00:03:29,320 Speaker 3: the Bloomberg's research department. When I look at WORP, which 71 00:03:29,360 --> 00:03:32,880 Speaker 3: is our world indust rate probability function on the term, 72 00:03:33,040 --> 00:03:36,120 Speaker 3: it looks like the consensus view for the FED to 73 00:03:36,160 --> 00:03:39,120 Speaker 3: cut at the end of summer in September. That would 74 00:03:39,160 --> 00:03:43,440 Speaker 3: mean that we'd have a historically long pause by the FED, 75 00:03:43,520 --> 00:03:47,920 Speaker 3: which contrasts with BEA's chief rates strategist viewing late fall 76 00:03:47,960 --> 00:03:51,200 Speaker 3: more likely, while we've I guess on the past who've 77 00:03:51,280 --> 00:03:54,280 Speaker 3: highlighted cuts may not come till year end. So are 78 00:03:54,320 --> 00:03:57,240 Speaker 3: you in the consensus camp Allen for a September move 79 00:03:57,320 --> 00:03:59,240 Speaker 3: or what's regions of view? 80 00:04:00,200 --> 00:04:02,280 Speaker 2: We are. We're in the consensus camp, which always makes 81 00:04:02,320 --> 00:04:04,640 Speaker 2: us a little bit uncomfortable. It's a little prickly feeling 82 00:04:04,720 --> 00:04:07,520 Speaker 2: to be in the consensus camp. And to your point, 83 00:04:07,640 --> 00:04:10,600 Speaker 2: this is the second longest pause we've ever had and 84 00:04:10,840 --> 00:04:13,200 Speaker 2: rivals number one, which is back in six oh seven, 85 00:04:13,720 --> 00:04:17,560 Speaker 2: and so again as history as a precedent it it 86 00:04:17,600 --> 00:04:19,360 Speaker 2: does give us a bit of pause around than a 87 00:04:19,400 --> 00:04:21,760 Speaker 2: little bit of heartburn around. Okay, what does that mean 88 00:04:21,839 --> 00:04:23,960 Speaker 2: when they do come with these cuts. But we do 89 00:04:24,000 --> 00:04:28,000 Speaker 2: think September and December the most likely, and any sort 90 00:04:28,000 --> 00:04:31,200 Speaker 2: of tailwind will come from the FMC having more data 91 00:04:31,560 --> 00:04:34,680 Speaker 2: to support that in terms of with PCE later this week, 92 00:04:35,000 --> 00:04:38,760 Speaker 2: with jobless claims continuing to rise and a broadly slowing 93 00:04:38,800 --> 00:04:41,200 Speaker 2: economy may give them a little bit more ammunition to 94 00:04:41,240 --> 00:04:42,400 Speaker 2: be able to do both of those. 95 00:04:43,320 --> 00:04:46,200 Speaker 1: So when you say you think that credit markets can perform, 96 00:04:46,640 --> 00:04:47,800 Speaker 1: you know through the rest of the year, Ellen, what 97 00:04:48,000 --> 00:04:50,440 Speaker 1: do you mean by that? You're talking about much more 98 00:04:50,480 --> 00:04:53,120 Speaker 1: total return or you think tighter spreads on what are 99 00:04:53,160 --> 00:04:53,840 Speaker 1: we talking about here? 100 00:04:53,960 --> 00:04:55,960 Speaker 2: More on the total return basis, because it would be 101 00:04:56,000 --> 00:04:58,520 Speaker 2: hard for Press for them to get tighter spreads. I 102 00:04:58,520 --> 00:04:59,760 Speaker 2: mean when you look at it on a twenty five 103 00:04:59,800 --> 00:05:03,080 Speaker 2: years basis, average investment grades spread around one hundred and 104 00:05:03,080 --> 00:05:06,919 Speaker 2: fifty bases points and we're at ninety more or less. 105 00:05:07,240 --> 00:05:10,120 Speaker 2: So it's hard for us to envisionous getting back much lower, 106 00:05:10,960 --> 00:05:12,560 Speaker 2: and same with high yield when you have a long 107 00:05:12,640 --> 00:05:16,800 Speaker 2: term average of over five twenty on twenty five years 108 00:05:16,960 --> 00:05:19,680 Speaker 2: and we're closer to three three ten right again, So 109 00:05:20,360 --> 00:05:21,919 Speaker 2: we think it really is about total return, and I 110 00:05:21,920 --> 00:05:23,799 Speaker 2: mean the benefit you have there too is just across 111 00:05:23,839 --> 00:05:27,479 Speaker 2: the board. Is assuming we do get rate cuts this 112 00:05:27,600 --> 00:05:30,880 Speaker 2: year and we do see rates coming down a little bit, 113 00:05:31,000 --> 00:05:33,520 Speaker 2: on a total return base, we should see some in 114 00:05:33,600 --> 00:05:36,240 Speaker 2: terms of just pricing where it is today and yields 115 00:05:36,240 --> 00:05:38,799 Speaker 2: where they are, we should see benefit in portfolios. 116 00:05:40,080 --> 00:05:43,160 Speaker 1: Does does that mean that we continue on this kind 117 00:05:43,160 --> 00:05:47,240 Speaker 1: of low single digits track for the full year for 118 00:05:47,440 --> 00:05:48,479 Speaker 1: IGN high y I. 119 00:05:48,480 --> 00:05:51,599 Speaker 2: Think it does. It's not going to be a major rally. 120 00:05:51,600 --> 00:05:55,040 Speaker 2: We're not going to see a big pickup, but compared 121 00:05:55,080 --> 00:05:56,640 Speaker 2: to where it's been to your point at the outset, 122 00:05:56,680 --> 00:06:01,000 Speaker 2: it has been a pretty mediocre. Here are certainly in 123 00:06:01,480 --> 00:06:02,719 Speaker 2: comparison to equities. 124 00:06:04,160 --> 00:06:06,400 Speaker 3: You noted the spread levels. So we actually had the 125 00:06:06,440 --> 00:06:09,080 Speaker 3: head of a US highield strategy from b of A 126 00:06:09,240 --> 00:06:11,200 Speaker 3: on a couple months ago, and he was sort of 127 00:06:11,320 --> 00:06:14,520 Speaker 3: highlighting half of the high old market trading inside of 128 00:06:15,160 --> 00:06:17,640 Speaker 3: two outer basis points, which is typically levels reserved for 129 00:06:17,800 --> 00:06:22,160 Speaker 3: investment grade which you know, it could reflect maybe anticipated upgrades, 130 00:06:22,800 --> 00:06:25,320 Speaker 3: but it could also be sort of investors or bond 131 00:06:25,320 --> 00:06:30,200 Speaker 3: holders looking to position themselves from face or in safer 132 00:06:30,279 --> 00:06:32,960 Speaker 3: names given the current interest rate environment or potential for 133 00:06:33,279 --> 00:06:37,440 Speaker 3: economic volatility. So you know, with that dynamic in mind, 134 00:06:37,440 --> 00:06:40,600 Speaker 3: how do you view spreads being this tight? And with that, 135 00:06:40,640 --> 00:06:44,680 Speaker 3: what are some of the maybe core over or underweights 136 00:06:44,680 --> 00:06:47,359 Speaker 3: that you guys have at this point for maybe the 137 00:06:47,360 --> 00:06:49,400 Speaker 3: back half of twenty four and into next. 138 00:06:49,279 --> 00:06:52,200 Speaker 2: Year certainly, So I think as you note there's those 139 00:06:52,200 --> 00:06:54,680 Speaker 2: spreads are incredibly tight for the highest quality names, and 140 00:06:54,720 --> 00:06:57,600 Speaker 2: I'd say we're bunched up with those folks as well, 141 00:06:57,640 --> 00:06:59,120 Speaker 2: just in terms of we don't think you're really being 142 00:06:59,160 --> 00:07:02,080 Speaker 2: paid to take on an order amount of risk out 143 00:07:02,240 --> 00:07:05,040 Speaker 2: because there's not enough juice in it and the squeeze 144 00:07:05,040 --> 00:07:06,520 Speaker 2: for you for you to do that. And so we've 145 00:07:06,560 --> 00:07:11,200 Speaker 2: really tried to stay stay one higher quality and shorter 146 00:07:11,320 --> 00:07:14,440 Speaker 2: duration and relate to those names. And I think as 147 00:07:14,480 --> 00:07:17,760 Speaker 2: you think about the end of this year, so five 148 00:07:18,120 --> 00:07:20,840 Speaker 2: plus months that we have left and into twenty five, 149 00:07:21,400 --> 00:07:23,520 Speaker 2: I think we would look for an opportunity with any 150 00:07:23,560 --> 00:07:25,800 Speaker 2: volatility to try to pick up maybe some of those 151 00:07:26,240 --> 00:07:28,320 Speaker 2: some of the higher quality names. If we do see 152 00:07:28,520 --> 00:07:31,080 Speaker 2: just a general weakness and the credit markets, we're not 153 00:07:31,280 --> 00:07:33,280 Speaker 2: expecting that, but that would be a nice and pleasant 154 00:07:33,280 --> 00:07:34,440 Speaker 2: surprise we could get a little bit of that in 155 00:07:34,520 --> 00:07:37,640 Speaker 2: terms of being able to pick up something. And then 156 00:07:37,680 --> 00:07:39,360 Speaker 2: to that end, I think what we've seen is we've 157 00:07:39,360 --> 00:07:43,680 Speaker 2: been in our core strategies. We've been overweight credit, higher 158 