1 00:00:15,396 --> 00:00:22,156 Speaker 1: Pushkin from Pushkin Industries. This is Deep Background, the show 2 00:00:22,196 --> 00:00:25,556 Speaker 1: where we explore the stories behind the stories in the news. 3 00:00:26,076 --> 00:00:30,396 Speaker 1: I'm Noah Feldman. Today. We're returning to covid are once 4 00:00:30,436 --> 00:00:33,676 Speaker 1: and it seems almost eternal topic. But we're not going 5 00:00:33,716 --> 00:00:38,196 Speaker 1: to be talking about viruses and vaccines, at least not directly. Instead, 6 00:00:38,196 --> 00:00:41,916 Speaker 1: our topic today is the very bizarre behavior of financial 7 00:00:41,996 --> 00:00:46,156 Speaker 1: markets that we're observing right now, both stock market and 8 00:00:46,356 --> 00:00:51,116 Speaker 1: the bond market under circumstances of global pandemic. To help 9 00:00:51,156 --> 00:00:54,916 Speaker 1: make sense of the somewhat bizarre and anomalous behaviors of 10 00:00:54,916 --> 00:00:57,996 Speaker 1: the markets right now, I'm joined by an expert on 11 00:00:58,036 --> 00:01:02,476 Speaker 1: those things. He's Boas Weinstein, the founder of Saba Capital, 12 00:01:02,836 --> 00:01:06,036 Speaker 1: a hedge fund in Manhattan. Boas has been deep in 13 00:01:06,076 --> 00:01:08,596 Speaker 1: the markets for almost twenty years now, and he has 14 00:01:08,636 --> 00:01:12,996 Speaker 1: a repute as among the most intellectually brilliant students of 15 00:01:13,036 --> 00:01:17,076 Speaker 1: the subject. We spoke on Monday. Wells, thank you very 16 00:01:17,116 --> 00:01:21,036 Speaker 1: much for joining me. I want to start with something 17 00:01:21,076 --> 00:01:24,076 Speaker 1: that maybe probably is incredibly obvious to people in your 18 00:01:24,116 --> 00:01:25,956 Speaker 1: line of work, but the rest of us are a 19 00:01:25,956 --> 00:01:29,836 Speaker 1: little bit puzzled by, and that is the economy is 20 00:01:29,836 --> 00:01:34,476 Speaker 1: in a shambles. Companies are shutting down, thirty million people 21 00:01:34,476 --> 00:01:37,676 Speaker 1: are just about are going to be unemployed, and yet 22 00:01:37,756 --> 00:01:43,036 Speaker 1: the stock market, after an initial marked decline, has been 23 00:01:43,076 --> 00:01:48,276 Speaker 1: climbing mostly back up. At the most basic level, why 24 00:01:48,396 --> 00:01:52,796 Speaker 1: is this happening? So I myself, I'm scratching my head 25 00:01:52,876 --> 00:01:55,396 Speaker 1: wondering how can that be? And so you know, there 26 00:01:55,436 --> 00:01:58,636 Speaker 1: are a number of explanations, but let's just talk about 27 00:01:58,716 --> 00:02:01,916 Speaker 1: the best one, the easiest to understand. And so, you know, 28 00:02:01,956 --> 00:02:05,436 Speaker 1: I think nobody would disagree that the economic picture looks terrible. 29 00:02:05,756 --> 00:02:08,236 Speaker 1: It's worse in the quarter that we're now in than 30 00:02:08,276 --> 00:02:11,636 Speaker 1: in the first quarter was pretty terrible. But stocks represent 31 00:02:11,796 --> 00:02:15,076 Speaker 1: the future cash blows of a company for all of time. 32 00:02:15,436 --> 00:02:18,196 Speaker 1: So a dollar earned in twenty twenty two may be 33 00:02:18,356 --> 00:02:21,156 Speaker 1: less certain and less valuable than a dollar in today, 34 00:02:21,596 --> 00:02:24,476 Speaker 1: But since the interest rates are hovering near zero, the 35 00:02:24,556 --> 00:02:27,876 Speaker 1: difference between those two dollars, one earned today and one 36 00:02:27,996 --> 00:02:29,476 Speaker 1: earned a year or two from now, is not that 37 00:02:29,636 --> 00:02:32,716 Speaker 1: significant in a financial model, and so that's what's meant 38 00:02:32,716 --> 00:02:34,636 Speaker 1: by the time value of money. So even if you 39 00:02:34,716 --> 00:02:37,556 Speaker 1: write off this year as a year where corporate profits 40 00:02:37,556 --> 00:02:40,396 Speaker 1: in the aggregate are going to be quite weak, if 41 00:02:40,436 --> 00:02:42,596 Speaker 1: you believe that the economy is headed for a V 42 00:02:42,676 --> 00:02:46,716 Speaker 1: shaped recovery, you can justify stock prices where they are today. 43 00:02:46,716 --> 00:02:49,036 Speaker 1: And of course there's this question, is a V shaped 44 00:02:49,036 --> 00:02:52,356 Speaker 1: recovery the best guess of what the future holds? So 45 00:02:52,596 --> 00:02:55,276 Speaker 1: V shape recovery we can all picture it. We shot 46 00:02:55,316 --> 00:02:57,116 Speaker 1: down on one egg of the V, and then we're 47 00:02:57,116 --> 00:02:58,676 Speaker 1: going to shoot back up on the other leg of 48 00:02:58,716 --> 00:03:01,556 Speaker 1: the V. There are other options, though, and they all 49 00:03:01,636 --> 00:03:03,836 Speaker 1: have little letters attached to them. So what are some 50 00:03:03,876 --> 00:03:06,676 Speaker 1: of the other options, and maybe help us while you're 51 00:03:06,716 --> 00:03:09,956 Speaker 1: describing the different options, help us think about whether one 52 00:03:10,036 --> 00:03:12,476 Speaker 1: is more credible to believe in than the other. Right, 53 00:03:12,596 --> 00:03:15,356 Speaker 1: So the cousin of the of the V is the U. 54 00:03:15,556 --> 00:03:17,316 Speaker 1: In fact, they're right next to each other in the alphabet, 55 00:03:17,356 --> 00:03:19,076 Speaker 1: which you didn't need me to come on and talk about. 56 00:03:19,236 --> 00:03:22,556 Speaker 1: And so in that telling, it's unclear where we are 57 00:03:22,596 --> 00:03:24,276 Speaker 1: in the U. Did we hit the bottom and we're 58 00:03:24,316 --> 00:03:27,156 Speaker 1: about to start curving upward or things going to get worse? 