1 00:00:13,480 --> 00:00:16,960 Speaker 1: Hello, and welcome to What Goes Up, a Bloomberg weekly 2 00:00:17,040 --> 00:00:20,640 Speaker 1: market podcast. I'm Sarah Pontzek, a reporter on the cross 3 00:00:20,640 --> 00:00:23,439 Speaker 1: Asset team, and I'm Mike Reagan, a senior editor on 4 00:00:23,480 --> 00:00:26,200 Speaker 1: the Markets team. This week on the show, it really 5 00:00:26,280 --> 00:00:28,680 Speaker 1: was a week of curve balls. We saw a record 6 00:00:28,880 --> 00:00:32,040 Speaker 1: one day surgeon oil prices that was followed by an 7 00:00:32,120 --> 00:00:36,200 Speaker 1: unexpected jump in short term financing costs, and that all 8 00:00:36,240 --> 00:00:40,360 Speaker 1: before the much awaited Federal Reserve meeting. And if all 9 00:00:40,400 --> 00:00:42,640 Speaker 1: of that wasn't crazy enough, of course, we will end 10 00:00:42,640 --> 00:00:45,480 Speaker 1: the episode with our tradition the craziest thing I saw 11 00:00:45,600 --> 00:00:48,400 Speaker 1: in markets this week, Sarah, I assume you were prepared 12 00:00:48,479 --> 00:00:51,760 Speaker 1: with a crazy item. I'm very prepared a crazy item, 13 00:00:51,800 --> 00:00:54,400 Speaker 1: and we do have a call in this week, so 14 00:00:54,520 --> 00:00:57,560 Speaker 1: remember going forwards, we do have our very own Bloomberg 15 00:00:57,720 --> 00:01:00,279 Speaker 1: Podcast hotline. You have any questions for us of your 16 00:01:00,360 --> 00:01:03,360 Speaker 1: very own crazy things you want to share, go ahead, 17 00:01:03,400 --> 00:01:05,319 Speaker 1: give us a call, leave us a message at six 18 00:01:05,480 --> 00:01:10,400 Speaker 1: or six three two four three zero and sorry. Joining 19 00:01:10,480 --> 00:01:14,119 Speaker 1: us this week is a woman. She has a list 20 00:01:14,160 --> 00:01:16,960 Speaker 1: of accolades and resume items about a mile long. I'll 21 00:01:16,959 --> 00:01:19,840 Speaker 1: just give you a few of them here, though she 22 00:01:19,920 --> 00:01:23,080 Speaker 1: was named one of the most Powerful Women in Finance 23 00:01:23,120 --> 00:01:26,360 Speaker 1: by American Banker UH in two thousand and five. She 24 00:01:26,480 --> 00:01:29,280 Speaker 1: actually was appointed at two and served on the President's 25 00:01:29,319 --> 00:01:34,080 Speaker 1: Advisory Panel on federal tax reform. But here's a trivia 26 00:01:34,200 --> 00:01:38,400 Speaker 1: question for you, Sarah, our guest. What what does this guest, myself, 27 00:01:38,600 --> 00:01:44,240 Speaker 1: and Joe Biden have in common? Blanking, I'm blanking. I 28 00:01:44,240 --> 00:01:49,560 Speaker 1: don't know how I didn't. We all attended the finest university. 29 00:01:49,880 --> 00:01:55,040 Speaker 1: But I felt like that was too easy of an answer. Anyway, Saunders, 30 00:01:55,080 --> 00:02:00,600 Speaker 1: She's the chief investment strategist at Charles That's what. So 31 00:02:00,720 --> 00:02:04,639 Speaker 1: the first question, obviously is deer Park, tavern or Stone Balloon? 32 00:02:05,200 --> 00:02:09,280 Speaker 1: Stone Balloon? Yeah, absolutely, all right, all right, I have 33 00:02:09,320 --> 00:02:12,040 Speaker 1: a strategy for getting free beers at the Stone Balloon, 34 00:02:12,080 --> 00:02:14,399 Speaker 1: and as a strategist, you'll appreciate this, but we'll save 35 00:02:14,400 --> 00:02:17,520 Speaker 1: that for later in the show. But also joining us 36 00:02:17,680 --> 00:02:19,760 Speaker 1: this week, I think uh this week she was the 37 00:02:19,800 --> 00:02:24,320 Speaker 1: hardest working reporter in Bloomberg because she covers the repo 38 00:02:24,520 --> 00:02:29,639 Speaker 1: market and short term interest rates, which became the story 39 00:02:29,800 --> 00:02:32,280 Speaker 1: of the week. So she's here to tell us all 40 00:02:32,320 --> 00:02:35,000 Speaker 1: about it. Alex Harris, Welcome to the show. Thanks for 41 00:02:35,040 --> 00:02:37,160 Speaker 1: having me. She is not a blue hend. I forget 42 00:02:37,200 --> 00:02:38,920 Speaker 1: where you went to college. I'm a terry. I went 43 00:02:38,919 --> 00:02:41,160 Speaker 1: to Boston University. Okay, well I'll have to take a 44 00:02:41,160 --> 00:02:44,440 Speaker 1: field chap. I'll show us your alma monitor and your 45 00:02:44,520 --> 00:02:49,079 Speaker 1: drinking spots. Yeah, so let'sten. Let's start with you. Obviously, 46 00:02:49,120 --> 00:02:52,440 Speaker 1: the buzz in the stock market lately has been on 47 00:02:52,560 --> 00:02:57,280 Speaker 1: this rotation, a factor rotation, out of momentum, out of 48 00:02:57,320 --> 00:03:01,400 Speaker 1: growth into sort of value stock. To me, though, you know, 49 00:03:01,560 --> 00:03:04,119 Speaker 1: I think back to the old days, before the sort 50 00:03:04,120 --> 00:03:07,160 Speaker 1: of the factor language took over our vocabulary, and if 51 00:03:07,160 --> 00:03:09,120 Speaker 1: I was looking at this market, I would think, well, 52 00:03:09,240 --> 00:03:12,679 Speaker 1: isn't it just a rotation out of defensives back in 53 00:03:12,760 --> 00:03:15,720 Speaker 1: the cyclicals and maybe back the other way? Now, Um, 54 00:03:16,080 --> 00:03:18,360 Speaker 1: how do you view it? What? What exactly was it 55 00:03:18,400 --> 00:03:20,440 Speaker 1: that we just witnessed over the last couple of weeks? 