00:07:43,760 --> 00:07:45,840 Speaker 2: quality credit, which has been allowed us to pick up 159 00:07:45,840 --> 00:07:48,720 Speaker 2: a little bit of yield there without taking on undue risk. 160 00:07:48,800 --> 00:07:51,080 Speaker 2: We haven't really wanted to chase on duration on either 161 00:07:51,120 --> 00:07:54,440 Speaker 2: side either. We just were trying to stay pretty pretty 162 00:07:54,480 --> 00:07:57,880 Speaker 2: conservative as the way I would describe it thus far, okay, 163 00:07:58,360 --> 00:08:00,440 Speaker 2: and through the end of next year, through the end 164 00:08:00,480 --> 00:08:02,160 Speaker 2: of this year and beginning of next year, I think 165 00:08:02,200 --> 00:08:04,560 Speaker 2: that's gonna be the right spot. 166 00:08:05,000 --> 00:08:07,800 Speaker 1: That quality trade though, and I mean everyone wants quality, 167 00:08:07,840 --> 00:08:09,760 Speaker 1: and particularly on the high yield side. You know, double 168 00:08:09,760 --> 00:08:12,160 Speaker 1: b's is a very very crowded trade. Is it not 169 00:08:12,240 --> 00:08:15,400 Speaker 1: just getting you know, expensive in terms of you know 170 00:08:15,560 --> 00:08:18,320 Speaker 1: what conversation you're actually getting for the risk of downgrade 171 00:08:18,440 --> 00:08:20,280 Speaker 1: or you know, worse things happening. 172 00:08:21,120 --> 00:08:24,080 Speaker 2: Now, that's a good point. I think we we challenge 173 00:08:24,080 --> 00:08:27,480 Speaker 2: one another is around that of is it. Are we 174 00:08:27,520 --> 00:08:30,560 Speaker 2: taking on more risk or undue risk by chasing quality? 175 00:08:31,080 --> 00:08:34,760 Speaker 2: But when you think about what the alternative is and 176 00:08:34,800 --> 00:08:38,160 Speaker 2: what pickup we may be able to receive for extending 177 00:08:38,160 --> 00:08:40,720 Speaker 2: out a little bit more, it just hasn't hasn't seemed 178 00:08:41,080 --> 00:08:44,079 Speaker 2: worth it to us. And I think the one big 179 00:08:44,160 --> 00:08:48,920 Speaker 2: question mark for us would be do we see do 180 00:08:48,960 --> 00:08:51,880 Speaker 2: we see default rates pick up even more so than 181 00:08:51,880 --> 00:08:54,480 Speaker 2: they have so now let's say four to seven versus 182 00:08:54,720 --> 00:08:56,360 Speaker 2: you know, long term average culture to four to one. 183 00:08:56,600 --> 00:08:59,480 Speaker 2: Do we see those picking up? And if so, and 184 00:08:59,520 --> 00:09:02,800 Speaker 2: what areas that might be presenting some opportunities. We're not 185 00:09:02,840 --> 00:09:04,240 Speaker 2: there yet, though, And I think that's the thing is 186 00:09:04,240 --> 00:09:06,400 Speaker 2: we've we're sitting on the sidelines waiting. We feel like 187 00:09:06,400 --> 00:09:07,880 Speaker 2: this is the best place to wait until we can 188 00:09:08,120 --> 00:09:10,240 Speaker 2: pick some of that up. But it hasn't come. 189 00:09:10,720 --> 00:09:12,640 Speaker 1: And we've been waiting a long time for those defaults 190 00:09:12,679 --> 00:09:15,880 Speaker 1: to come. And you know, really it seems potentially that 191 00:09:15,920 --> 00:09:17,800 Speaker 1: there's an offramp for some of these companies. You know, 192 00:09:17,960 --> 00:09:21,120 Speaker 1: if rates do come down relatively quickly, and you know, 193 00:09:21,280 --> 00:09:23,840 Speaker 1: the liquidity returns to the market, and you know, the economy, 194 00:09:24,040 --> 00:09:27,040 Speaker 1: soft lending, you know, all that stuff seems to be potential, 195 00:09:27,640 --> 00:09:30,920 Speaker 1: you know, exit for those companies that were struggling. Why 196 00:09:30,960 --> 00:09:33,679 Speaker 1: should we expect defaults to increase at this point. 197 00:09:34,400 --> 00:09:37,400 Speaker 2: Well, I think there's just the reality of the lower 198 00:09:37,520 --> 00:09:42,160 Speaker 2: quality names that while they have not reached that point yet, 199 00:09:42,640 --> 00:09:45,280 Speaker 2: they're in close proximity in terms of a slowdown and 200 00:09:45,320 --> 00:09:47,280 Speaker 2: from an economic perspective, and I think those names so 201 00:09:47,320 --> 00:09:50,719 Speaker 2: if you think about using the equity comparable, you look 202 00:09:50,720 --> 00:09:53,040 Speaker 2: at the small cap indices, and you look at the 203 00:09:53,360 --> 00:09:55,800 Speaker 2: say the Russell two thousand, which over fifty percent of 204 00:09:55,840 --> 00:10:00,440 Speaker 2: those names are non earners right now. They're actually unp offitable. 205 00:10:00,880 --> 00:10:02,760 Speaker 2: There's a lot of names in that sort of realm 206 00:10:03,280 --> 00:10:06,120 Speaker 2: that could be on the tipping point, particularly in light 207 00:10:06,160 --> 00:10:08,280 Speaker 2: of when they have to refinance their debt and they 208 00:10:08,400 --> 00:10:11,440 Speaker 2: just they're having to kick the can and make a shift. Again, 209 00:10:11,480 --> 00:10:13,600 Speaker 2: that doesn't impact the higher quality names. In fact, some cases, 210 00:10:13,600 --> 00:10:16,240 Speaker 2: that's going to push probably even more money into quality 211 00:10:16,280 --> 00:10:18,400 Speaker 2: because people want to get as far away as they 212 00:10:18,400 --> 00:10:20,600 Speaker 2: can't unless they're going to start picking it up, and 213 00:10:20,600 --> 00:10:22,960 Speaker 2: they see more opportunity there. So again I think that's 214 00:10:23,000 --> 00:10:26,520 Speaker 2: the nexus of it for us is around we don't 215 00:10:26,520 --> 00:10:28,280 Speaker 2: think we're at a tipping point yet, but I think 216 00:10:28,280 --> 00:10:31,560 Speaker 2: that's what we're watching more than anything else. 217 00:10:31,640 --> 00:10:33,560 Speaker 1: Are there any sectors in those small caps you're particularly 218 00:10:33,559 --> 00:10:36,079 Speaker 1: worried about when we talked a bit about consumer names 219 00:10:37,000 --> 00:10:41,720 Speaker 1: and real estate in previous shows, Are they areas of 220 00:10:41,720 --> 00:10:43,240 Speaker 1: stress that you see we do? 221 00:10:43,280 --> 00:10:45,240 Speaker 2: And I think on the consumer side, those that are 222 00:10:45,240 --> 00:10:48,640 Speaker 2: most exposed to the lower income consumer in the United 223 00:10:48,679 --> 00:10:51,840 Speaker 2: States are going to be particularly hurt by that because 224 00:10:51,920 --> 00:10:55,080 Speaker 2: as you've seen the spending levels, the discretionary spending with 225 00:10:55,080 --> 00:10:57,400 Speaker 2: low income consumers the United States is really pulled back 226 00:10:57,440 --> 00:11:01,199 Speaker 2: because they have been most impacted by higher it's higher 227 00:11:01,320 --> 00:11:05,120 Speaker 2: fuel prices and higher food prices, and so those are 228 00:11:05,120 --> 00:11:08,240 Speaker 2: the names we would skew away from as we look 229 00:11:08,280 --> 00:11:10,320 Speaker 2: into the consumer we would be more on the staple side, 230 00:11:10,320 --> 00:11:12,320 Speaker 2: which we think you have a little more opportunity there 231 00:11:12,440 --> 00:11:15,880 Speaker 2: or again this concept of higher quality. But even in 232 00:11:15,960 --> 00:11:18,680 Speaker 2: the retailers, where we haven't seen as much of a 233 00:11:18,720 --> 00:11:21,640 Speaker 2: pullback in that spending and they're more targeted to the 234 00:11:21,720 --> 00:11:24,240 Speaker 2: higher to middle income consumer in the United States, that 235 00:11:24,920 --> 00:11:29,280 Speaker 2: seems to be a more conservative bet on that versus 236 00:11:29,400 --> 00:11:33,200 Speaker 2: the low income consumer side that is being materially impacted 237 00:11:33,240 --> 00:11:33,600 Speaker 2: right now. 238 00:11:33,720 --> 00:11:35,920 Speaker 1: Right were just to play devil's advocate a little bit. 239 00:11:35,960 --> 00:11:38,600 Speaker 1: I mean, some people do say that we've seen all 240 00:11:38,640 --> 00:11:40,839 Speaker 1: the defaults in those sectors already because we've been through 241 00:11:40,840 --> 00:11:44,720 Speaker 1: that very tough you know, COVID and post COVID period 242 00:11:44,760 --> 00:11:46,920 Speaker 1: and rates have gone up and they've pushed all of 243 00:11:46,960 --> 00:11:51,000 Speaker 1: that stuff into bankruptcy or into default. So