59 00:03:27,196 --> 00:03:28,676 Speaker 1: But we know they're going to get better. And so 60 00:03:28,716 --> 00:03:31,956 Speaker 1: I think people can also not fret about stock prices 61 00:03:31,956 --> 00:03:33,956 Speaker 1: if they think we're in a U. And I should 62 00:03:33,996 --> 00:03:36,196 Speaker 1: also say part of why we even think we might 63 00:03:36,236 --> 00:03:38,596 Speaker 1: be here. Has a ton to do with what the 64 00:03:38,596 --> 00:03:41,356 Speaker 1: Federal Reserve and the government has been doing, which we'll 65 00:03:41,356 --> 00:03:43,356 Speaker 1: get to, i'm sure in just a minute. But aside 66 00:03:43,356 --> 00:03:45,436 Speaker 1: from V and you you know, there's then all of 67 00:03:45,436 --> 00:03:47,996 Speaker 1: a sudden, you start getting too much scarier letters. The 68 00:03:48,236 --> 00:03:52,596 Speaker 1: L is dreaded, the L is really bad. But I 69 00:03:52,636 --> 00:03:55,196 Speaker 1: think the W is really where my head is at, 70 00:03:55,236 --> 00:03:57,916 Speaker 1: that we're going to be in a world where we 71 00:03:57,996 --> 00:04:01,116 Speaker 1: just don't know, and the emotional side of investing, you know, 72 00:04:01,516 --> 00:04:04,116 Speaker 1: is the Fed's interventions going to be enough, Is the 73 00:04:04,116 --> 00:04:06,396 Speaker 1: economy can recovery? Is there going to be a vaccine 74 00:04:06,436 --> 00:04:08,876 Speaker 1: soon enough? You know, we're going to get these fits 75 00:04:08,836 --> 00:04:12,596 Speaker 1: and arts and rallies and der markets are very very typical, 76 00:04:12,956 --> 00:04:15,396 Speaker 1: so that in a sense that's not unusual. And so 77 00:04:15,476 --> 00:04:18,516 Speaker 1: for me, the W best reflects the seesaw that we're 78 00:04:18,556 --> 00:04:20,636 Speaker 1: going to be in. So let's talk about the W, 79 00:04:20,996 --> 00:04:23,476 Speaker 1: because in the W, we first come down like the 80 00:04:23,516 --> 00:04:26,276 Speaker 1: beginning of the V, and then we start to come 81 00:04:26,316 --> 00:04:29,236 Speaker 1: back up again, and we're probably in that second bit 82 00:04:29,276 --> 00:04:32,396 Speaker 1: of the W where we're coming back up, and then 83 00:04:32,596 --> 00:04:34,516 Speaker 1: it's going to go back down again before it comes 84 00:04:34,556 --> 00:04:37,676 Speaker 1: up and in that theory. Presumably one of the reasons 85 00:04:37,676 --> 00:04:40,636 Speaker 1: that we're coming back up is the government's intervention, the 86 00:04:40,676 --> 00:04:45,756 Speaker 1: Federal reserves intervention of essentially pouring cash into the economy 87 00:04:46,196 --> 00:04:51,316 Speaker 1: and giving it to investors at incredibly low, unimaginably previously 88 00:04:51,356 --> 00:04:56,276 Speaker 1: low interest rates, just draining cheap cash. How is that 89 00:04:56,516 --> 00:04:58,796 Speaker 1: affecting the market. I mean, I've heard people say, and 90 00:04:58,836 --> 00:05:02,236 Speaker 1: this seems intuitively plausible, that because there's just so much 91 00:05:02,276 --> 00:05:06,236 Speaker 1: money coming in that reassures investors to keep the values 92 00:05:06,276 --> 00:05:08,516 Speaker 1: of stocks high. But I've heard other people saying, well, 93 00:05:08,516 --> 00:05:11,356 Speaker 1: it's not even that sophisticated. There's no reassurance. It's just 94 00:05:11,396 --> 00:05:12,596 Speaker 1: free money. And what are you gonna do with the 95 00:05:12,596 --> 00:05:14,196 Speaker 1: free money. You're gonna have to put it into the 96 00:05:14,196 --> 00:05:16,716 Speaker 1: markets because you've got to put it somewhere, right, Well, 97 00:05:16,756 --> 00:05:19,036 Speaker 1: you know there's that you have to put it somewhere. 98 00:05:19,396 --> 00:05:22,716 Speaker 1: Wall Street's really built on alphabet, soup, and acronyms, and 99 00:05:22,756 --> 00:05:25,836 Speaker 1: that is best encapsulated with two, which is fear of 100 00:05:25,876 --> 00:05:28,476 Speaker 1: missing out. So fomo if you don't put it somewhere, 101 00:05:28,636 --> 00:05:30,956 Speaker 1: and then things do go up. The emotional side of 102 00:05:31,036 --> 00:05:32,756 Speaker 1: did you miss it? You know, why were you not 103 00:05:33,036 --> 00:05:36,436 Speaker 1: following the herd. And then of course, Tina, there is 104 00:05:36,516 --> 00:05:39,476 Speaker 1: no alternative. Tina's really really special in this market. And 105 00:05:39,516 --> 00:05:41,596 Speaker 1: so to your question, you know, it's not just low 106 00:05:41,636 --> 00:05:43,636 Speaker 1: interest rates. We've been in a low interest rate world forever, 107 00:05:45,116 --> 00:05:47,996 Speaker 1: well at least for many years, even if it's lower now. 108 00:05:48,276 --> 00:05:51,436 Speaker 1: But it's also the enormous amount of purchasing of US 109 00:05:51,516 --> 00:05:54,756 Speaker 1: traguries mortgage backed securities, which I think people have to understand, 110 00:05:54,796 --> 00:05:57,716 Speaker 1: take them out of the hands of investors, and then 111 00:05:57,756 --> 00:06:00,236 Speaker 1: they have cash. They sold them because they got, you know, 112 00:06:00,236 --> 00:06:02,156 Speaker 1: an amazing price, and now the question is where do 113 00:06:02,196 --> 00:06:04,236 Speaker 1: they put it? And they could leave it in cash, 114 00:06:04,316 --> 00:06:07,076 Speaker 1: but the theory, of course is that many of those 115 00:06:07,116 --> 00:06:09,956 Speaker 1: investors will put it somewhere else. But the fed's backing 116 00:06:09,956 --> 00:06:13,916 Speaker 1: of the market has extended to the commercial paper funding facility, 117 00:06:13,996 --> 00:06:17,476 Speaker 1: the primary dealer credit facility, the money market mutual fund 118 00:06:17,516 --> 00:06:19,596 Speaker 1: liquidity facility, and I could name ten more if you 119 00:06:19,636 --> 00:06:23,996 Speaker 1: only let me. And so they've really gone whole hog 120 00:06:24,036 --> 00:06:25,556 Speaker 1: and are not done yet. And so if you just 121 00:06:25,596 --> 00:06:28,476 Speaker 1: look in the aggregate of what the stimulus has been 122 00:06:28,836 --> 00:06:32,116 Speaker 1: from the three bills thus far, I find this quite shocking. 123 00:06:32,156 --> 00:06:35,276 Speaker 1: The stimulus in the aggregate is greater than the stimulus 124 00:06:35,516 --> 00:06:38,436 Speaker 1: that happened over a four year period after the Great Depression. 