56 00:03:20,639 --> 00:03:22,880 Speaker 1: And you know, am I right to think that this 57 00:03:23,000 --> 00:03:28,000 Speaker 1: is as much a defensive to cyclical rotation as it 58 00:03:28,080 --> 00:03:29,880 Speaker 1: is some sort of factory thing? I think you're right, 59 00:03:29,919 --> 00:03:32,720 Speaker 1: And it's an important point because oftentimes when the term 60 00:03:32,800 --> 00:03:35,520 Speaker 1: or factor of momentum is used, people think of it 61 00:03:35,560 --> 00:03:38,800 Speaker 1: as sort of the high growth cyclical stocks Momentum can 62 00:03:38,840 --> 00:03:42,440 Speaker 1: be in anything. You can have momentum in small cap 63 00:03:42,440 --> 00:03:45,000 Speaker 1: stocks or momentum, and large cap stocks or value or 64 00:03:45,080 --> 00:03:47,880 Speaker 1: growth or cyclicals are defensive. It really just means the 65 00:03:47,880 --> 00:03:49,480 Speaker 1: stocks that are doing well with the stocks that have 66 00:03:49,520 --> 00:03:52,960 Speaker 1: been doing well, where you find that momentum can vary. 67 00:03:53,240 --> 00:03:55,440 Speaker 1: And I think you're right. I think that the shift 68 00:03:55,520 --> 00:03:59,560 Speaker 1: that occurred was largely a function of perceptions about the economy. 69 00:03:59,600 --> 00:04:01,840 Speaker 1: That may be we were seeing sufficient green shoots, we 70 00:04:01,840 --> 00:04:05,200 Speaker 1: had seen a pick up in the City Economic Surprise Index, 71 00:04:05,280 --> 00:04:08,640 Speaker 1: we had seen some better than I could expected economic numbers. 72 00:04:09,000 --> 00:04:11,120 Speaker 1: And I think the shift occurred in terms of where 73 00:04:11,280 --> 00:04:15,440 Speaker 1: investors were focusing, and that was the move more toward cyclicals. 74 00:04:15,440 --> 00:04:18,120 Speaker 1: And then because valuations it got stretched. I think there, 75 00:04:18,120 --> 00:04:21,920 Speaker 1: for whatever reason, it kind of triggered a value mindset um, 76 00:04:21,960 --> 00:04:24,119 Speaker 1: at least for a week or so. I'm not sure 77 00:04:24,200 --> 00:04:26,760 Speaker 1: that this rotation is going to persist, but that's what 78 00:04:26,800 --> 00:04:28,599 Speaker 1: happened in the last week or two. It seems we 79 00:04:28,600 --> 00:04:31,520 Speaker 1: have a debate across Wall straight. You have some firms 80 00:04:31,560 --> 00:04:34,680 Speaker 1: saying this is going to continue. You have something absolutely not. 81 00:04:34,800 --> 00:04:36,760 Speaker 1: This was just a blip, and we are going to 82 00:04:36,800 --> 00:04:39,480 Speaker 1: see reversion as we kind of did see this past week. 83 00:04:39,560 --> 00:04:41,680 Speaker 1: How difficult is it to make a call like that 84 00:04:41,720 --> 00:04:44,120 Speaker 1: at this point in time because you have so many 85 00:04:44,160 --> 00:04:47,560 Speaker 1: factors out there, like trade, for example, that could really 86 00:04:47,640 --> 00:04:50,520 Speaker 1: change on a dime. We've actually been saying to our 87 00:04:50,560 --> 00:04:53,640 Speaker 1: investors that this is a pretty treacherous environment to try 88 00:04:53,680 --> 00:04:57,320 Speaker 1: to trade around, whether it's sectors or factors, because it 89 00:04:57,320 --> 00:04:59,120 Speaker 1: can turn on a dime, and the market, to some 90 00:04:59,240 --> 00:05:02,520 Speaker 1: degree is become more of a of a reaction function 91 00:05:02,600 --> 00:05:06,760 Speaker 1: than a leading indicator. It's reacting to every tweet on 92 00:05:06,880 --> 00:05:09,599 Speaker 1: trade or these adjustments and factors, and you've got the 93 00:05:09,600 --> 00:05:13,240 Speaker 1: algos and the quants keying off slight shifts in the market, 94 00:05:13,400 --> 00:05:16,520 Speaker 1: and I think an environment for individual investors that is 95 00:05:16,640 --> 00:05:19,040 Speaker 1: very difficult. Means, if anything, you don't want to shorten 96 00:05:19,080 --> 00:05:21,560 Speaker 1: your time horizon to play in that game, but if anything, 97 00:05:21,640 --> 00:05:24,160 Speaker 1: lengthen the time horizon because ultimately there's still going to 98 00:05:24,200 --> 00:05:27,640 Speaker 1: be a connection between actual fundamentals and prices. So that's 99 00:05:27,680 --> 00:05:30,880 Speaker 1: been our message. Listen, I wanted to read a passage 100 00:05:30,920 --> 00:05:33,920 Speaker 1: from one of your recent notes. Uh you write, I've 101 00:05:33,920 --> 00:05:36,200 Speaker 1: been using the tail end of a Shakespeare quote to 102 00:05:36,279 --> 00:05:39,120 Speaker 1: characterize the US stock markets behavior over the past twenty 103 00:05:39,120 --> 00:05:43,000 Speaker 1: months or so quote full of sound and fury signifying nothing. 