is there 244 00:11:51,040 --> 00:11:52,360 Speaker 1: really any left to do? 245 00:11:53,040 --> 00:11:54,920 Speaker 2: I think there's still some out there. Unfortunately. I think 246 00:11:54,960 --> 00:11:57,000 Speaker 2: there's still a little bit of a little bit of 247 00:11:57,000 --> 00:12:01,960 Speaker 2: space there, primarily because what we've seen is down to 248 00:12:02,080 --> 00:12:06,440 Speaker 2: the consumer level, they have been able to push things out, 249 00:12:06,440 --> 00:12:10,960 Speaker 2: whether that be buy now, pay later, whether they have 250 00:12:11,040 --> 00:12:14,480 Speaker 2: been able to put more on their cards. They've been 251 00:12:14,520 --> 00:12:16,320 Speaker 2: able to extend it out a bit, and so it 252 00:12:16,360 --> 00:12:19,240 Speaker 2: hasn't really flown through in terms of the impact on 253 00:12:19,240 --> 00:12:20,920 Speaker 2: the balance sheets of these companies. But I think it 254 00:12:21,000 --> 00:12:24,600 Speaker 2: will eventually get there. But what you see is this 255 00:12:24,720 --> 00:12:26,880 Speaker 2: stark contrast, you know, the best of times the worst 256 00:12:26,880 --> 00:12:30,520 Speaker 2: of times of those who've been able to manage through 257 00:12:30,520 --> 00:12:32,920 Speaker 2: that at the corporate level. When you look at the walmarts, 258 00:12:33,000 --> 00:12:35,040 Speaker 2: the costcos on the retailer side, even on a home 259 00:12:35,080 --> 00:12:37,040 Speaker 2: deepont of loads that have been able to manage through 260 00:12:37,080 --> 00:12:40,600 Speaker 2: that and continue to prosper through it versus those on 261 00:12:40,679 --> 00:12:42,720 Speaker 2: the low income retailer side that if not that are 262 00:12:42,720 --> 00:12:43,680 Speaker 2: already struggling there. 263 00:12:44,040 --> 00:12:47,080 Speaker 3: So it's sort of in that same vein. If if 264 00:12:47,080 --> 00:12:49,079 Speaker 3: there's a view that there's gonna be economic weakness and 265 00:12:49,120 --> 00:12:51,840 Speaker 3: that the FED cutting rates in response to that, it seems, 266 00:12:52,320 --> 00:12:54,600 Speaker 3: you know, logical that you'd sort of be positioning to 267 00:12:54,679 --> 00:12:57,560 Speaker 3: invest in sectors or names with high barriers to entry 268 00:12:57,679 --> 00:13:02,400 Speaker 3: wide economic modes. So credits with you know, very defensive characteristics, 269 00:13:02,440 --> 00:13:06,160 Speaker 3: which I would think means posturing or having a bias 270 00:13:06,200 --> 00:13:09,520 Speaker 3: more up rather than down in credit quality. So how 271 00:13:09,520 --> 00:13:12,640 Speaker 3: far down the spectrum or you know, what rating wrongs 272 00:13:12,640 --> 00:13:15,920 Speaker 3: are you guys comfortable being invested at if we have 273 00:13:15,960 --> 00:13:17,880 Speaker 3: potential cuts from the FED and it's just not they're not 274 00:13:17,920 --> 00:13:21,480 Speaker 3: able to sort of get that soft landing that many 275 00:13:21,480 --> 00:13:22,800 Speaker 3: are sort of pricing in. 276 00:13:23,040 --> 00:13:26,360 Speaker 2: Yeah, we've definitely skewed to the higher quality credits there. Again, 277 00:13:26,400 --> 00:13:28,600 Speaker 2: in terms of how far are we going down, we're 278 00:13:28,600 --> 00:13:30,880 Speaker 2: sticking on the investment grade side of things, and like 279 00:13:30,960 --> 00:13:32,880 Speaker 2: so if you think about our total portfolio and our 280 00:13:32,920 --> 00:13:36,480 Speaker 2: plus strategies that we manage, we have up to twenty 281 00:13:36,480 --> 00:13:40,440 Speaker 2: percent that can be allocated on non investigrade, and we're 282 00:13:40,480 --> 00:13:43,040 Speaker 2: down at the low end of that range, down closer 283 00:13:43,040 --> 00:13:46,520 Speaker 2: to these seven eight percent range on that. So we've 284 00:13:46,559 --> 00:13:48,839 Speaker 2: really we've really pulled back, you know, in terms of 285 00:13:48,880 --> 00:13:52,360 Speaker 2: where we are. Our view has been that we're not 286 00:13:52,480 --> 00:13:55,760 Speaker 2: picking up the commensurate amount of return outside of that 287 00:13:56,840 --> 00:13:58,120 Speaker 2: to make it work. And so when you think of 288 00:13:58,200 --> 00:14:01,680 Speaker 2: even those names, if you your point on those names 289 00:14:01,679 --> 00:14:04,360 Speaker 2: that have the ability to weather through that, whether that 290 00:14:04,440 --> 00:14:08,079 Speaker 2: be on the industrial side, when you think about the 291 00:14:08,160 --> 00:14:10,080 Speaker 2: names like the Honeywells of this world, when you think 292 00:14:10,120 --> 00:14:12,920 Speaker 2: about even on the consumer staple side, on the beverage 293 00:14:13,000 --> 00:14:14,880 Speaker 2: side of the coach, the Pepsi's that kind of name. Again, 294 00:14:15,760 --> 00:14:18,199 Speaker 2: you're not picking up much in terms of spread there, 295 00:14:18,559 --> 00:14:21,760 Speaker 2: but we think that they're well positioned through that slowdown. 296 00:14:21,760 --> 00:14:23,800 Speaker 2: And so that's what uns this idea that in the 297 00:14:23,840 --> 00:14:25,440 Speaker 2: event that we do start to see a bit of 298 00:14:25,480 --> 00:14:29,480 Speaker 2: a dislocation and or we just see what we would 299 00:14:29,480 --> 00:14:32,520 Speaker 2: describe as instead of a grind down in the economic 300 00:14:32,560 --> 00:14:34,680 Speaker 2: output so far, if it were to have more that 301 00:14:34,720 --> 00:14:39,600 Speaker 2: wily coyote type of moment, you could then we'd be 302 00:14:39,640 --> 00:14:42,280 Speaker 2: well positioned to be able to pivot a bit on 303 00:14:42,320 --> 00:14:45,320 Speaker 2: some of those names, and we just hasn't been worth 304 00:14:45,360 --> 00:14:46,160 Speaker 2: it to chase it this far. 305 00:14:46,280 --> 00:14:49,680 Speaker 3: Yeah, I mean, we had Larry Colpon, who's the CEO 306 00:14:49,720 --> 00:14:53,200 Speaker 3: of g Aerospace, on Bloomberg TV this morning highlighting, you know, 307 00:14:53,280 --> 00:14:56,160 Speaker 3: some of his expectations for a rising defense betting here 308 00:14:56,160 --> 00:14:59,640 Speaker 3: in abroad given the elevated threat environments? Is that part 309 00:14:59,680 --> 00:15:04,240 Speaker 3: of your irrationale behind positive views for maybe certain sectors. 310 00:15:04,280 --> 00:15:08,840 Speaker 3: Does that include industrials, does it include actual defense guys 311 00:15:08,880 --> 00:15:11,560 Speaker 3: and you know, do you sort of share that view 312 00:15:11,600 --> 00:15:14,960 Speaker 3: and does you know that change it all depending on 313 00:15:15,000 --> 00:15:17,920 Speaker 3: who may or may not be in the White House 314 00:15:18,400 --> 00:15:19,040 Speaker 3: a year end. 315 00:15:19,480 --> 00:15:21,600 Speaker 2: Well, we do. I mean, we think that the industrial 316 00:15:21,640 --> 00:15:23,240 Speaker 2: side is going to do well, and we think that 317 00:15:23,240 --> 00:15:28,040 Speaker 2: that can do well, whether it regardless of which administration 318 00:15:28,600 --> 00:15:31,840 Speaker 2: comes in and next January. But the reality is that 319 00:15:32,240 --> 00:15:35,520 Speaker 2: within those and this within those, the industries associated with 320 00:15:35,840 --> 00:15:39,240 Speaker 2: right now owning more defense right now we think is 321 00:15:39,280 --> 00:15:43,120 Speaker 2: a positive because we think that broadly speaking, regardless of 322 00:15:43,120 --> 00:15:45,320 Speaker 2: which side of the aisle you're on, that based on 323 00:15:45,360 --> 00:15:47,920 Speaker 2: what is going on with Ukraine, what's going on in Gaza, 324 00:15:48,360 --> 00:15:52,680 Speaker 2: and the continued tensions with China, that overall we will 325 00:15:52,720 --> 00:15:55,520 Speaker 2: be spending more in that domain as well as other 326 00:15:55,600 --> 00:15:58,120 Speaker 2: countries will be spending more in that domain. So that works. 