125 00:06:38,556 --> 00:06:41,196 Speaker 1: So we've already just in a few short months, spent 126 00:06:41,236 --> 00:06:44,116 Speaker 1: a bigger percentage of our GDP than was spent to 127 00:06:44,156 --> 00:06:47,636 Speaker 1: stimulate the economy back in nineteen twenty nine. And of 128 00:06:47,676 --> 00:06:49,996 Speaker 1: course back then it didn't quite work right. It wasn't 129 00:06:50,036 --> 00:06:51,996 Speaker 1: really until I know, there's a big debate about this, 130 00:06:51,996 --> 00:06:54,636 Speaker 1: but it really wasn't until a World War two that 131 00:06:54,756 --> 00:06:57,596 Speaker 1: we got the kind of rise in production that helped 132 00:06:57,756 --> 00:07:00,836 Speaker 1: get the economy out of the doldrums. Sure, so that 133 00:07:00,876 --> 00:07:02,596 Speaker 1: could be the reason why they have to go bigger 134 00:07:02,636 --> 00:07:04,756 Speaker 1: this time. So the question is was it just a 135 00:07:04,836 --> 00:07:08,276 Speaker 1: question of size, or can the government, in the face 136 00:07:08,436 --> 00:07:13,116 Speaker 1: of a credibly steep correction, recession, maybe even depression, can 137 00:07:13,156 --> 00:07:16,716 Speaker 1: they actually stop up all of that supply of people 138 00:07:16,716 --> 00:07:19,596 Speaker 1: who want to exit risk and restore the markets. And 139 00:07:19,636 --> 00:07:22,636 Speaker 1: I think that question is going to go and fits 140 00:07:22,636 --> 00:07:24,636 Speaker 1: and starts, which is where the w comes in. Even 141 00:07:24,796 --> 00:07:27,436 Speaker 1: where we are with respect to the economy turning back 142 00:07:27,476 --> 00:07:30,956 Speaker 1: on Visa VI, the pandemic ebbing, and you know, all 143 00:07:30,996 --> 00:07:32,836 Speaker 1: these things are open questions, and so I think one 144 00:07:32,916 --> 00:07:36,716 Speaker 1: interesting kind of meta question about The original topic here 145 00:07:37,196 --> 00:07:40,076 Speaker 1: is why do investors have such confidence? You know, we're 146 00:07:40,116 --> 00:07:43,116 Speaker 1: supposed to have confidence in markets that look like markets 147 00:07:43,116 --> 00:07:45,196 Speaker 1: we've been in. The people you know that have been 148 00:07:45,236 --> 00:07:48,156 Speaker 1: trained in finance, whether it's at Wharton or Harvard or 149 00:07:48,156 --> 00:07:50,636 Speaker 1: anywhere else, or you know, from the mean streets of 150 00:07:51,316 --> 00:07:55,156 Speaker 1: Wall Street have used models and heuristics that apply to 151 00:07:55,476 --> 00:07:58,716 Speaker 1: a certain range of examples. And are we not now 152 00:07:58,876 --> 00:08:02,396 Speaker 1: in uncharted territory for anyone who was, you know, barely 153 00:08:02,436 --> 00:08:05,476 Speaker 1: alive even during the Great Depression? How can you have 154 00:08:05,516 --> 00:08:08,076 Speaker 1: confidence that the market ought to be higher than it 155 00:08:08,196 --> 00:08:10,596 Speaker 1: was a year ago? And that's I think where, you know, 156 00:08:10,636 --> 00:08:12,716 Speaker 1: I start to feel like this has a lot more 157 00:08:12,756 --> 00:08:15,956 Speaker 1: to do with temporary factors in psychology. And I see 158 00:08:15,996 --> 00:08:18,276 Speaker 1: examples from a different market than the stock market, from 159 00:08:18,276 --> 00:08:20,796 Speaker 1: the credit market, which is the aggregate bigger than the 160 00:08:20,836 --> 00:08:23,556 Speaker 1: stock markets, that's the bond market, the loan market, and 161 00:08:23,636 --> 00:08:26,556 Speaker 1: I see signs that are much more worrying than the 162 00:08:26,556 --> 00:08:30,556 Speaker 1: confidence inspired by the recent rallying stocks. Let's turn to 163 00:08:30,636 --> 00:08:33,716 Speaker 1: that other market. So until now, we've been mostly talking 164 00:08:33,716 --> 00:08:36,796 Speaker 1: about the stock market, which is equity, which means that 165 00:08:36,876 --> 00:08:39,436 Speaker 1: what's being traded our shares, which means you still have 166 00:08:39,476 --> 00:08:42,956 Speaker 1: an ownership stake in that company going forward, and even 167 00:08:42,996 --> 00:08:45,796 Speaker 1: if the company were to fail, if you hold shares 168 00:08:45,836 --> 00:08:48,796 Speaker 1: in it, you still have a claim on the assets 169 00:08:48,796 --> 00:08:50,836 Speaker 1: of the company, and if it reorganizes itself, you still 170 00:08:50,836 --> 00:08:54,356 Speaker 1: hold onto your shares. Bond markets are different. There, we're 171 00:08:54,396 --> 00:08:58,396 Speaker 1: trading the money that the companies owe, the cash that 172 00:08:58,516 --> 00:09:02,596 Speaker 1: they owe. Tell us what are the bad signs, the 173 00:09:02,636 --> 00:09:05,916 Speaker 1: ominous signs that you're seeing there, because my impression is 174 00:09:05,956 --> 00:09:09,436 Speaker 1: that the bond markets do not share the apparent enthusiasm 175 00:09:09,436 --> 00:09:13,156 Speaker 1: of the stock market. Well, so, firstly, there are arguments 176 00:09:13,156 --> 00:09:15,036 Speaker 1: that they ought to share in it because if you 177 00:09:15,076 --> 00:09:17,076 Speaker 1: look at what the FED has done, some of it 178 00:09:17,116 --> 00:09:19,716 Speaker 1: is to in fact restore confidence in that market. The 179 00:09:19,756 --> 00:09:22,796 Speaker 1: FED hasn't resorted to buying stocks yet, but they have 180 00:09:23,116 --> 00:09:27,916 Speaker 1: agreed to buy basically pools of risky credit, not low 181 00:09:28,036 --> 00:09:31,716 Speaker 1: risk mortgage backed securities or US treasuries, but high risk 182 00:09:31,956 --> 00:09:34,516 Speaker 1: in fact, things that are called junk. The FED has 183 00:09:34,516 --> 00:09:38,516 Speaker 1: gone to buying junk through exchange traded funds and also 184 00:09:39,196 --> 00:09:42,276 Speaker 1: lending to companies that used to be investment grade and 185 00:09:42,316 --> 00:09:45,236 Speaker 1: are now raded junk. And that occurred late in March 186 00:09:45,276 --> 00:09:47,516 