104 00:05:43,040 --> 00:05:45,680 Speaker 1: I'll confess I didn't do really well in Shakespeare. I 105 00:05:49,440 --> 00:05:51,880 Speaker 1: think grateful Dad was in town. People are in my 106 00:05:52,000 --> 00:05:54,960 Speaker 1: final So I do have a valid excuse, very valid um. 107 00:05:55,279 --> 00:05:59,440 Speaker 1: But but you go on to say, uh that, um, 108 00:05:59,600 --> 00:06:04,279 Speaker 1: we've been recommending investors consider rebalancing more frequently as the 109 00:06:04,320 --> 00:06:08,080 Speaker 1: market swings provide favorable opportunities. Here if you could unpack 110 00:06:08,200 --> 00:06:09,680 Speaker 1: that for us a little bit, you know, sort of 111 00:06:09,720 --> 00:06:13,720 Speaker 1: what type of allocations you're talking about, how frequently, uh, 112 00:06:13,960 --> 00:06:17,919 Speaker 1: should should the rebouncing occur? And so the answer to 113 00:06:17,960 --> 00:06:21,040 Speaker 1: the last part of your question, there's no one precise 114 00:06:21,080 --> 00:06:23,920 Speaker 1: answer to that. It really depends on whether the investor 115 00:06:24,000 --> 00:06:26,560 Speaker 1: is in a taxable account of nontaxable account, what their 116 00:06:26,560 --> 00:06:30,320 Speaker 1: income needs are, what past experiences, all of those factors, 117 00:06:30,880 --> 00:06:35,080 Speaker 1: And to the part of the question before that, around 118 00:06:35,880 --> 00:06:40,120 Speaker 1: the actual allocation that you're rebalancing around. That's the strategic allocation, 119 00:06:40,360 --> 00:06:43,440 Speaker 1: and we have models that span from the most aggressive 120 00:06:43,480 --> 00:06:46,040 Speaker 1: end of the spectrum to the most conservative end of 121 00:06:46,040 --> 00:06:48,919 Speaker 1: the spectrum. So that's the first step investors have to 122 00:06:48,960 --> 00:06:50,880 Speaker 1: take is coming up with a plan, figuring out who 123 00:06:50,920 --> 00:06:52,400 Speaker 1: you are as an investor. One of the mistakes and 124 00:06:52,440 --> 00:06:56,160 Speaker 1: investors make is a too often automatically tied time horizon 125 00:06:56,160 --> 00:06:58,000 Speaker 1: to risk tolerance. They think, Okay, I'm young, I've got 126 00:06:58,040 --> 00:07:00,960 Speaker 1: forty more years, therefore I'm a risk tolerant investor. But 127 00:07:01,000 --> 00:07:02,400 Speaker 1: if you're going to freak out at the first five 128 00:07:02,400 --> 00:07:04,400 Speaker 1: percent drop in your portfolio, I don't care how young 129 00:07:04,440 --> 00:07:06,640 Speaker 1: you are, you are not a risk tolerant investor. I've 130 00:07:06,680 --> 00:07:08,960 Speaker 1: known older investors who are perfectly willing to take the 131 00:07:09,040 --> 00:07:12,400 Speaker 1: risk and therefore the risk tolerant um. So the last 132 00:07:12,400 --> 00:07:14,920 Speaker 1: twenty months has been interesting, And the reason for using 133 00:07:14,960 --> 00:07:18,520 Speaker 1: that that quote, of course, is because from the August 134 00:07:18,680 --> 00:07:22,880 Speaker 1: I mean the January eighteen peak to basically where we 135 00:07:22,920 --> 00:07:24,960 Speaker 1: are now. We're only up a few percentage points in 136 00:07:25,000 --> 00:07:28,080 Speaker 1: the SMP, but we've seen a lot of movement around that. 137 00:07:28,160 --> 00:07:31,480 Speaker 1: You saw the shortfall implosion temper cent correction in the 138 00:07:31,480 --> 00:07:33,920 Speaker 1: early part of eighteen, you saw the near bear market 139 00:07:33,920 --> 00:07:36,800 Speaker 1: in the latter part of eighteen. You've seen obviously the 140 00:07:36,880 --> 00:07:39,240 Speaker 1: rally after that into the highs in April, and then 141 00:07:39,240 --> 00:07:41,200 Speaker 1: a sell off the highs in July and then a 142 00:07:41,240 --> 00:07:44,480 Speaker 1: tough August. So you're getting more frequent opportunities to rebalance. 143 00:07:44,680 --> 00:07:46,920 Speaker 1: It's generally a boring thing to talk about in the media. 144 00:07:47,000 --> 00:07:49,720 Speaker 1: That's why I love a longer form like this. Rebalancing 145 00:07:49,760 --> 00:07:52,280 Speaker 1: does two things. It forces us to do what we 146 00:07:52,320 --> 00:07:53,880 Speaker 1: know we're supposed to do, which is by low cell 147 00:07:53,960 --> 00:07:57,240 Speaker 1: high or add low trim high. And your portfolio tells 148 00:07:57,240 --> 00:07:58,680 Speaker 1: you what it's time to do something. You don't have 149 00:07:58,720 --> 00:08:01,000 Speaker 1: to worry about making a market call all or or 150 00:08:01,040 --> 00:08:03,680 Speaker 1: you know which Yahoo on on a bloom Brick podcast 151 00:08:03,720 --> 00:08:06,080 Speaker 1: is going to have the right short term market call. 152 00:08:06,440 --> 00:08:08,280 Speaker 1: Your portfolio is going to say, you know what, your 153 00:08:08,360 --> 00:08:11,680 Speaker 1: your equity allocation is now eight percentage points above where 154 00:08:11,800 --> 00:08:15,280 Speaker 1: it was when you established the plan. Maybe you should 155 00:08:15,280 --> 00:08:17,440 Speaker 1: pare it back. And it just kind of keeps investors 156 00:08:17,840 --> 00:08:20,000 Speaker 1: to use trader linger on the right side of the trade. 