327 00:15:58,280 --> 00:16:00,280 Speaker 2: But then picking up some more on the industrial side 328 00:16:00,320 --> 00:16:03,760 Speaker 2: as it relates to the infrastructure spin that is likely 329 00:16:03,800 --> 00:16:06,080 Speaker 2: to occur as we go into twenty five. I think 330 00:16:06,080 --> 00:16:09,280 Speaker 2: it's going to be more about where that infrastructure spind 331 00:16:09,360 --> 00:16:11,960 Speaker 2: goes than if it happens at all. I don't think 332 00:16:12,000 --> 00:16:15,160 Speaker 2: either party shown a real desire or proclivity to cut spending. Yeah, 333 00:16:15,600 --> 00:16:19,080 Speaker 2: so I think it's just a more matter of which 334 00:16:19,640 --> 00:16:21,680 Speaker 2: within each of those on the industry side, which you 335 00:16:21,720 --> 00:16:23,680 Speaker 2: can pick up on, but I think that continues to 336 00:16:23,680 --> 00:16:24,360 Speaker 2: do well so. 337 00:16:24,360 --> 00:16:30,120 Speaker 3: Within the industrial space, or you know, maybe even like utilities, 338 00:16:30,160 --> 00:16:32,520 Speaker 3: are there any sort of single name credits that you 339 00:16:32,600 --> 00:16:34,400 Speaker 3: have sort of a high conviction in that could be 340 00:16:34,440 --> 00:16:38,280 Speaker 3: positioned outperform and conversely maybe some names where you think 341 00:16:38,320 --> 00:16:42,160 Speaker 3: that the upside downside is maybe skewed not as favorable. 342 00:16:42,640 --> 00:16:45,359 Speaker 2: Yeah, so I would say one, you know, names like Honeywell, 343 00:16:45,760 --> 00:16:48,560 Speaker 2: Lockheed Martin or names that we have owned, do own 344 00:16:48,600 --> 00:16:51,000 Speaker 2: and feel good about because think they can both in 345 00:16:51,040 --> 00:16:53,360 Speaker 2: terms of from the industrial side and then from the 346 00:16:53,920 --> 00:16:57,360 Speaker 2: defense side. On the Lockheed side, less so on the 347 00:16:57,680 --> 00:16:59,680 Speaker 2: names we've really been shining away from in terms of 348 00:16:59,680 --> 00:17:01,840 Speaker 2: how we're running the portfolio. You know, we don't have 349 00:17:02,560 --> 00:17:04,440 Speaker 2: long We are long only, and so we don't have 350 00:17:04,480 --> 00:17:07,600 Speaker 2: anything that really other than quote unquote shortening against the index. 351 00:17:07,600 --> 00:17:10,000 Speaker 2: But we're not actually taking on a negative view other 352 00:17:10,040 --> 00:17:13,560 Speaker 2: than that. And so I think it's the way we've 353 00:17:13,600 --> 00:17:15,960 Speaker 2: positioned it thus far is to try to be over 354 00:17:16,040 --> 00:17:20,639 Speaker 2: allocated within industrials and then those credits within defense with 355 00:17:20,720 --> 00:17:25,000 Speaker 2: the broadly industrial like the Honeywell has more of a 356 00:17:25,040 --> 00:17:30,880 Speaker 2: broad multi business industrial for sure, industrial and multinational type 357 00:17:30,880 --> 00:17:32,919 Speaker 2: of opportunities. And I think that's the thing too. We 358 00:17:32,920 --> 00:17:35,520 Speaker 2: don't want to be as laser focused on any a 359 00:17:35,600 --> 00:17:38,880 Speaker 2: really narrow interest in those because we think it's broad. 360 00:17:38,920 --> 00:17:41,000 Speaker 2: The spending is going to be broad and it can 361 00:17:41,080 --> 00:17:42,199 Speaker 2: lift all boats. 362 00:17:43,119 --> 00:17:45,560 Speaker 1: And on the utility side, I mean, those bards tend 363 00:17:45,560 --> 00:17:48,399 Speaker 1: to be much longer duration. They obviously got whacked by 364 00:17:48,480 --> 00:17:51,159 Speaker 1: rates rising. Is there a sort of technical reason to 365 00:17:51,160 --> 00:17:53,400 Speaker 1: buy those just because they got cheap on a surprise basis? 366 00:17:54,240 --> 00:17:56,080 Speaker 2: I think there is. I mean I think that we 367 00:17:56,200 --> 00:17:58,919 Speaker 2: like the overall view on the utilities as it relates 368 00:17:58,960 --> 00:18:01,280 Speaker 2: to not just this end we've seen on the AI side, 369 00:18:01,280 --> 00:18:05,560 Speaker 2: which has impacted many of them, but really the long 370 00:18:05,640 --> 00:18:09,000 Speaker 2: term infrastructure type of play with these utilities, specifically those 371 00:18:09,040 --> 00:18:10,960 Speaker 2: names as you see across the Sun Belt in the 372 00:18:11,080 --> 00:18:14,639 Speaker 2: United States, of the continued growth in population and demographic 373 00:18:14,680 --> 00:18:17,800 Speaker 2: shift into those areas, and the ability to generate or 374 00:18:17,800 --> 00:18:19,880 Speaker 2: turn off of those not just on the consumer side 375 00:18:19,880 --> 00:18:23,480 Speaker 2: as you've seen that population growth, but also from a 376 00:18:23,640 --> 00:18:26,760 Speaker 2: from broader commercial side, as you've seen more companies moving 377 00:18:26,800 --> 00:18:30,320 Speaker 2: to those areas, they're able to pick up new user 378 00:18:30,440 --> 00:18:33,880 Speaker 2: you know, commercial and consumer type of clients. So that's 379 00:18:33,880 --> 00:18:37,000 Speaker 2: been a net positive for them and for their ability 380 00:18:37,080 --> 00:18:40,600 Speaker 2: to generate returns off of them. 381 00:18:40,680 --> 00:18:42,760 Speaker 3: So I just to jump back in you kind of 382 00:18:42,760 --> 00:18:46,520 Speaker 3: mentioned earlier, you know, if we get some event happening 383 00:18:46,560 --> 00:18:49,320 Speaker 3: that's leading to some some spread widening and maybe some 384 00:18:49,359 --> 00:18:52,199 Speaker 3: opportunities to jump in, can you maybe highlight you know, 385 00:18:52,320 --> 00:18:55,200 Speaker 3: what are some of those levels that you're looking at 386 00:18:55,240 --> 00:18:57,720 Speaker 3: where it's like, Okay, maybe the negativity has sort of 387 00:18:57,760 --> 00:19:00,240 Speaker 3: gone too far and we like this as an entry point. 388 00:19:01,640 --> 00:19:04,240 Speaker 3: We've signaled some levels of complacency going on right now. 389 00:19:04,280 --> 00:19:06,760 Speaker 3: So where where does the complacency go away? 390 00:19:06,800 --> 00:19:07,040 Speaker 1: For you? 391 00:19:07,560 --> 00:19:10,560 Speaker 2: Well, if you had told me ten years ago that 392 00:19:10,640 --> 00:19:13,600 Speaker 2: I would be saying that, you know, anywhere over one 393 00:19:13,720 --> 00:19:16,439 Speaker 2: twenty one thirty investment grade would be intriguing to me 394 00:19:16,520 --> 00:19:18,600 Speaker 2: because wow, that we've seen a nice wine that's tight, 395 00:19:18,640 --> 00:19:22,040 Speaker 2: and yet that's the one thing that you almost you're 396 00:19:22,080 --> 00:19:25,200 Speaker 2: suspending belief on something. And I think that's one of 397 00:19:25,200 --> 00:19:27,040 Speaker 2: the challenges we faced. We've been doing this for a 398 00:19:27,080 --> 00:19:29,880 Speaker 2: long time. As we think about the old adage from 399 00:19:29,880 --> 00:19:33,080 Speaker 2: Mark Twain, if history doesn't repeat itself, but it rhymes, Yeah, 400 00:19:33,640 --> 00:19:35,679 Speaker 2: we keep coming back to it, and that's what we 401 00:19:35,680 --> 00:19:39,359 Speaker 2: would like to see it, you know, well above you know, 402 00:19:39,359 --> 00:19:41,520 Speaker 2: the one twenty one thirty on investment grade getting closer 403 00:19:41,560 --> 00:19:43,199 Speaker 2: just to the long term average for that to be 404 00:19:43,240 --> 00:19:46,639 Speaker 2: intriguing in a perfect world and maybe be careful what 405 00:19:46,760 --> 00:19:49,880 Speaker 2: you wish for we get above that. But the sort 406 00:19:49,920 --> 00:19:55,199 Speaker 2: of decisive exogenoush factor they would have to create that, 407 00:19:55,560 --> 00:19:58,320 Speaker 2: because it's not just the FED coming to table and 408 00:19:58,320 --> 00:20:00,080 Speaker 2: saying we're not going to do cuts in September or 409 00:20:00,080 --> 00:20:01,680 Speaker 2: we're not going to cut into Simber. We don't think 410 00:20:01,720 --> 00:20:06,520 Speaker 2: that drives the level of widening. It would have to 411 00:20:06,560 --> 00:20:09,959 Speaker 2: be something much more material in our view, and so 412 00:20:10,000 --> 00:20:11,840 Speaker 2: that's what we keep watching around Okay, what else could 413 00:20:11,840 --> 00:20:15,440 Speaker 2: that really be? You know, I mean, so it's like 414 00:20:15,440 --> 00:20:17,359 Speaker 2: the whole scenario analysis around what those may be and do. 415 00:20:17,520 --> 00:20:19,880 Speaker 2: There's not any one thing right now that we would 416 00:20:19,920 --> 00:20:21,600 Speaker 2: point to to say, Okay, this is what is really 417 00:20:21,600 --> 00:20:23,399 Speaker 2: going to drive that higher. It have to be a 418 00:20:23,440 --> 00:20:25,120 Speaker 2: multitude of factors as it relates to those. 