Speaker 1: because of COVID, and so we saw it most notably 187 00:09:47,836 --> 00:09:52,116 Speaker 1: happened to Ford and to Macy's and to energy companies 188 00:09:52,156 --> 00:09:55,796 Speaker 1: like Occidental Petroleum. And so the things that are most 189 00:09:55,836 --> 00:09:58,636 Speaker 1: worrying to me in the bond market that you don't 190 00:09:58,636 --> 00:10:01,316 Speaker 1: see in the stock market is that despite that action, 191 00:10:01,796 --> 00:10:05,876 Speaker 1: despite the FED being there to lend, we see a 192 00:10:05,876 --> 00:10:10,596 Speaker 1: lot of hiled companies that were already a pretty risky spot. So, 193 00:10:10,876 --> 00:10:13,556 Speaker 1: you know, recently J. C. Penny has announced that it's 194 00:10:14,036 --> 00:10:16,956 Speaker 1: skipping its interest payments. It's days away from actually filing 195 00:10:16,996 --> 00:10:21,036 Speaker 1: for bankruptcy. Jay Crewe has filed for bankruptcy. Neiman Marcus 196 00:10:20,796 --> 00:10:23,516 Speaker 1: filed for bankruacy. So some of those, one might say, well, 197 00:10:23,516 --> 00:10:25,716 Speaker 1: they were already teetering for a while, so you know, 198 00:10:25,756 --> 00:10:28,036 Speaker 1: how unusual is that. On the other hand, we've seen 199 00:10:28,036 --> 00:10:31,196 Speaker 1: companies that were trading very well before COVID that have 200 00:10:31,236 --> 00:10:35,156 Speaker 1: been dramatically affected, notably Hurts, which was a company whose 201 00:10:35,156 --> 00:10:37,636 Speaker 1: bonds were trading at one hundred at the full claim. 202 00:10:37,676 --> 00:10:39,396 Speaker 1: You know, you make a loan and you're owed back 203 00:10:39,396 --> 00:10:42,116 Speaker 1: one hundred percent. The bonds of Hurts or the gaming 204 00:10:42,156 --> 00:10:45,596 Speaker 1: reservation Mohegan's Son were even above par and now they're 205 00:10:45,596 --> 00:10:48,756 Speaker 1: down into the teens or twenties cents in the dollar 206 00:10:48,836 --> 00:10:51,356 Speaker 1: in the case of Hurts and Mohican Son has fallen 207 00:10:51,356 --> 00:10:53,436 Speaker 1: in half. And so there are a number of companies 208 00:10:53,476 --> 00:10:56,516 Speaker 1: despite all of this, that are defaulting, that will default. 209 00:10:56,756 --> 00:11:00,476 Speaker 1: Expectations for a default rate is extremely high in credit 210 00:11:00,556 --> 00:11:04,436 Speaker 1: and also for small businesses. And so despite all of 211 00:11:04,476 --> 00:11:07,956 Speaker 1: this money being offered to airlines to cruise lines, I 212 00:11:08,156 --> 00:11:12,076 Speaker 1: see continued fear in the credit market, as evidenced by 213 00:11:12,116 --> 00:11:14,476 Speaker 1: the price of the bonds, and also a market called 214 00:11:14,516 --> 00:11:17,436 Speaker 1: the credit rative market. And I see banks that are 215 00:11:17,556 --> 00:11:21,156 Speaker 1: using this derivatives market to hedge themselves to American Airlines, 216 00:11:21,236 --> 00:11:25,356 Speaker 1: United Airlines, Royal Caribbean forward hedging in a way that 217 00:11:25,556 --> 00:11:28,996 Speaker 1: to me, the prices suggest these companies have a real 218 00:11:29,076 --> 00:11:32,556 Speaker 1: chance of defaulting, even though that is inconsistent with the 219 00:11:32,596 --> 00:11:35,116 Speaker 1: idea that the government is going to save those companies. 220 00:11:35,996 --> 00:11:38,876 Speaker 1: So from an intuitive perspective of all that makes sense. Right. So, 221 00:11:39,036 --> 00:11:41,676 Speaker 1: I mean, to the ordinary civilian you think of Hurts, 222 00:11:42,116 --> 00:11:44,596 Speaker 1: They're doing just fine. They're a well run company. Lots 223 00:11:44,636 --> 00:11:47,516 Speaker 1: of people are renting cars, fewer people maybe owned cars. 224 00:11:47,516 --> 00:11:48,916 Speaker 1: So then in the long run you expect a lot 225 00:11:48,956 --> 00:11:50,556 Speaker 1: of people to rent cars. You expect Hurts to be 226 00:11:50,596 --> 00:11:53,076 Speaker 1: able to pay back its debts, then suddenly no one's 227 00:11:53,116 --> 00:11:55,836 Speaker 1: going anywhere, and you expect it to be a lot 228 00:11:55,916 --> 00:11:57,756 Speaker 1: more likely the Hurts won't be able to pay off 229 00:11:57,756 --> 00:12:00,396 Speaker 1: its debts. So that sort of makes common sense. And 230 00:12:00,436 --> 00:12:03,356 Speaker 1: then the thing that you would imagine would not make 231 00:12:03,396 --> 00:12:04,956 Speaker 1: it go down would just be that the government was 232 00:12:04,956 --> 00:12:08,156 Speaker 1: going to effectively bail out Hurts, right, that the government 233 00:12:08,196 --> 00:12:10,076 Speaker 1: was going to buy their debt or make of they're 234 00:12:10,116 --> 00:12:11,636 Speaker 1: debt in some way. And if people think maybe the 235 00:12:11,636 --> 00:12:14,436 Speaker 1: government won't do that for Hurts, then what you're describing 236 00:12:14,556 --> 00:12:17,796 Speaker 1: makes a lot of sense. And it seems as though 237 00:12:18,516 --> 00:12:21,916 Speaker 1: the credit markets are behaving closer to what an outsider 238 00:12:21,956 --> 00:12:25,276 Speaker 1: to the financial markets would expect, and that it's the 239 00:12:25,476 --> 00:12:28,596 Speaker 1: stock market that's the surprising bit. Am I getting that right? Yeah, 240 00:12:28,836 --> 00:12:31,876 Speaker 1: it would be incongruous to have a default rate which 241 00:12:31,916 --> 00:12:33,956 Speaker 1: is in the double digits, which is what's really being 242 00:12:33,956 --> 00:12:37,396 Speaker 1: expected now. So it's not that i'mbarished and mine is 243 00:12:37,396 --> 00:12:39,476 Speaker 1: in the double digits, but others are in the single digits. 