157 00:08:20,000 --> 00:08:21,640 Speaker 1: And that's the closest scene you get to a free lunch. 158 00:08:21,760 --> 00:08:25,400 Speaker 1: We need more Yahoo's on the podcast. Yes, absolutely, you 159 00:08:25,440 --> 00:08:30,360 Speaker 1: don't classify as well, obviously, but that's sort of to 160 00:08:30,480 --> 00:08:33,960 Speaker 1: my ears. This sort of fits in with another thing 161 00:08:34,000 --> 00:08:36,760 Speaker 1: that you've said is that we're late cycle, and that 162 00:08:37,040 --> 00:08:39,160 Speaker 1: I mean, that's kind of the market behavior you should 163 00:08:39,200 --> 00:08:41,880 Speaker 1: expect late into a cycle right, a lot of sort 164 00:08:41,920 --> 00:08:46,680 Speaker 1: of altility and not necessarily uh clear indication that that 165 00:08:46,880 --> 00:08:50,600 Speaker 1: more records are ahead. And I'm not here to definitively 166 00:08:50,679 --> 00:08:53,160 Speaker 1: say we've we've seen a market top by any means. 167 00:08:53,160 --> 00:08:56,679 Speaker 1: But eventually, at the end of a cycle, you you 168 00:08:56,760 --> 00:08:58,720 Speaker 1: top on the market, you have your expair market. We 169 00:08:58,760 --> 00:09:01,200 Speaker 1: didn't quite get there by a you know, a fractional 170 00:09:01,240 --> 00:09:05,360 Speaker 1: amount in the fourth quarter of last year. But tops, 171 00:09:05,400 --> 00:09:09,559 Speaker 1: to the extent we're in one, they are historically processes 172 00:09:09,600 --> 00:09:12,720 Speaker 1: over time, um. Bottoms tend to be more V shaped, 173 00:09:12,800 --> 00:09:15,080 Speaker 1: where tops tend to be process over time. You have 174 00:09:15,160 --> 00:09:17,120 Speaker 1: to look for things like non confirmation. One of the 175 00:09:17,120 --> 00:09:19,760 Speaker 1: things I talked about and that report from which you 176 00:09:19,880 --> 00:09:23,800 Speaker 1: pulled my Shakespeare quote, um, was the non confirmation, the 177 00:09:23,840 --> 00:09:28,080 Speaker 1: fact that, uh, notwithstanding the recent relative pop by small caps, 178 00:09:28,120 --> 00:09:30,600 Speaker 1: you haven't seen that confirmation by small caps. The Rustle 179 00:09:30,679 --> 00:09:33,880 Speaker 1: two thousand has been making a series of lower highs. 180 00:09:33,920 --> 00:09:37,240 Speaker 1: You haven't seen the confirmation by indexes like the value 181 00:09:37,280 --> 00:09:40,120 Speaker 1: line athmatic index, which is an equally weighted index. So 182 00:09:40,200 --> 00:09:42,599 Speaker 1: those are the kinds of things that tend to unfold 183 00:09:43,040 --> 00:09:44,720 Speaker 1: when you're at the end of the cycle. Not to 184 00:09:44,800 --> 00:09:47,440 Speaker 1: mention what we're seeing in the economic data, but the 185 00:09:47,520 --> 00:09:50,000 Speaker 1: relation that that has to the stock market. Let's bring 186 00:09:50,000 --> 00:09:52,559 Speaker 1: in the conversation and on oil, because earlier in the 187 00:09:52,640 --> 00:09:54,920 Speaker 1: week we did see a huge spike in oil prices 188 00:09:55,040 --> 00:09:58,959 Speaker 1: after that drone strike on Saudi facilities, and immediately you 189 00:09:59,000 --> 00:10:01,480 Speaker 1: had your whom sayer is coming out of the woods 190 00:10:01,520 --> 00:10:03,559 Speaker 1: and saying, oh my gosh, we're seeing a spike in oil. 191 00:10:03,600 --> 00:10:06,719 Speaker 1: This is what typically happens before a recession. Since we 192 00:10:06,800 --> 00:10:10,240 Speaker 1: have seen prices calmed down a bit, what's your take, 193 00:10:10,440 --> 00:10:12,599 Speaker 1: Is this really something to be worried about yet or no, 194 00:10:13,760 --> 00:10:17,440 Speaker 1: we don't know yet. First of all, the things like this, 195 00:10:17,520 --> 00:10:21,360 Speaker 1: whether it's sort of a black Swan military type thing, 196 00:10:21,800 --> 00:10:24,440 Speaker 1: they don't tend to be long lasting in terms of 197 00:10:24,520 --> 00:10:27,839 Speaker 1: impact on the economy or market, unless they turn into 198 00:10:27,840 --> 00:10:32,440 Speaker 1: a protracted military conflict and or the spike persists long 199 00:10:32,559 --> 00:10:35,480 Speaker 1: enough that it becomes an economic problem. It is true 200 00:10:35,720 --> 00:10:38,400 Speaker 1: that most recessions have had a spike in all prices 201 00:10:38,480 --> 00:10:43,040 Speaker 1: leading into them, including the last three. One two thousand 202 00:10:43,040 --> 00:10:46,120 Speaker 1: and seven had between a hundred and six and two 203 00:10:45,800 --> 00:10:49,560 Speaker 1: spike in crudal prices heading into Of course, there were 204 00:10:49,640 --> 00:10:52,960 Speaker 1: myriad other reasons why we had those recessions, not least 205 00:10:52,960 --> 00:10:54,800 Speaker 1: beinging what was going on in two thousand and seven. 