419 00:20:25,400 --> 00:20:26,840 Speaker 1: It seems like though, from what you were saying earlier 420 00:20:26,920 --> 00:20:30,159 Speaker 1: on that there is a big demand element here, just 421 00:20:30,280 --> 00:20:34,760 Speaker 1: this endless wall of cash pushing against a limited supply. 422 00:20:35,240 --> 00:20:38,240 Speaker 1: We're seeing it from you know, not just dedicated credit buyers, 423 00:20:38,240 --> 00:20:41,480 Speaker 1: but also crossover buyers and also non US buyers. Everyone's 424 00:20:41,520 --> 00:20:43,880 Speaker 1: piling and then you've got this sort of redemptions and 425 00:20:44,080 --> 00:20:45,879 Speaker 1: maturities and so you've got this all those cash that 426 00:20:45,920 --> 00:20:48,159 Speaker 1: needs to be recycled. Is there anything that you can 427 00:20:48,160 --> 00:20:50,840 Speaker 1: see that might weaken the demand side of the argument? 428 00:20:51,440 --> 00:20:53,679 Speaker 2: Well, I think one point you brought up there is 429 00:20:54,000 --> 00:20:55,960 Speaker 2: a particular interest to us, and that's on the international 430 00:20:55,960 --> 00:20:58,639 Speaker 2: buyers because there has been such a thirst for US 431 00:20:58,720 --> 00:21:01,320 Speaker 2: yield and we've can you to see that it's been 432 00:21:02,520 --> 00:21:05,119 Speaker 2: pretty consistent. So the question we have is as it 433 00:21:05,119 --> 00:21:08,960 Speaker 2: relates to through the election and into twenty five of 434 00:21:09,760 --> 00:21:12,520 Speaker 2: broader policy and what that may or may not do 435 00:21:12,600 --> 00:21:14,680 Speaker 2: in terms of some of those buyers. Those buyers don't 436 00:21:14,680 --> 00:21:17,680 Speaker 2: want to be punished for it. So they already own 437 00:21:17,960 --> 00:21:19,960 Speaker 2: a significant amount of credit. So that's not as though 438 00:21:20,000 --> 00:21:24,200 Speaker 2: they are going to in our view at least widely 439 00:21:25,200 --> 00:21:27,880 Speaker 2: leave and flood and flood the space with a lot 440 00:21:27,920 --> 00:21:31,159 Speaker 2: of with a lot of product. But are they going 441 00:21:31,200 --> 00:21:33,000 Speaker 2: to be the net new buyer? And I think that's 442 00:21:33,200 --> 00:21:35,800 Speaker 2: to your good question. I think it's around will they 443 00:21:35,800 --> 00:21:38,040 Speaker 2: continue to be the net new buyer in an environment 444 00:21:38,080 --> 00:21:40,000 Speaker 2: where policy is more strict of him. When you have 445 00:21:40,000 --> 00:21:44,600 Speaker 2: a policy that relates to geopolitic geopolitical policy, tarifs and 446 00:21:44,640 --> 00:21:48,399 Speaker 2: other things that may create consternation, you could see them 447 00:21:48,440 --> 00:21:51,879 Speaker 2: being net less interested. So that's one category of capital 448 00:21:51,920 --> 00:21:55,679 Speaker 2: that may be coming out. And then as it relates 449 00:21:55,720 --> 00:21:58,560 Speaker 2: to within within the US of just okay, how much 450 00:21:59,480 --> 00:22:01,520 Speaker 2: how much thirst is there? How much you know? And 451 00:22:01,560 --> 00:22:03,400 Speaker 2: the funds that are out there right now. The only 452 00:22:03,440 --> 00:22:06,000 Speaker 2: thing that gives us a bit of a silver lining 453 00:22:06,040 --> 00:22:09,480 Speaker 2: there is the amount that's in cash right now that 454 00:22:09,640 --> 00:22:11,040 Speaker 2: is looking for a home. I mean, you look at 455 00:22:11,040 --> 00:22:14,119 Speaker 2: the data supporting that at the amount of cash money 456 00:22:14,119 --> 00:22:18,440 Speaker 2: market funds and institutional cash, it is significant that could 457 00:22:18,440 --> 00:22:20,440 Speaker 2: be deployed, and so I think that is the one 458 00:22:20,560 --> 00:22:23,640 Speaker 2: counterbalance to some of the international component of those, but. 459 00:22:23,560 --> 00:22:26,560 Speaker 1: That also leads I mean, when there's such excess demand 460 00:22:26,640 --> 00:22:28,520 Speaker 1: for limited spy, you also get a lot of froth. 461 00:22:28,680 --> 00:22:31,520 Speaker 1: So is there any kind of concern there that you're seeing, 462 00:22:31,600 --> 00:22:33,880 Speaker 1: you know that you're seeing. I mean, we're always looking 463 00:22:33,880 --> 00:22:36,400 Speaker 1: for things like more pick deals, more dividend deals, more 464 00:22:36,720 --> 00:22:40,639 Speaker 1: of those sorts of very very speculative fundraisings. Is there 465 00:22:40,640 --> 00:22:42,560 Speaker 1: anything that you're seeing right now that would worry you? 466 00:22:43,480 --> 00:22:45,199 Speaker 2: I think the thing that gives us a bit of 467 00:22:45,280 --> 00:22:49,639 Speaker 2: pause is less so on the cross markets than the 468 00:22:49,720 --> 00:22:52,000 Speaker 2: idea on the private credit side and just what's been 469 00:22:52,000 --> 00:22:53,399 Speaker 2: going on there and the amount of money that is 470 00:22:53,440 --> 00:22:56,520 Speaker 2: there and our inability to get a really good look 471 00:22:56,560 --> 00:22:59,360 Speaker 2: into that to determine how what the net impact would 472 00:22:59,359 --> 00:23:03,760 Speaker 2: be if that money away, and how much how much 473 00:23:03,760 --> 00:23:06,040 Speaker 2: that would impact the broader market, because I do think 474 00:23:06,080 --> 00:23:10,480 Speaker 2: we've seen such a a wall of capital that has 475 00:23:10,520 --> 00:23:13,560 Speaker 2: been moved into private capital in terms of the deals 476 00:23:13,560 --> 00:23:16,080 Speaker 2: that they're doing, and just what is that, what's the 477 00:23:16,119 --> 00:23:16,960 Speaker 2: net takeaway from that. 478 00:23:17,440 --> 00:23:19,800 Speaker 1: Yeah, yeah, I mean it's certainly taken some supply out 479 00:23:19,880 --> 00:23:23,800 Speaker 1: so that as technically it's had some impacts on pricing 480 00:23:23,840 --> 00:23:26,840 Speaker 1: of public markets, but definitely an interesting one to watch. 481 00:23:28,119 --> 00:23:30,560 Speaker 1: I just wanted to also ask you about some other 482 00:23:30,880 --> 00:23:33,120 Speaker 1: credit I mean, there's there's so many, it's a it's 483 00:23:33,160 --> 00:23:38,760 Speaker 1: a big broad universe. But beyond bonds, what about loans? 484 00:23:38,800 --> 00:23:43,320 Speaker 1: You know, they've they've done very well. There's potentially some 485 00:23:43,440 --> 00:23:46,280 Speaker 1: kind of cracks appearing in the thesis around you know, 486 00:23:46,400 --> 00:23:48,879 Speaker 1: floating rate because rates are coming down, maybe that's not 487 00:23:48,920 --> 00:23:50,720 Speaker 1: as compelling as it was. And then you've got a 488 00:23:50,760 --> 00:23:54,080 Speaker 1: lot of people buying clos securitized credit. What what else 489 00:23:54,080 --> 00:23:55,800 Speaker 1: are you looking at in terms of other parts of 490 00:23:55,840 --> 00:23:56,840 Speaker 1: credit markets. 491 00:23:57,240 --> 00:24:00,440 Speaker 2: Yeah, so we've been we really have not jumped into 492 00:24:00,440 --> 00:24:02,959 Speaker 2: the foray on the COLO side ever since just has 493 00:24:03,000 --> 00:24:06,200 Speaker 2: not been intrigued to us, but more because we haven't 494 00:24:06,200 --> 00:24:08,080 Speaker 2: felt like, as long term buyers as much that there's 495 00:24:08,080 --> 00:24:10,080 Speaker 2: been an opportunity set there, and so we've just said, 496 00:24:10,119 --> 00:24:13,120 Speaker 2: you know, we'd rather just wait. That is one area 497 00:24:13,160 --> 00:24:15,120 Speaker 2: where because of the sheer demand that we have seen 498 00:24:15,520 --> 00:24:19,199 Speaker 2: in recent years, we just didn't feel compelled to have 499 00:24:19,240 --> 00:24:20,840 Speaker 2: to chase after it. We just didn't think that that 500 00:24:21,040 --> 00:24:24,240 Speaker 2: was worthy of of allocated additional capital on it. So 501 00:24:24,320 --> 00:24:28,439 Speaker 2: I think that's one area where we've where we've remained restrained, 502 00:24:29,240 --> 00:24:32,000 Speaker 2: if you will. But I think as we as we 503 00:24:32,040 --> 00:24:35,359 Speaker 2: look out over the coming six to twelve months, it 504 00:24:35,400 --> 00:24:38,040 Speaker 2: would be intriguing to see if we do see again, 505 00:24:38,320 --> 00:24:40,560 Speaker 2: not a base case, but it broad a broad slow 506 00:24:40,600 --> 00:24:42,960 Speaker 2: down if things just pick up steam. We have some 507 00:24:43,080 --> 00:24:45,400 Speaker 2: challenges where there could be an opportunity set for us. 508 00:24:45,400 --> 00:24:47,640 Speaker 2: We haven't. We haven't waded into it, but it would 509 00:24:47,640 --> 00:24:50,119 Speaker 2: be of interest later on. And those would be almost 510 00:24:50,160 --> 00:24:52,000 Speaker 2: when you think about you're sitting upon the terminal and 511 00:24:52,000 --> 00:24:54,199 Speaker 2: you're watching the thing, the things that could become the 512 00:24:54,280 --> 00:24:57,280 Speaker 2: opportunities that they haven't reached that level yet, but would 513 00:24:57,320 --> 00:24:59,119 Speaker 2: be intriguing at that at that point. 