244 00:12:39,596 --> 00:12:42,956 Speaker 1: We're expecting a default rate equal or greater to what 245 00:12:43,076 --> 00:12:45,916 Speaker 1: happened in two thousand and eight when we had Lehman 246 00:12:45,956 --> 00:12:49,436 Speaker 1: Brothers default in all of the General Motors and Chrysler 247 00:12:49,476 --> 00:12:52,156 Speaker 1: and everything that came after it. We're expecting actually a 248 00:12:52,236 --> 00:12:55,076 Speaker 1: higher default rate and for a much longer period of time. 249 00:12:55,396 --> 00:12:57,836 Speaker 1: And the third part, which is pernicious is that the 250 00:12:57,916 --> 00:13:00,756 Speaker 1: recoveries what the bond holders are getting back for suffering 251 00:13:00,756 --> 00:13:03,676 Speaker 1: these defaults, are very very low. There was just last 252 00:13:03,716 --> 00:13:07,916 Speaker 1: week a auction of recently defaulted bonds for a company 253 00:13:07,956 --> 00:13:11,556 Speaker 1: called Whiting Petroleum, and those bonds only fetched seven cents 254 00:13:11,556 --> 00:13:14,156 Speaker 1: in the dollar. So normally, as a bond holder, since 255 00:13:14,156 --> 00:13:15,836 Speaker 1: you have a claim on the assets of the company, 256 00:13:15,876 --> 00:13:19,076 Speaker 1: you might expect a recovery more like thirty cents forty cents, 257 00:13:19,116 --> 00:13:22,316 Speaker 1: even if you didn't have a security, you know, like 258 00:13:22,436 --> 00:13:25,596 Speaker 1: in a mortgage. But recoveries have been very low, defaults 259 00:13:25,596 --> 00:13:29,996 Speaker 1: have been high, and so it's really historically inconsistent to 260 00:13:30,076 --> 00:13:32,556 Speaker 1: have a world where the default rate is high, companies 261 00:13:32,596 --> 00:13:35,076 Speaker 1: are defaulting, and the stock market is high at the 262 00:13:35,076 --> 00:13:37,836 Speaker 1: same time. Of course, it didn't have to be this way. 263 00:13:37,916 --> 00:13:40,836 Speaker 1: Companies could have been less levered, which would have given 264 00:13:40,876 --> 00:13:43,836 Speaker 1: them more liquidity, more time to weather the storm. But 265 00:13:44,036 --> 00:13:46,116 Speaker 1: you know, there are a lot of signs pre COVID 266 00:13:46,436 --> 00:13:49,556 Speaker 1: that leverage was running extremely high at the corporate level 267 00:13:49,716 --> 00:13:52,876 Speaker 1: and the default rate was even picking up. Despite the 268 00:13:52,916 --> 00:13:55,156 Speaker 1: bull market we were in, there were wearying signs from 269 00:13:55,156 --> 00:13:57,996 Speaker 1: the credit market, which is what I followed day in 270 00:13:57,996 --> 00:14:00,516 Speaker 1: and day out, which was already giving you pause. And 271 00:14:00,596 --> 00:14:02,636 Speaker 1: here we are, the defaults are not just coming through. 272 00:14:02,876 --> 00:14:06,036 Speaker 1: I would say the stigma of defaulting has changed, because 273 00:14:06,076 --> 00:14:08,916 Speaker 1: now it's not well, we mismanaged the business or a 274 00:14:09,316 --> 00:14:11,596 Speaker 1: Y and z, it's blame it on COVID, which is 275 00:14:11,636 --> 00:14:14,516 Speaker 1: not necessarily unfair. But the stigma of missing a bond 276 00:14:14,516 --> 00:14:18,636 Speaker 1: payment feels, you know, and I can't exactly say why, 277 00:14:18,836 --> 00:14:23,316 Speaker 1: feel like in the marketplace defaulting is becoming more tolerable 278 00:14:23,396 --> 00:14:26,276 Speaker 1: and it's it's contagious. Well, I mean you sort of 279 00:14:26,316 --> 00:14:28,756 Speaker 1: have said why, right, I mean, here you have companies 280 00:14:28,756 --> 00:14:31,516 Speaker 1: that are already highly levered, meeting they already owe as 281 00:14:31,596 --> 00:14:34,116 Speaker 1: much money as they could conceivably owe, and maybe more 282 00:14:34,156 --> 00:14:36,356 Speaker 1: than they should, and so they were a little teetery. 283 00:14:36,956 --> 00:14:38,916 Speaker 1: And then as you say, you know, this is human nature, 284 00:14:38,916 --> 00:14:41,716 Speaker 1: there's an excuse to do it. You say, well, you 285 00:14:41,756 --> 00:14:43,796 Speaker 1: know it's true that they were contributing factors, but really, 286 00:14:43,836 --> 00:14:45,916 Speaker 1: we would have gotten through this were it not for 287 00:14:45,956 --> 00:14:49,596 Speaker 1: this unforeseeable event, And it just seems like that's the 288 00:14:49,596 --> 00:14:51,996 Speaker 1: way excuse has hurt done all the time. You know, 289 00:14:52,036 --> 00:14:53,676 Speaker 1: it's a sort of dog gate my homework way of 290 00:14:53,716 --> 00:14:55,316 Speaker 1: thinking about it, But there's some truth to it if 291 00:14:55,316 --> 00:14:57,316 Speaker 1: the dog really ate your homework, or at least you 292 00:14:57,316 --> 00:14:59,596 Speaker 1: know it slobbered all over it. So I think you've 293 00:14:59,636 --> 00:15:03,236 Speaker 1: given a sufficient psychological account of why not only would 294 00:15:03,276 --> 00:15:05,676 Speaker 1: companies say this, but other people would be prepared to 295 00:15:05,676 --> 00:15:07,476 Speaker 1: listen to it. And the contagion point also makes sense. 296 00:15:07,516 --> 00:15:10,556 Speaker 1: If lots of companies are doing it, there's just a 297 00:15:10,556 --> 00:15:12,676 Speaker 1: limit to how much stigma you can attach to each 298 00:15:12,716 --> 00:15:15,036 Speaker 1: company that does it, and so pretty soon there's not 299 00:15:15,036 --> 00:15:16,956 Speaker 1: that much stigma. So that part, I think you've already 300 00:15:16,996 --> 00:15:21,276 Speaker 1: explained it. Well, it's probably fun to note that there 301 00:15:21,396 --> 00:15:24,036 Speaker 1: is one person that took bankruptcy to a new level 302 00:15:24,076 --> 00:15:26,876 Speaker 1: and it didn't stop him from making the most out 303 00:15:26,876 --> 00:15:29,636 Speaker 1: of it, and that's that's our president, whose company suffered 304 00:15:29,676 --> 00:15:32,396 Speaker 1: bankruptcy dozens of times. So anyhow, I don't know if 305 00:15:32,396 --> 00:15:34,196 Speaker 1: that really has a role, but you know, that's actually 306 00:15:34,196 --> 00:15:37,516 Speaker 1: fundamentally what's happening that companies are defaulting. We'll be back 307 00:15:37,556 --> 00:15:50,196 Speaker 1: in just a moment. Let's turn Baus to what's going 308 00:15:50,236 --> 00:15:53,876 Speaker 1: to happen next? You say the bond markets are a 309 00:15:53,876 --> 00:15:56,796 Speaker 1: little bit are more than a little bit nervous. They're concerned, 310 00:15:56,916 --> 00:16:00,356 Speaker 1: and if you're right, you're also suggesting the possibility that 311 00:16:00,436 --> 00:16:04,556 Speaker 1: the stock market itself could go down. What's going to happen? 