206 00:10:54,840 --> 00:10:56,240 Speaker 1: So no one looks back at the oh seven O 207 00:10:56,400 --> 00:10:59,319 Speaker 1: nine recession it says it was purely oil, but it 208 00:10:59,440 --> 00:11:03,560 Speaker 1: was a actor. The difference, though, when comparing today two 209 00:11:03,600 --> 00:11:06,520 Speaker 1: past experiences, is that the structure of the U. S. 210 00:11:06,559 --> 00:11:09,640 Speaker 1: Economy around the energy industry and the impact of oil prices. 211 00:11:09,679 --> 00:11:12,960 Speaker 1: As we are now a net producer, we're the largest producer. 212 00:11:13,120 --> 00:11:16,440 Speaker 1: We have a larger employee base and a larger portion 213 00:11:16,520 --> 00:11:19,600 Speaker 1: of our economy in the industrial sector. On the capex 214 00:11:19,679 --> 00:11:23,439 Speaker 1: side that benefits from higher oil prices. And that's why 215 00:11:23,600 --> 00:11:26,360 Speaker 1: when we have seen spikes in the past several years 216 00:11:26,400 --> 00:11:29,880 Speaker 1: in oil prices, although it hurt the energy sector and earnings, 217 00:11:29,880 --> 00:11:33,520 Speaker 1: that's the approximate reason why we got the sixteen earnings 218 00:11:33,520 --> 00:11:36,240 Speaker 1: are session, it didn't take the entire U. S. Economy 219 00:11:36,280 --> 00:11:38,520 Speaker 1: down with it. And so I think we have to 220 00:11:38,880 --> 00:11:41,800 Speaker 1: understand that there are offsets right now that are very 221 00:11:41,840 --> 00:11:44,040 Speaker 1: different than if we were analyzing a spike in all 222 00:11:44,080 --> 00:11:47,000 Speaker 1: prices back in the seventies. Listen, I also want to 223 00:11:47,040 --> 00:11:50,520 Speaker 1: get your take on the craziness and the repo market. 224 00:11:50,520 --> 00:11:53,480 Speaker 1: But let's bring Alex in here to just explain all 225 00:11:53,520 --> 00:11:55,600 Speaker 1: what happened. Now, Alex, I'm gonna give the four dummies 226 00:11:56,000 --> 00:11:59,040 Speaker 1: explanation of the repo market. Turn it into English for 227 00:11:59,480 --> 00:12:01,600 Speaker 1: dummies by I dummies, right the best what I saw 228 00:12:01,640 --> 00:12:03,720 Speaker 1: someone on Twitter set it's like paid a loans for 229 00:12:03,760 --> 00:12:08,080 Speaker 1: banks but so so basically, a bank sells treasuries to 230 00:12:09,000 --> 00:12:12,680 Speaker 1: a counterparty under the assumption that they will buy them 231 00:12:12,720 --> 00:12:15,520 Speaker 1: back at a future date at a slightly higher price, 232 00:12:15,720 --> 00:12:18,800 Speaker 1: and in return they get a bunch of short term financing. 233 00:12:18,800 --> 00:12:21,800 Speaker 1: I mean, that's in a nutshell. Yeah, usually we just 234 00:12:21,840 --> 00:12:26,160 Speaker 1: call it an overnight loan collateral collateralized by treasuries. But yeah, 235 00:12:26,280 --> 00:12:31,480 Speaker 1: we can go with your explanation. Hey day, loans for banks. 236 00:12:31,760 --> 00:12:35,160 Speaker 1: So explain to us, Um, where where the wheels came 237 00:12:35,160 --> 00:12:39,480 Speaker 1: off the bus this week? Okay, Well, in theory, this 238 00:12:39,559 --> 00:12:42,359 Speaker 1: is this is kind of where it all started. Um. 239 00:12:42,400 --> 00:12:44,520 Speaker 1: A lot of things that happened in the repo market 240 00:12:44,559 --> 00:12:48,640 Speaker 1: are all about supply and demand mismatches. Um. So what 241 00:12:48,679 --> 00:12:52,760 Speaker 1: we were starting to see is you had all this 242 00:12:52,880 --> 00:12:56,200 Speaker 1: treasury supply that the that the government had sold it 243 00:12:56,280 --> 00:12:58,800 Speaker 1: was settling, and that was going on to the dealer 244 00:12:58,840 --> 00:13:01,480 Speaker 1: balance sheets and into the market, and at the same 245 00:13:01,520 --> 00:13:04,079 Speaker 1: time you were getting this wave of collateral, you were 246 00:13:04,120 --> 00:13:07,240 Speaker 1: getting a lot of pull back of cash um from 247 00:13:07,280 --> 00:13:10,520 Speaker 1: money markets, from banks, and and these are the people 248 00:13:10,520 --> 00:13:13,320 Speaker 1: who were holding this cash were corporations. These are people 249 00:13:13,400 --> 00:13:17,560 Speaker 1: who had corporate taxes to pay on September six, So 250 00:13:17,760 --> 00:13:20,320 Speaker 1: we already knew there was going to be some pressure there. 