514 00:24:59,320 --> 00:25:01,680 Speaker 1: Okay, other parts of a B S. Are you looking 515 00:25:01,760 --> 00:25:04,399 Speaker 1: at consumer abs or any of the other I mean, 516 00:25:04,440 --> 00:25:06,439 Speaker 1: we've seen a lot of whole business All that stuff 517 00:25:06,480 --> 00:25:08,159 Speaker 1: is that of interest at the moment people think that 518 00:25:08,160 --> 00:25:10,800 Speaker 1: there's value there, So I'm wondering if you're seeing the same. 519 00:25:11,119 --> 00:25:12,879 Speaker 2: Yeah, you know, it's interesting you talk about the on 520 00:25:12,880 --> 00:25:14,840 Speaker 2: the consumer ARABS side and we have not been as 521 00:25:14,880 --> 00:25:16,960 Speaker 2: interested there only because we felt like there's there's a 522 00:25:17,040 --> 00:25:22,560 Speaker 2: reason that it's been undervalued, and you know what was 523 00:25:22,600 --> 00:25:23,840 Speaker 2: the all that is that you could it could remain 524 00:25:23,920 --> 00:25:26,920 Speaker 2: undervalue longer than you can remain solvent, right and uh. 525 00:25:27,000 --> 00:25:28,679 Speaker 2: And so I think that's been one where we just 526 00:25:28,800 --> 00:25:31,280 Speaker 2: in this and it's reflected in the comments earlier just 527 00:25:31,280 --> 00:25:33,399 Speaker 2: about the consumer in the United States as well and 528 00:25:33,440 --> 00:25:38,040 Speaker 2: specifically those who are having to wait into that we'd 529 00:25:38,119 --> 00:25:41,359 Speaker 2: rather step away from that. So so we have so 530 00:25:41,400 --> 00:25:44,520 Speaker 2: our exposure that has been you know, below the index 531 00:25:44,560 --> 00:25:46,760 Speaker 2: and below our you know, our normal allocations there because 532 00:25:46,760 --> 00:25:49,200 Speaker 2: we haven't felt like is we're getting paid for the 533 00:25:50,080 --> 00:25:51,480 Speaker 2: inherent risk, right right? 534 00:25:51,560 --> 00:25:53,840 Speaker 1: And I'm guessing you'd probably say the same about commercial 535 00:25:53,880 --> 00:25:56,359 Speaker 1: real estate and all that stuff. But I would like 536 00:25:56,400 --> 00:25:59,240 Speaker 1: to ask, you know, what, what risks do you think 537 00:25:59,560 --> 00:26:03,040 Speaker 1: there are of like commercial real estate becoming a bigger problem, 538 00:26:03,040 --> 00:26:05,280 Speaker 1: because you know, it's it's often spoken about, it's often 539 00:26:05,280 --> 00:26:08,119 Speaker 1: talked about as something that could take down hundreds of 540 00:26:08,160 --> 00:26:11,680 Speaker 1: banks in the US and be very very problematic, and 541 00:26:11,760 --> 00:26:14,560 Speaker 1: yet we you know, it just seems to be you know, 542 00:26:14,840 --> 00:26:17,159 Speaker 1: bubbling under the surface, and it hasn't really blown up, 543 00:26:17,160 --> 00:26:19,560 Speaker 1: and people I think, you know, there are deals going on, 544 00:26:19,680 --> 00:26:23,800 Speaker 1: their assets being brought their investors, they're picking up, but 545 00:26:23,920 --> 00:26:26,159 Speaker 1: it's not blowing up. Are you worried about commercial real 546 00:26:26,280 --> 00:26:26,800 Speaker 1: estate at all? 547 00:26:27,200 --> 00:26:29,320 Speaker 2: We are, and we're worried about it from a slightly 548 00:26:29,359 --> 00:26:32,280 Speaker 2: different point of view, which is one of it's it's 549 00:26:32,480 --> 00:26:34,600 Speaker 2: less so for the banks. Would you think there's some 550 00:26:34,600 --> 00:26:37,560 Speaker 2: mediosyncratic risk there for certain banks who are overexposed, and 551 00:26:37,560 --> 00:26:40,359 Speaker 2: we've seen some of that over the last six months 552 00:26:40,480 --> 00:26:43,920 Speaker 2: nine months, But broadly speaking, the ones who are going 553 00:26:43,960 --> 00:26:45,800 Speaker 2: to be the most penalized by it in this in 554 00:26:45,840 --> 00:26:49,920 Speaker 2: this marked to market and the quick dash to mark 555 00:26:50,000 --> 00:26:54,960 Speaker 2: down values will be the private funds who have who 556 00:26:54,960 --> 00:26:56,600 Speaker 2: have put a lot of money into these and have 557 00:26:56,640 --> 00:26:59,840 Speaker 2: been unwilling to really mark these to market or unwilling 558 00:26:59,840 --> 00:27:02,560 Speaker 2: to depends on what your point of view, so dadd 559 00:27:02,560 --> 00:27:04,200 Speaker 2: you say, it all depends on whose bulls being gored, 560 00:27:05,359 --> 00:27:08,680 Speaker 2: But it really is about when they have to start 561 00:27:08,720 --> 00:27:11,280 Speaker 2: marketing those down and the investors associated with that, which 562 00:27:11,320 --> 00:27:13,680 Speaker 2: are the large institutional investors and some of these funds 563 00:27:13,680 --> 00:27:15,800 Speaker 2: that are going to start to get hit by that. 564 00:27:15,800 --> 00:27:19,400 Speaker 2: That becomes a real challenge for them, but we don't 565 00:27:19,440 --> 00:27:22,520 Speaker 2: think it's a systemic risk. Across the financial services industry 566 00:27:22,520 --> 00:27:25,520 Speaker 2: and specifically in banking, it will hit a couple of 567 00:27:25,560 --> 00:27:32,240 Speaker 2: smaller entities who have really over allocated to that sector 568 00:27:32,280 --> 00:27:34,959 Speaker 2: and industry. I think it also will very much it 569 00:27:35,040 --> 00:27:38,600 Speaker 2: is aligned with the region of the country and the 570 00:27:38,600 --> 00:27:40,639 Speaker 2: world that you're in as associated with that, because I 571 00:27:40,640 --> 00:27:43,000 Speaker 2: think the marks you're going to get in certain parts 572 00:27:43,040 --> 00:27:45,399 Speaker 2: of the US that have continued to struggle from a 573 00:27:45,480 --> 00:27:47,960 Speaker 2: growth perspective will look very different than some of the 574 00:27:48,040 --> 00:27:51,480 Speaker 2: growth areas where they haven't built up as much. And 575 00:27:51,480 --> 00:27:54,560 Speaker 2: there's probably a trade that can happen closer to the 576 00:27:54,560 --> 00:27:56,880 Speaker 2: mark than in other areas. 577 00:27:56,840 --> 00:27:59,520 Speaker 1: But it's not one that you're actively looking into at 578 00:27:59,520 --> 00:27:59,919 Speaker 1: the moment. 579 00:28:00,440 --> 00:28:03,600 Speaker 2: No, we're not. I think we would just have to 580 00:28:03,600 --> 00:28:10,560 Speaker 2: see a much larger shift there. Again, we would have 581 00:28:10,600 --> 00:28:15,320 Speaker 2: to see more owners mark down their properties that we 582 00:28:15,440 --> 00:28:17,440 Speaker 2: just have not seen yet. It's just I think those 583 00:28:17,480 --> 00:28:19,560 Speaker 2: could prevent some real opportunities for some of the own 584 00:28:19,640 --> 00:28:22,000 Speaker 2: you know, some of the larger commercial real estate credits 585 00:28:22,040 --> 00:28:25,480 Speaker 2: out there, but that's just not there yet. So opportunity 586 00:28:25,920 --> 00:28:30,159 Speaker 2: but not the big not the complete systemic risk that 587 00:28:30,200 --> 00:28:32,479 Speaker 2: I think some would consider okay. 588 00:28:32,960 --> 00:28:35,119 Speaker 1: I mean, obviously we're right in the middle of the 589 00:28:35,240 --> 00:28:38,200 Speaker 1: US election here, and things are changing by the minutes 590 00:28:38,280 --> 00:28:40,440 Speaker 1: and will probably be different by the time we put 591 00:28:40,480 --> 00:28:42,640 Speaker 1: this thing out. But I did want to ask you 592 00:28:42,680 --> 00:28:44,560 Speaker 1: about the Trump trade. You know there are there is 593 00:28:44,600 --> 00:28:47,080 Speaker 1: a lot of talk that you know, well, obviously trade 594 00:28:47,160 --> 00:28:50,040 Speaker 1: is like volatility, and they like trading different narratives. Things 595 00:28:50,040 --> 00:28:52,760 Speaker 1: are changing, so that's that's an opportunity to do something. 