312 00:16:04,876 --> 00:16:09,116 Speaker 1: You know, how prepared is the government for another crisis? 313 00:16:09,316 --> 00:16:11,276 Speaker 1: You know, for the third leg in the w where 314 00:16:11,716 --> 00:16:15,116 Speaker 1: having boosted us all up, we go back down again. 315 00:16:15,556 --> 00:16:19,196 Speaker 1: What will that day look like? Well, so now you're 316 00:16:19,196 --> 00:16:22,076 Speaker 1: asking me to opine about this murkiness that I said 317 00:16:22,156 --> 00:16:24,636 Speaker 1: was highly uncertain and hard to predict. We'll give us 318 00:16:24,676 --> 00:16:27,076 Speaker 1: a range of options. How about that? In my telling 319 00:16:27,116 --> 00:16:30,196 Speaker 1: of it, having seen what happened, where at the first 320 00:16:30,196 --> 00:16:33,076 Speaker 1: sign of trouble the government stepped in and arranged a 321 00:16:33,156 --> 00:16:36,036 Speaker 1: marriage in two thousand and eight between JP Morgan and 322 00:16:36,076 --> 00:16:39,876 Speaker 1: bear Stearns. Bear Sterns needed a rescue and so they 323 00:16:39,876 --> 00:16:42,436 Speaker 1: were saved and the default didn't occur. But then with 324 00:16:42,556 --> 00:16:46,836 Speaker 1: Lehman Brothers the default did occur, And with General Motors 325 00:16:46,876 --> 00:16:48,676 Speaker 1: and Christ's Third the default did occur. And so there 326 00:16:48,756 --> 00:16:51,596 Speaker 1: is this question of if we really do have finite money, 327 00:16:51,636 --> 00:16:53,956 Speaker 1: if there is something to be believed in what Mitch 328 00:16:53,996 --> 00:16:56,436 Speaker 1: McConnell said, you know, worrying about the total level of 329 00:16:56,476 --> 00:17:00,196 Speaker 1: debt and said quite instantly early things about perhaps municipalities 330 00:17:00,236 --> 00:17:02,956 Speaker 1: need to default. So if the D word is going 331 00:17:02,996 --> 00:17:06,156 Speaker 1: to you know, be present and causing pain for investors, 332 00:17:06,396 --> 00:17:09,716 Speaker 1: I think rationing the stimulus to where it's most needed 333 00:17:10,156 --> 00:17:12,556 Speaker 1: is maybe how things are going to evolve. And so 334 00:17:12,596 --> 00:17:15,476 Speaker 1: maybe the answer isn't to save every company that's going 335 00:17:15,516 --> 00:17:18,996 Speaker 1: to get hurt because of the COVID crisis, but instead 336 00:17:19,316 --> 00:17:23,276 Speaker 1: protect the jobs of those companies without necessarily protecting the 337 00:17:23,316 --> 00:17:26,036 Speaker 1: bond holders. And so that's one way it could evolve. 338 00:17:26,116 --> 00:17:29,036 Speaker 1: And in that way, asset prices can go down, bond 339 00:17:29,036 --> 00:17:31,436 Speaker 1: prices certainly can go down, and even stock prices should 340 00:17:31,436 --> 00:17:34,636 Speaker 1: go down. And in that world, you know, perhaps the 341 00:17:34,676 --> 00:17:38,716 Speaker 1: dollars are better spent on the individual investor. And it 342 00:17:38,756 --> 00:17:41,636 Speaker 1: really raises I think something that's going on right now, 343 00:17:41,676 --> 00:17:42,956 Speaker 1: we can see it. We don't have to wait for 344 00:17:42,996 --> 00:17:45,476 Speaker 1: the future. This is something I listened with interest to 345 00:17:45,876 --> 00:17:48,596 Speaker 1: a week ago said by Larry Summers on Bloomberg TV, 346 00:17:48,916 --> 00:17:51,556 Speaker 1: which is if you look at how companies are scrambling 347 00:17:51,636 --> 00:17:54,196 Speaker 1: right now to raise money. Almost all of that money 348 00:17:54,276 --> 00:17:57,716 Speaker 1: is being raised in the debt market. So just ten 349 00:17:57,796 --> 00:18:02,396 Speaker 1: days ago Boeing raised twenty five billion dollars through more debt. 350 00:18:02,516 --> 00:18:06,596 Speaker 1: Forward raised seven billion GM four billion. Retailers like Polls 351 00:18:06,716 --> 00:18:08,996 Speaker 1: or Gap Stores came into the debt market to bar 352 00:18:09,156 --> 00:18:12,476 Speaker 1: own more money. But Summers raised the question of is 353 00:18:12,476 --> 00:18:15,036 Speaker 1: that actually the best thing for the company when it 354 00:18:15,036 --> 00:18:18,116 Speaker 1: comes to solvency. Ought they not raise equity at the 355 00:18:18,156 --> 00:18:20,556 Speaker 1: same time, or aught they not raise significant amounts of 356 00:18:20,556 --> 00:18:23,996 Speaker 1: equity instead of debt as a way to bolster their balancie. 357 00:18:24,036 --> 00:18:25,716 Speaker 1: It is a way for them to have cash without 358 00:18:25,716 --> 00:18:27,636 Speaker 1: having the obligation to pay it back. And so in 359 00:18:27,676 --> 00:18:30,476 Speaker 1: the way that I think a lot of Americans are 360 00:18:30,556 --> 00:18:33,116 Speaker 1: upset when they see companies take money and go buy 361 00:18:33,116 --> 00:18:35,676 Speaker 1: back shares. In a sense, this is like the inverse 362 00:18:35,716 --> 00:18:38,196 Speaker 1: of it. Well, now they're in trouble, why don't they 363 00:18:38,236 --> 00:18:40,356 Speaker 1: issue shares? Why don't they raise money? The way I 364 00:18:40,396 --> 00:18:43,316 Speaker 1: saw over my career companies do in times of fear, 365 00:18:43,596 --> 00:18:45,556 Speaker 1: like in two thousand and two when we had and 366 00:18:45,756 --> 00:18:49,036 Speaker 1: Ron default in worldcome a lot of companies at that 367 00:18:49,076 --> 00:18:51,756 Speaker 1: point in time chose to raise equity. And so while 368 00:18:51,796 --> 00:18:56,356 Speaker 1: it is happening today, the International steel company Mittal raised 369 00:18:56,396 --> 00:18:59,836 Speaker 1: some