251 00:13:20,679 --> 00:13:23,520 Speaker 1: But there's really what people are looking for now is 252 00:13:23,559 --> 00:13:27,320 Speaker 1: sort of this persistent unknown. It was someone or something 253 00:13:27,360 --> 00:13:29,679 Speaker 1: in the market that sort of jolted it. There had 254 00:13:29,760 --> 00:13:33,280 Speaker 1: been rumors about Saudi Arabia either pulling cash out of 255 00:13:33,280 --> 00:13:36,200 Speaker 1: the market or people stopped lending to Saudi Arabia because 256 00:13:36,200 --> 00:13:39,120 Speaker 1: the concerns is what happened over the weekend. You know, 257 00:13:39,640 --> 00:13:42,440 Speaker 1: I was gonna ask, how satisfied are you with the explanation, 258 00:13:42,520 --> 00:13:46,640 Speaker 1: not at all that it was all. It is a 259 00:13:46,640 --> 00:13:49,080 Speaker 1: little too easy, but it is a big deal because 260 00:13:49,120 --> 00:13:52,319 Speaker 1: I think you know, what we had seen in the volatility, 261 00:13:52,400 --> 00:13:55,400 Speaker 1: I think underscores a couple of very important points here, 262 00:13:55,440 --> 00:13:58,480 Speaker 1: and one is there's just way too much treasury debt. 263 00:13:58,640 --> 00:14:01,240 Speaker 1: We are issuing way too much as a sovereign and 264 00:14:01,360 --> 00:14:06,680 Speaker 1: it's becoming problematic because you're not getting people increasing the 265 00:14:06,679 --> 00:14:09,480 Speaker 1: amount that they're taking you know, those indirect and direct 266 00:14:09,480 --> 00:14:12,040 Speaker 1: bidders you talk about that come into the auctions. They 267 00:14:12,080 --> 00:14:14,440 Speaker 1: have not been increasing the amount that they're taking down. 268 00:14:14,480 --> 00:14:18,400 Speaker 1: They've stayed constant even as supply has risen. And so 269 00:14:18,440 --> 00:14:21,040 Speaker 1: the dealers are getting saddled with more of this and 270 00:14:21,080 --> 00:14:23,400 Speaker 1: it's just it's choking them a little bit and it's 271 00:14:23,440 --> 00:14:26,480 Speaker 1: making the down the balance sheet's harder to to manage. 272 00:14:26,600 --> 00:14:28,920 Speaker 1: And and so this is where some of that pressure 273 00:14:29,000 --> 00:14:32,120 Speaker 1: is coming. It's too much collateral and we have to 274 00:14:32,160 --> 00:14:34,200 Speaker 1: eat it and it's only going to get worse. So 275 00:14:34,240 --> 00:14:36,000 Speaker 1: this is one of the big problems. And then the 276 00:14:36,040 --> 00:14:39,120 Speaker 1: second is just that you know, it's part of it's 277 00:14:39,160 --> 00:14:42,480 Speaker 1: the FED and just mismanagement of reserves and understanding where 278 00:14:42,520 --> 00:14:44,520 Speaker 1: reserve scarcity is. And this is one of the things 279 00:14:44,520 --> 00:14:46,880 Speaker 1: that drum Powell brought up in his press conference. What's 280 00:14:46,880 --> 00:14:48,520 Speaker 1: to be said about the argument that this is a 281 00:14:48,560 --> 00:14:50,760 Speaker 1: long term issue that you've had these regulations in place, 282 00:14:50,800 --> 00:14:53,280 Speaker 1: You've seen the reserves come down, and now we don't 283 00:14:53,320 --> 00:14:56,480 Speaker 1: have enough liquidity in times of stress. It is it 284 00:14:56,560 --> 00:14:59,000 Speaker 1: is a problem. You know, the way when I remember 285 00:14:59,000 --> 00:15:03,200 Speaker 1: watching all the these regulations go into affect things like, um, 286 00:15:03,240 --> 00:15:06,760 Speaker 1: it's the alphabet soup. You have liquidity coverage ratio, you 287 00:15:06,840 --> 00:15:09,720 Speaker 1: had the you have the net stable funding ratio, you 288 00:15:09,760 --> 00:15:12,720 Speaker 1: have the supplementary leverage ratio. And I kind of was 289 00:15:12,800 --> 00:15:16,120 Speaker 1: looking at this and felt like they were doing the 290 00:15:16,240 --> 00:15:18,560 Speaker 1: same thing with the same pile of money. And I 291 00:15:18,600 --> 00:15:20,960 Speaker 1: was like, well, this just seems like you're just tying 292 00:15:21,040 --> 00:15:23,720 Speaker 1: up the same money and knots and and so I 293 00:15:23,760 --> 00:15:26,440 Speaker 1: was worried about this even a few years ago, and 294 00:15:26,480 --> 00:15:28,320 Speaker 1: even when they had been discussing these and they were 295 00:15:28,400 --> 00:15:31,840 Speaker 1: rolling out these Bosseel reforms and and kind of said 296 00:15:32,000 --> 00:15:34,080 Speaker 1: this might be a problem. And now I think this 297 00:15:34,120 --> 00:15:35,720 Speaker 1: is what you're seeing, is that there are some very 298 00:15:35,760 --> 00:15:39,840 Speaker 1: serious structural issues. And I'm not just talking about with regulations, 299 00:15:39,880 --> 00:15:42,640 Speaker 1: but just in general, with the state of the treasury market, 300 00:15:42,840 --> 00:15:45,760 Speaker 1: you