596 00:28:52,760 --> 00:28:55,080 Speaker 1: But is there a big Trump trade in your view 597 00:28:55,160 --> 00:28:56,400 Speaker 1: in terms of credit markets. 598 00:28:58,280 --> 00:29:01,120 Speaker 2: I think it's really the influence of events when you 599 00:29:01,120 --> 00:29:04,960 Speaker 2: think of the Trump trade, if you will, last two weeks, 600 00:29:05,000 --> 00:29:07,800 Speaker 2: which has been as he's received the nomination at the 601 00:29:07,840 --> 00:29:11,080 Speaker 2: Republican National Convention, a lot of the noises associated with 602 00:29:11,160 --> 00:29:13,600 Speaker 2: President Biden and as that was coming on. But then 603 00:29:13,640 --> 00:29:17,960 Speaker 2: you in the same lockstep, you had the FOMC, the 604 00:29:18,040 --> 00:29:21,160 Speaker 2: fact that inflation looked to continue to come down, you 605 00:29:21,160 --> 00:29:23,880 Speaker 2: saw jobless claims picking up, you saw the unemployment picking up. 606 00:29:23,880 --> 00:29:26,800 Speaker 2: So I think it was not just that it wouldn't 607 00:29:26,840 --> 00:29:28,680 Speaker 2: all be allocated to the Trump trade. There are those 608 00:29:28,720 --> 00:29:31,600 Speaker 2: other items that were really given that tailwind credit markets 609 00:29:31,600 --> 00:29:35,120 Speaker 2: and people saying okay, convergence of those would say, you know, 610 00:29:35,160 --> 00:29:39,120 Speaker 2: the likelihood has certainly risen from the Trump perspective in 611 00:29:39,200 --> 00:29:43,480 Speaker 2: terms of presidency, the likelihood of the FOMC doing something 612 00:29:43,520 --> 00:29:47,040 Speaker 2: in the next five months high or at least as 613 00:29:47,120 --> 00:29:49,080 Speaker 2: high as it had been. So again, those things have 614 00:29:49,080 --> 00:29:49,800 Speaker 2: have factored in. 615 00:29:50,800 --> 00:29:53,880 Speaker 1: The economists is saying that, you know, at least what 616 00:29:54,280 --> 00:29:57,760 Speaker 1: has been verbalized from the Trump camp would be very 617 00:29:58,000 --> 00:30:01,880 Speaker 1: inflationary if it was to he be enacted as policy, 618 00:30:02,480 --> 00:30:04,440 Speaker 1: in which case you presume you want to buy low 619 00:30:04,560 --> 00:30:06,800 Speaker 1: duration and leverage loans and all that stuff. But do 620 00:30:07,400 --> 00:30:12,080 Speaker 1: you fear a renewal of, you know, a resumption in 621 00:30:12,320 --> 00:30:16,280 Speaker 1: inflation if there is a big GOP suite in the 622 00:30:16,400 --> 00:30:17,080 Speaker 1: November election. 623 00:30:18,520 --> 00:30:20,600 Speaker 2: Yeah. Our base case isn't that we see a real 624 00:30:20,800 --> 00:30:22,920 Speaker 2: pick up in inflation, more so that it's just going 625 00:30:23,000 --> 00:30:26,760 Speaker 2: to continue to remain higher than the Fed would like. 626 00:30:27,160 --> 00:30:30,240 Speaker 2: We just you know, we look at it as inflation 627 00:30:30,280 --> 00:30:32,760 Speaker 2: took the elevator up. Now it's taking the escalator down, 628 00:30:33,080 --> 00:30:36,360 Speaker 2: and it's almost like the slow escalator grinding lower because 629 00:30:36,360 --> 00:30:38,120 Speaker 2: it's just not getting back to that two percent target 630 00:30:38,120 --> 00:30:41,280 Speaker 2: anytime in the in your future. And nothing about the policies, 631 00:30:41,320 --> 00:30:44,520 Speaker 2: at least as presented from either side right now would 632 00:30:44,600 --> 00:30:47,280 Speaker 2: lead me to believe that that is going to change, 633 00:30:47,680 --> 00:30:49,600 Speaker 2: that there's going to be a pickup. And even as 634 00:30:49,640 --> 00:30:52,160 Speaker 2: we talk about this, you think of people talk about 635 00:30:52,200 --> 00:30:55,840 Speaker 2: inflation coming down, the expectation still that it is rising 636 00:30:56,080 --> 00:30:58,400 Speaker 2: at above average. It's still going you know, it hasn't 637 00:30:58,400 --> 00:31:00,080 Speaker 2: gone back to where it was. You said that, you 638 00:31:00,120 --> 00:31:03,240 Speaker 2: know the fantasyad is of pre pre COVID. We're still 639 00:31:03,280 --> 00:31:06,560 Speaker 2: not going back to those levels. It's just not rising 640 00:31:06,600 --> 00:31:08,840 Speaker 2: as fast as it did before. And I think that's 641 00:31:08,880 --> 00:31:13,040 Speaker 2: where we struggle with seeing an environment that it will. 642 00:31:14,960 --> 00:31:17,600 Speaker 1: So in terms of opportunity, when you look around all 643 00:31:17,640 --> 00:31:19,480 Speaker 1: of the stuff you get to look at every day, 644 00:31:19,600 --> 00:31:22,040 Speaker 1: not just in the US, is there something you particularly 645 00:31:22,080 --> 00:31:24,040 Speaker 1: put your finger on now as an opportunities Is there 646 00:31:24,080 --> 00:31:26,959 Speaker 1: something that you know of trade that you have very 647 00:31:27,040 --> 00:31:29,000 Speaker 1: high conviction in that maybe others are missing. 648 00:31:30,320 --> 00:31:33,040 Speaker 2: Well. I think as we think about it, there's this 649 00:31:33,800 --> 00:31:36,680 Speaker 2: what did Voltaire say? Doubt is an unpleasant condition, but 650 00:31:36,800 --> 00:31:41,480 Speaker 2: certainty is absurd. I think we don't feel real certain 651 00:31:41,480 --> 00:31:43,240 Speaker 2: about any of the trades right now, other than what 652 00:31:43,240 --> 00:31:47,400 Speaker 2: we've discussed before around a higher quality trade and waiting 653 00:31:47,440 --> 00:31:49,280 Speaker 2: a bit until we get to see a bit more 654 00:31:50,440 --> 00:31:52,560 Speaker 2: unearthed over the next six months. I think that's going 655 00:31:52,600 --> 00:31:54,239 Speaker 2: to be the opportunity set and being able to have 656 00:31:54,280 --> 00:31:56,880 Speaker 2: ready capital to deploy going into that because aren't that 657 00:31:56,880 --> 00:31:58,520 Speaker 2: many fat pitches out there. There aren't many things where 658 00:31:58,520 --> 00:32:01,480 Speaker 2: you'd say, wow, spreads are in dodibly wide. We have 659 00:32:01,680 --> 00:32:03,880 Speaker 2: a real dislocation and we're willing to put money at 660 00:32:03,960 --> 00:32:05,600 Speaker 2: really cheap levels. I mean, there are a few here 661 00:32:05,600 --> 00:32:08,520 Speaker 2: and there, but even to the discussion earlier about the consumer, 662 00:32:08,640 --> 00:32:11,880 Speaker 2: even on the ABS side, we would argue they're cheap 663 00:32:11,920 --> 00:32:15,720 Speaker 2: for a reason, and so it doesn't it doesn't make 664 00:32:15,800 --> 00:32:19,080 Speaker 2: us compelled to go out and chase that trade. We'd 665 00:32:19,160 --> 00:32:22,240 Speaker 2: rather wait, be a bit more conservative on it, and 666 00:32:22,280 --> 00:32:24,760 Speaker 2: then hopefully let some things come to us over the 667 00:32:24,760 --> 00:32:26,600 Speaker 2: next six months and have enough capital be able gott 668 00:32:26,600 --> 00:32:28,640 Speaker 2: and deploy that and not get hit as much as 669 00:32:28,640 --> 00:32:31,440 Speaker 2: some others before we put that to work. And I 670 00:32:31,440 --> 00:32:33,360 Speaker 2: think that's part of this too, where we haven't chased 671 00:32:33,360 --> 00:32:34,719 Speaker 2: some of these deals even I mean, you look at 672 00:32:34,720 --> 00:32:37,640 Speaker 2: the coverage on some of the deals that have come 673 00:32:37,680 --> 00:32:41,080 Speaker 2: to market over the last month, let's say, and it's 674 00:32:41,120 --> 00:32:44,320 Speaker 2: just the sheer amount of capital that's out there, but 675 00:32:44,360 --> 00:32:45,000 Speaker 2: you know, just. 676 00:32:45,520 --> 00:32:46,960 Speaker 3: I mean, the Bowing deal was like eight to ten 677 00:32:47,000 --> 00:32:49,440 Speaker 3: times over subscribed. It's incredible, and. 678 00:32:50,000 --> 00:32:51,640 Speaker 2: It just has to scratch in our head when you 679 00:32:51,640 --> 00:32:53,120 Speaker 2: get the numbers back, you say, if we say that 680 00:32:53,120 --> 00:32:55,360 Speaker 2: one more time, what did you do? The coverages on 681 00:32:55,440 --> 00:32:58,120 Speaker 2: that one was the over subscription? And so I think 682 00:32:58,160 --> 00:33:00,520 Speaker 2: that's where we'd rather be patient. 