equity, United did Carnival did. I think the best 370 00:18:59,876 --> 00:19:02,836 Speaker 1: answer of why it's not happening is that the management 371 00:19:02,916 --> 00:19:05,556 Speaker 1: is too afraid to dilute their shareholders, and so the 372 00:19:05,556 --> 00:19:07,876 Speaker 1: amounts of money they would need to raise to deal 373 00:19:07,876 --> 00:19:10,036 Speaker 1: with the COVID crisis is so great that they would 374 00:19:10,036 --> 00:19:13,156 Speaker 1: really be hurting their stock price, but they would be 375 00:19:13,356 --> 00:19:17,396 Speaker 1: shoring up their liquidity and their solvency, and so that's 376 00:19:17,436 --> 00:19:20,476 Speaker 1: to me. The next phase is that whether the government's 377 00:19:20,516 --> 00:19:24,036 Speaker 1: loans come with equity stakes, which basically creates that situation 378 00:19:24,036 --> 00:19:26,756 Speaker 1: where they are diluted, or companies do it themselves where 379 00:19:26,956 --> 00:19:30,076 Speaker 1: they access the markets, whether they're forced to or want 380 00:19:30,116 --> 00:19:33,276 Speaker 1: to through equity, which would be a much in my view, 381 00:19:33,396 --> 00:19:36,636 Speaker 1: much better outcome for all of Americans. And when you 382 00:19:36,676 --> 00:19:39,236 Speaker 1: say that the corporate management doesn't want to dilute their shareholders, 383 00:19:39,356 --> 00:19:41,396 Speaker 1: do you mean that they're basically just worried that then 384 00:19:41,436 --> 00:19:44,876 Speaker 1: the shareholders will vote them out. Well, part of it 385 00:19:44,916 --> 00:19:46,756 Speaker 1: is maybe just the amount of money they need to 386 00:19:46,796 --> 00:19:49,036 Speaker 1: raise is so great that they just couldn't get there 387 00:19:49,236 --> 00:19:51,476 Speaker 1: purely with equity, but we're seeing a lot of the 388 00:19:51,556 --> 00:19:53,916 Speaker 1: capital raising done purely on the debt side, So it 389 00:19:53,956 --> 00:19:56,196 Speaker 1: doesn't answer why are they not doing both or why 390 00:19:56,236 --> 00:19:58,356 Speaker 1: are they not doing heavy amounts of equity. And I 391 00:19:58,396 --> 00:20:00,596 Speaker 1: think some of it comes back to the greed of 392 00:20:00,876 --> 00:20:03,156 Speaker 1: not wanting their share price to go down. But by 393 00:20:03,316 --> 00:20:06,396 Speaker 1: taking out more debt, you're creating a more levered situation, 394 00:20:06,436 --> 00:20:10,156 Speaker 1: a company that is more exposed to a prolonged downturn 395 00:20:10,276 --> 00:20:13,196 Speaker 1: leading to default. And so it might be in the 396 00:20:13,196 --> 00:20:15,996 Speaker 1: shareholder's interest, and I think the FED in somebody's has 397 00:20:16,036 --> 00:20:19,556 Speaker 1: encouraged it by saying they're going to backstop lending to 398 00:20:19,676 --> 00:20:22,796 Speaker 1: fallen angels and they're going to buy high oldtfs, when 399 00:20:22,836 --> 00:20:25,356 Speaker 1: really there should be a lot more equity raised. When 400 00:20:25,356 --> 00:20:29,236 Speaker 1: the government signals that it's willing to basically ensure companies, 401 00:20:29,796 --> 00:20:33,116 Speaker 1: why shouldn't they go borrow that money in cash. They're 402 00:20:33,116 --> 00:20:35,596 Speaker 1: gambling that someone's going to back them up if they fail. 403 00:20:35,836 --> 00:20:38,436 Speaker 1: That's fairer baus. Let me just close by asking you 404 00:20:38,716 --> 00:20:41,796 Speaker 1: what should I be asking you about what's going to 405 00:20:41,876 --> 00:20:43,956 Speaker 1: happen or what is happening that I haven't I mean, 406 00:20:43,956 --> 00:20:46,716 Speaker 1: there's obviously a huge amount of complexity here, and you've 407 00:20:46,756 --> 00:20:50,036 Speaker 1: gone very far towards clarifying and simplifying it for the 408 00:20:50,076 --> 00:20:52,556 Speaker 1: listeners and for me, which I'm really grateful for. But 409 00:20:52,676 --> 00:20:54,236 Speaker 1: what am I not asking you that I should be 410 00:20:54,276 --> 00:20:57,476 Speaker 1: asking you? So the thing that I most want to 411 00:20:57,516 --> 00:21:00,836 Speaker 1: get off my chest is that I see a market 412 00:21:00,996 --> 00:21:06,716 Speaker 1: that normal, non professional investors believe is driven by fundamental forces, 413 00:21:06,916 --> 00:21:09,996 Speaker 1: and I see it more than ever driven by technical forces. 414 00:21:10,116 --> 00:21:13,196 Speaker 1: And define that what are technical forces? So instead of 415 00:21:13,196 --> 00:21:16,036 Speaker 1: what's the intrinsic value of a company worth using a 416 00:21:16,076 --> 00:21:18,756 Speaker 1: financial model, it's who's doing what to whom and in 417 00:21:18,796 --> 00:21:21,396 Speaker 1: what quantity? How many sellers are there compared to buyers? 418 00:21:21,716 --> 00:21:25,996 Speaker 1: What's the relationship between related instruments such as the debt 419 00:21:25,996 --> 00:21:28,156 Speaker 1: of a company and the equity of a company, And 420 00:21:28,236 --> 00:21:31,996 Speaker 1: I see large divergences. As an investor, I've always been 421 00:21:32,076 --> 00:21:35,276 Speaker 1: much more focused on relative value on looking at a company. 422 00:21:35,556 --> 00:21:39,316 Speaker 1: Let's take United Airlines, which is having tremendous issues. They 423 00:21:39,356 --> 00:21:41,716 Speaker 1: had to shelve a debt deal. They were bringing debt, 424 00:21:41,796 --> 00:21:43,916 Speaker 1: They did bring a little bit of equity beforehand, and 425 00:21:43,956 --> 00:21:45,956 Speaker 1: they had to shelve it over lack of demand. And 426 00:21:45,996 --> 00:21:48,036 Speaker 1: I look at the difference in price between the debt 427 00:21:48,036 --> 00:21:50,756 Speaker 1: of the US airlines and the equity which still has 428 00:21:50,796 --> 00:21:54,476 Speaker 1: considerable value, and I see a dislocation there compared to history. 