683 00:33:01,280 --> 00:33:02,800 Speaker 1: Is that some way you think you particularly have an 684 00:33:02,880 --> 00:33:03,840 Speaker 1: edge right now? 685 00:33:05,320 --> 00:33:08,320 Speaker 2: It's interesting. I think it actually lies in that willingness 686 00:33:08,320 --> 00:33:11,640 Speaker 2: to be patient and be more long term, because I 687 00:33:11,640 --> 00:33:13,920 Speaker 2: think there's so many folks around us that get caught 688 00:33:13,960 --> 00:33:15,360 Speaker 2: up in the whims and vagaries of the market. They 689 00:33:15,440 --> 00:33:18,360 Speaker 2: just feel they have to get they have to put 690 00:33:18,400 --> 00:33:20,560 Speaker 2: some money to work, and they have to try to 691 00:33:20,560 --> 00:33:22,800 Speaker 2: pick up at the margin a little bit more yield 692 00:33:23,160 --> 00:33:26,880 Speaker 2: to get that return. We're willing to wait, you know, 693 00:33:26,880 --> 00:33:28,400 Speaker 2: and so in the short run that can be a 694 00:33:28,440 --> 00:33:31,040 Speaker 2: little more punitive to returns because obviously you're you're not 695 00:33:31,120 --> 00:33:32,680 Speaker 2: chasing it, so you're not going to see that in 696 00:33:32,720 --> 00:33:35,640 Speaker 2: the short run. But over the long run, we think 697 00:33:35,680 --> 00:33:40,880 Speaker 2: it's it's the most prudent course, and and with that 698 00:33:40,920 --> 00:33:43,040 Speaker 2: you sort of get that, you know, the ben gram 699 00:33:43,080 --> 00:33:45,360 Speaker 2: adage of the weighing machine rather than the voting machine. 700 00:33:45,360 --> 00:33:46,720 Speaker 2: You know, we think people are chasing a lot of 701 00:33:46,760 --> 00:33:48,800 Speaker 2: stuff right now. We think you better served to wait 702 00:33:48,800 --> 00:33:50,520 Speaker 2: it out a little bit. Doesn't mean being out of 703 00:33:50,560 --> 00:33:53,240 Speaker 2: the market. It just means skewing to be more conservative 704 00:33:53,240 --> 00:33:53,640 Speaker 2: within it. 705 00:33:54,160 --> 00:33:56,800 Speaker 1: And is that the best hedge against any potential volatility 706 00:33:56,840 --> 00:33:57,840 Speaker 1: that could come down. 707 00:33:58,000 --> 00:34:00,520 Speaker 2: We think so. And I think that's the one thing 708 00:34:02,160 --> 00:34:06,000 Speaker 2: we believe is that volatility will pick up. It's just 709 00:34:06,040 --> 00:34:11,920 Speaker 2: a matter of when, not if. And I think, as 710 00:34:11,960 --> 00:34:15,399 Speaker 2: we've talked about in the past, this idea of how 711 00:34:15,400 --> 00:34:18,160 Speaker 2: did you go broke gradually and then suddenly and it 712 00:34:18,200 --> 00:34:20,000 Speaker 2: comes so quickly it's almost what we saw of late 713 00:34:20,040 --> 00:34:22,520 Speaker 2: with the I'm talking about the equity side of the 714 00:34:22,560 --> 00:34:27,279 Speaker 2: house with small caps. Small caps underperformed and unperformed until 715 00:34:27,320 --> 00:34:29,160 Speaker 2: they didn't and then within a seven to day trading 716 00:34:29,280 --> 00:34:33,600 Speaker 2: range those spiked and made up over a thousand basis 717 00:34:33,600 --> 00:34:35,160 Speaker 2: points of return. I think that sort of thing that 718 00:34:35,160 --> 00:34:38,560 Speaker 2: we'll see this volatility pick up, and being well positioned 719 00:34:38,560 --> 00:34:40,640 Speaker 2: and more conservative will allow us to then put money 720 00:34:40,640 --> 00:34:42,600 Speaker 2: to work rather than having to retrench or be on 721 00:34:42,640 --> 00:34:44,840 Speaker 2: the side of a while. Now I've got is jettison 722 00:34:44,920 --> 00:34:47,640 Speaker 2: some names to try to make room. I think we're 723 00:34:47,680 --> 00:34:48,840 Speaker 2: actually in really good shape. 724 00:34:49,440 --> 00:34:51,359 Speaker 1: What's the one thing you worry about most in terms 725 00:34:51,400 --> 00:34:53,279 Speaker 1: of what might spark that volatility? 726 00:34:55,280 --> 00:34:59,800 Speaker 2: I think it's the confluence of geopolitical issues that seemed 727 00:34:59,800 --> 00:35:04,600 Speaker 2: to be even more not dire, but certainly more present 728 00:35:05,320 --> 00:35:09,400 Speaker 2: than almost at any other time, and the interrelated nature 729 00:35:09,440 --> 00:35:12,120 Speaker 2: of them, and the fact that I think markets are 730 00:35:12,120 --> 00:35:15,160 Speaker 2: more global than they have ever been. And regardless of 731 00:35:15,160 --> 00:35:20,400 Speaker 2: how folks may feel about that path going forward, you 732 00:35:20,800 --> 00:35:22,600 Speaker 2: wake up in the morning in any given day and 733 00:35:22,640 --> 00:35:24,000 Speaker 2: they're a host of things to be going and I 734 00:35:24,000 --> 00:35:26,080 Speaker 2: think those are the things that can bring shocks, and 735 00:35:26,120 --> 00:35:28,680 Speaker 2: those shocks can then force people's hands again and this 736 00:35:28,800 --> 00:35:32,279 Speaker 2: idea that they suddenly don't have the hedge that they 737 00:35:32,280 --> 00:35:35,880 Speaker 2: thought they meaning to jettison things, and it creates that spiral. 738 00:35:36,400 --> 00:35:39,040 Speaker 2: And that spiral is twenty four to seven globally in 739 00:35:39,120 --> 00:35:40,520 Speaker 2: terms of what that can do. And I think we 740 00:35:40,560 --> 00:35:42,840 Speaker 2: saw that to a certain extent back in the in 741 00:35:42,880 --> 00:35:45,440 Speaker 2: the spring, in the financial crisis, in a few areas, 742 00:35:45,480 --> 00:35:48,200 Speaker 2: in certain banks. You know, again, it just it happened 743 00:35:48,239 --> 00:35:50,399 Speaker 2: so rapidly that if you had told me that twenty 744 00:35:50,480 --> 00:35:53,880 Speaker 2: years ago, that you could see that shift that I 745 00:35:53,920 --> 00:35:56,960 Speaker 2: would have said, oh there's it's not possible, not physically possible, 746 00:35:57,400 --> 00:35:58,479 Speaker 2: and yet that's where we were. 747 00:35:59,480 --> 00:36:02,440 Speaker 1: Great stuff, and I'm mcnight, Chief Investment Officer at Regions Bank. 748 00:36:02,480 --> 00:36:04,279 Speaker 1: It's been a pleasure having you on the Credit Edge. Minny. 749 00:36:04,320 --> 00:36:06,239 Speaker 2: Thanks, thanks so much for having me today, and. 750 00:36:06,239 --> 00:36:08,800 Speaker 1: Of course we're very grateful to Matt Goiitner from Bloomberg Intelligence. 751 00:36:08,840 --> 00:36:09,759 Speaker 1: Thank you for joining us again. 752 00:36:09,880 --> 00:36:11,279 Speaker 3: Matt, thanks everyone appreciate it. 753 00:36:11,560 --> 00:36:13,879 Speaker 1: For more Credit analysis, read all of Matt Goyner's great 754 00:36:13,920 --> 00:36:16,480 Speaker 1: work on the Bloomberg Terminal. Bloomberg Intelligence is part of 755 00:36:16,520 --> 00:36:19,239 Speaker 1: our research department, with five hundred analysts and strategies working 756 00:36:19,280 --> 00:36:22,560 Speaker 1: across all markets. Coverage includes over two thousand equities and 757 00:36:22,560 --> 00:36:24,719 Speaker 1: credits and outlooks on more than ninety industries and one 758 00:36:24,760 --> 00:36:28,520 Speaker 1: hundred market indices, currencies and commodities. Please do subscribe to 759 00:36:28,560 --> 00:36:30,600 Speaker 1: the Credit Edge wherever you get your podcasts. We're on Apple, 760 00:36:30,680 --> 00:36:33,840 Speaker 1: Spotify and all other good podcast providers, including the Bloomberg 761 00:36:34,000 --> 00:36:37,040 Speaker 1: Terminal at b pod Go, give us a review, tell 762 00:36:37,040 --> 00:36:39,880 Speaker 1: your friends, or email me directly at jcromb eight at 763 00:36:39,920 --> 00:36:43,000 Speaker 1: Bloomberg dot net. I'm James Cromby, it's been a pleasure 764 00:36:43,040 --> 00:37:05,520 Speaker 1: having you join us again next week on the Credit edge.