429 00:21:54,516 --> 00:21:56,556 Speaker 1: I see that the debt is actually giving a much 430 00:21:56,596 --> 00:21:59,556 Speaker 1: more negative picture. And so when I look at the 431 00:21:59,596 --> 00:22:03,556 Speaker 1: market today versus five years ago and even much further back, 432 00:22:03,596 --> 00:22:07,196 Speaker 1: I see a market really driven by technical forces, and 433 00:22:07,236 --> 00:22:10,236 Speaker 1: so the things that are of interest to my relative 434 00:22:10,276 --> 00:22:13,876 Speaker 1: value strategies are off the charts. Interesting right now, there's 435 00:22:14,036 --> 00:22:16,436 Speaker 1: a type of trade that we've been doing for about 436 00:22:16,436 --> 00:22:18,956 Speaker 1: a dozen companies that in my twenty two years of 437 00:22:18,956 --> 00:22:20,996 Speaker 1: doing this type of trade has never been this good, 438 00:22:21,356 --> 00:22:23,756 Speaker 1: and normally you don't expect that to be, you know, 439 00:22:23,916 --> 00:22:27,196 Speaker 1: in a market where we're only ten fifteen percent off 440 00:22:27,236 --> 00:22:29,476 Speaker 1: of the high. My takeaway from that is is that 441 00:22:29,596 --> 00:22:36,116 Speaker 1: markets are highly unstable because relationships that tend to correlate 442 00:22:36,196 --> 00:22:38,916 Speaker 1: are right now breaking down. There's a lot of havoc. 443 00:22:38,956 --> 00:22:42,636 Speaker 1: There's a lot of market segmentation where some investors are 444 00:22:42,636 --> 00:22:44,836 Speaker 1: only doing one kind of thing and other investors are 445 00:22:44,836 --> 00:22:47,716 Speaker 1: doing another, and it's led to an opportunity set which 446 00:22:47,716 --> 00:22:49,996 Speaker 1: is really quite exceptional for my kind of strategy. But 447 00:22:50,036 --> 00:22:52,836 Speaker 1: it also even though I don't have any more crystal 448 00:22:52,836 --> 00:22:56,716 Speaker 1: ball than anyone else. It does give me great caution 449 00:22:56,796 --> 00:22:58,916 Speaker 1: when it comes to the direction of markets. I'm quite 450 00:22:58,956 --> 00:23:01,556 Speaker 1: worried that the markets are going to be headed lower 451 00:23:02,036 --> 00:23:04,876 Speaker 1: and that the if the V comes, you know, the 452 00:23:04,956 --> 00:23:07,396 Speaker 1: V was already mostly priced in, and the risk of 453 00:23:07,396 --> 00:23:09,716 Speaker 1: it not being a V is far greater based on 454 00:23:09,796 --> 00:23:12,356 Speaker 1: current levels. Well, it's not a cheerful moment on which 455 00:23:12,356 --> 00:23:14,916 Speaker 1: to end, but it is definitely honest and I really 456 00:23:14,956 --> 00:23:16,796 Speaker 1: appreciate it. Boaz, thank you so much for your time. 457 00:23:16,876 --> 00:23:21,636 Speaker 1: Thank you, Noah. Boaz's account gives us substantial food for 458 00:23:21,716 --> 00:23:24,196 Speaker 1: thought when we think about the behavior of the financial 459 00:23:24,236 --> 00:23:29,156 Speaker 1: markets right now. He's validating our general concern that there's 460 00:23:29,196 --> 00:23:32,156 Speaker 1: something strange about the way that the stock market the 461 00:23:32,196 --> 00:23:36,316 Speaker 1: equity markets continue to be behaving as though a V 462 00:23:36,476 --> 00:23:40,756 Speaker 1: shape recovery were to be soon expected. Going forward, the 463 00:23:40,836 --> 00:23:44,236 Speaker 1: deep question is whether the different signals being sent by 464 00:23:44,316 --> 00:23:48,876 Speaker 1: bond markets and the stock market will eventually come into coordination. 465 00:23:49,676 --> 00:23:52,116 Speaker 1: Logically speaking, if they do, there's only two ways that 466 00:23:52,156 --> 00:23:54,676 Speaker 1: can happen. Either things can get better in the bond 467 00:23:54,716 --> 00:23:57,276 Speaker 1: markets than they are now, or it seems much more 468 00:23:57,356 --> 00:24:01,156 Speaker 1: likely things in the stock market can get a lot worse. 469 00:24:02,196 --> 00:24:05,036 Speaker 1: Above all, I'm really struck that just as we're highly 470 00:24:05,076 --> 00:24:08,636 Speaker 1: dependent upon scientists in a moment of pandemic to try 471 00:24:08,676 --> 00:24:12,436 Speaker 1: to explain in ordinary language what's going on, we're also 472 00:24:12,516 --> 00:24:16,396 Speaker 1: dependent on financial market experts to try to explain to 473 00:24:16,436 --> 00:24:19,156 Speaker 1: the rest of us what they see happening in their 474 00:24:19,196 --> 00:24:24,156 Speaker 1: own very distinctive and very consequential world. Until the next 475 00:24:24,196 --> 00:24:27,476 Speaker 1: time I speak to you, be careful, be safe, and 476 00:24:27,556 --> 00:24:32,916 Speaker 1: be well. Deep background is brought to you by Pushkin Industries. 477 00:24:33,236 --> 00:24:36,236 Speaker 1: Our producer is Lydia Jane Cott, with research help from 478 00:24:36,356 --> 00:24:40,236 Speaker 1: Zooie Wynn and mastering by Jason Gambrel and Martin Gonzalez. 479 00:24:40,636 --> 00:24:44,196 Speaker 1: Our showrunner is Sophie mckibbon. Our theme music is composed 480 00:24:44,196 --> 00:24:48,276 Speaker 1: by Luis gera special thanks to the Pushkin Brass, Malcolm Gladwell, 481 00:24:48,436 --> 00:24:52,476 Speaker 1: Jacob Weisberg, and Mia Loebell. I'm Noah Feldman. I also 482 00:24:52,476 --> 00:24:55,316 Speaker 1: write a regular column for Bloomberg Opinion, which you can 483 00:24:55,356 --> 00:24:59,796 Speaker 1: find at Bloomberg dot com slash Feldman. To discover Bloomberg's 484 00:24:59,796 --> 00:25:04,076 Speaker 1: original slate of podcasts, go to Bloomberg dot com slash podcasts. 485 00:25:04,716 --> 00:25:07,396 Speaker 1: And one last thing. I just wrote a book called 486 00:25:07,636 --> 00:25:10,596 Speaker 1: The Arab Winter a trag. I would be delighted if 487 00:25:10,596 --> 00:25:12,436 Speaker 1: you checked it out. You can always let me know 488 00:25:12,436 --> 00:25:15,116 Speaker 1: what you think on Twitter about this episode, or the book, 489 00:25:15,236 --> 00:25:18,996 Speaker 1: or anything else. My handle is Noah R. Feldman. This 490 00:25:19,276 --> 00:25:20,196 Speaker 1: is deep background