know, FED and reserves and and the balance sheet 301 00:15:46,160 --> 00:15:48,520 Speaker 1: that you know need to be fixed and there's no 302 00:15:48,600 --> 00:15:51,160 Speaker 1: quick fix. And the FED actually just came out and 303 00:15:51,200 --> 00:15:54,480 Speaker 1: said Friday morning they're doing a fourth operation this week. 304 00:15:54,600 --> 00:15:58,360 Speaker 1: It's what they call as system Repurchase Agreement operation, where 305 00:15:58,400 --> 00:16:02,800 Speaker 1: in the up to seventy billion they can the banks 306 00:16:02,800 --> 00:16:05,120 Speaker 1: can offer up to seventy five billion of securities and 307 00:16:05,160 --> 00:16:06,560 Speaker 1: that's how much the FED will take and it's a 308 00:16:06,600 --> 00:16:09,520 Speaker 1: liquidity injection, so you'll get some liquidity and cash into 309 00:16:09,600 --> 00:16:13,040 Speaker 1: the market. So the problem is is that we don't 310 00:16:13,040 --> 00:16:15,000 Speaker 1: know how long they're going to be doing these and 311 00:16:15,080 --> 00:16:16,720 Speaker 1: this is really what I'd like to think as a 312 00:16:16,760 --> 00:16:20,000 Speaker 1: band aid covering a bullet hole. It's not a long 313 00:16:20,120 --> 00:16:23,080 Speaker 1: term fix here. And you know, the treasury bill auctions 314 00:16:23,080 --> 00:16:27,520 Speaker 1: were very interesting on Thursday because they were awful And 315 00:16:27,560 --> 00:16:30,920 Speaker 1: what someone had said to me was, this is a 316 00:16:31,000 --> 00:16:34,120 Speaker 1: set of investors that don't believe that the situation in 317 00:16:34,160 --> 00:16:37,040 Speaker 1: the repo market and the volatility we've seen is over. 318 00:16:37,400 --> 00:16:39,840 Speaker 1: You know, you have quarter and in eleven days you 319 00:16:39,880 --> 00:16:42,960 Speaker 1: have a series of issues on the forefront going into 320 00:16:43,000 --> 00:16:46,920 Speaker 1: fourth quarter, including more treasury bill supply, you know, more 321 00:16:47,040 --> 00:16:51,040 Speaker 1: liability issues with the Fed's balance sheet, you have regulatory 322 00:16:51,080 --> 00:16:53,400 Speaker 1: constraints at the end of the year, like this is 323 00:16:53,440 --> 00:16:56,400 Speaker 1: far from over, and the market believes that there's another 324 00:16:56,880 --> 00:16:59,360 Speaker 1: there's another pressure point coming and they're just not sure when, 325 00:16:59,400 --> 00:17:03,320 Speaker 1: but they know it coming. Listen, if I'm a client 326 00:17:03,360 --> 00:17:06,240 Speaker 1: of Schwab and I'm I'm saving for retirement or whatever, 327 00:17:06,320 --> 00:17:08,760 Speaker 1: how much do I need to pay attention to this. 328 00:17:09,160 --> 00:17:12,200 Speaker 1: And mainly I'm wondering because finally this year we've seen 329 00:17:12,280 --> 00:17:15,960 Speaker 1: money market funds UH put off a yield that's somewhat 330 00:17:16,000 --> 00:17:19,920 Speaker 1: attractive over two UM. It sounds from everything Alex is 331 00:17:19,960 --> 00:17:21,800 Speaker 1: telling us, we can sort of count on those cash 332 00:17:21,880 --> 00:17:25,040 Speaker 1: yield staying pretty high. H if you consider two percent 333 00:17:25,119 --> 00:17:31,240 Speaker 1: high UM as a sort of average Joe UH retirement saver. 334 00:17:31,320 --> 00:17:33,399 Speaker 1: Do I need to worry about this stuff? And you know, 335 00:17:33,480 --> 00:17:36,760 Speaker 1: at this stage, I never I never set my default 336 00:17:36,800 --> 00:17:39,879 Speaker 1: switch to nothing to see here, no big deal. I 337 00:17:39,920 --> 00:17:42,600 Speaker 1: think we're we're in the early stages of understanding that 338 00:17:42,680 --> 00:17:45,560 Speaker 1: there is a kink in the plumbing of the system here. 339 00:17:46,080 --> 00:17:49,040 Speaker 1: You could take the side that goes back sort of 340 00:17:49,119 --> 00:17:52,159 Speaker 1: pre O seven to the inception of the FED, you know, 341 00:17:52,240 --> 00:17:56,680 Speaker 1: ninety years prior, and they used to quite frequently make 342 00:17:56,680 --> 00:18:00,440 Speaker 1: adjustments to their balance sheet to counteracts supply and demand 343 00:18:00,440 --> 00:18:03,679 Speaker 1: associated with their liabilities, and it was a normal course 344 00:18:03,720 --> 00:18:06,919 Speaker 1: of operations. But in the post O seven environment, with 345 00:18:07,040 --> 00:18:09,400 Speaker 1: the advent of three rounds of quantitative easing and all 346 00:18:09,440 --> 00:18:13,520 Speaker 1: this other unprecedented monetary policy. UM, I think that's what 347 00:18:13,600 --> 00:18:16,359 Speaker 1: ignited some of the fears. UH. You know, is this 348 00:18:16,440 --> 00:18:20,359 Speaker 1: another form of of QUI Is this another liquidity squeeze 349 00:18:20,880 --> 00:18:24,560 Speaker 1: that is signaling something much more dramatic? Um. I think 350 00:18:24,560 --> 00:18:26,239 Speaker 1: it's a little bit too soon to tell. We're not 351 00:18:26,320 --> 00:18:28,840 Speaker 1: in a position to think that this is some sign 352 00:18:28,880 --> 00:18:32,199 Speaker 1: of impending doom here. But you know, Alex brings up 353 00:18:32,200 --> 00:18:36,199 Speaker 1: a good point. The number one topic of questions that 354 00:18:36,359 --> 00:18:39,359 Speaker 1: I get from our investors out on the road is 355 00:18:39,400 --> 00:18:43,040 Speaker 1: about the implications of our trillion dollar deficit and the high, 356 00:18:43,119 --> 00:18:46,120 Speaker 1: never rising burden of debt. We know that now it's 357 00:18:46,160 --> 00:18:48,720 Speaker 1: the case that politicians on neither side of the aisle 358 00:18:48,800 --> 00:18:53,080 Speaker 1: Carol lick about this anymore, but investors do. And I think, 359 00:18:53,119 --> 00:18:55,720 Speaker 1: what what the investors that I talked to they're trying 360 00:18:55,720 --> 00:18:58,159 Speaker 1: to quantify. I know I'm worried about this. I know 361 00:18:58,240 --> 00:19:00,879 Speaker 1: I should be worried about this, and it's not what 362 00:19:00,960 --> 00:19:05,000 Speaker 1: are the implications for my grandkids? But what is there 363 00:19:05,040 --> 00:19:07,120 Speaker 1: going to be some shoe to drop? Is there going 364 00:19:07,160 --> 00:19:11,600 Speaker 1: to be some crisis associated with now trillion dollar deficits 365 00:19:11,640 --> 00:19:13,240 Speaker 1: as far as the I can see, and of course 366 00:19:13,280 --> 00:19:16,640 Speaker 1: a cumulative effective running deficits, which is debt. And if 367 00:19:16,680 --> 00:19:20,480 Speaker 1: we start to see the demand for treasuries is waning 368 00:19:21,000 --> 00:19:24,960 Speaker 1: in an environment where more treasury issuance has to be 369 00:19:25,080 --> 00:19:27,920 Speaker 1: out there in order to fund the deficit. I get 370 00:19:27,920 --> 00:19:29,840 Speaker 1: a little bit of a sour feeling in my stomach 371 00:19:30,040 --> 00:19:32,840 Speaker 1: now that the cool kids out there will reply, well, 372 00:19:32,880 --> 00:19:37,359 Speaker 1: we have modern monetary theory now, magic money tree that 373 00:19:38,600 --> 00:19:40,080 Speaker 1: I read, I read that I read that might have 374 00:19:40,119 --> 00:19:43,600 Speaker 1: been credit analysts. Well, and I think that's what's interesting 375 00:19:43,680 --> 00:19:47,400 Speaker 1: if you think about Donald Trump's tweets in this context 376 00:19:47,480 --> 00:19:49,960 Speaker 1: where he sits there and goes, well, we need kuwie. 377 00:19:50,080 --> 00:19:51,920 Speaker 1: Europe's doing it the you know, the b o J 378 00:19:52,119 --> 00:19:54,679 Speaker 1: has got their their program. If you think about it 379 00:19:54,720 --> 00:19:58,879 Speaker 1: in that context, what he's saying actually makes sense because 380 00:19:58,920 --> 00:20:01,879 Speaker 1: if you have that that now coming in and buying 381 00:20:01,960 --> 00:20:04,720 Speaker 1: more of these treasuries and which people think they're going 382 00:20:04,760 --> 00:20:08,080 Speaker 1: to start doing again, that is like a light form 383 00:20:08,320 --> 00:20:10,720 Speaker 1: of m M T. And so then it just gives 384 00:20:10,760 --> 00:20:14,000 Speaker 1: them room to keep issuing debt without any consequence. And 385 00:20:14,200 --> 00:20:17,960 Speaker 1: as we all know, President loves his debt like he's 386 00:20:18,000 --> 00:20:20,720 Speaker 1: never he's never met a debt deal that he hasn't liked. 387 00:20:20,760 --> 00:20:23,399 Speaker 1: And are they really overnight loans when you can roll 388 00:20:23,440 --> 00:20:41,080 Speaker 1: them over every day before we get to the craziest thing. 389 00:20:41,080 --> 00:20:43,080 Speaker 1: You said that the question that you are constantly asked 390 00:20:43,080 --> 00:20:45,440 Speaker 1: is about the deficit. So I have to ask you, then, 391 00:20:45,720 --> 00:20:48,960 Speaker 1: what's your guy's answer to them? Well, the different forms 392 00:20:49,000 --> 00:20:51,600 Speaker 1: of the question. So when when sometimes I get a 393 00:20:51,640 --> 00:20:54,800 Speaker 1: question from somebody that might be a sympathizer to the 394 00:20:54,840 --> 00:20:57,439 Speaker 1: bipartisan view that it doesn't matter, and they'll say, but 395 00:20:57,520 --> 00:21:00,000 Speaker 1: we haven't had to suffer the consequences of it, I say, well, 396 00:21:00,000 --> 00:21:01,960 Speaker 1: I beg to differ. First of all, the total credit 397 00:21:02,000 --> 00:21:04,600 Speaker 1: market debt is the broadest measure of debt, and it's 398 00:21:04,600 --> 00:21:07,800 Speaker 1: inclusive of federal, state, local debt, but also all household debt, 399 00:21:08,320 --> 00:21:12,040 Speaker 1: um corporate debt, and financial sector debt. Yeah, that all up. 400 00:21:12,040 --> 00:21:16,160 Speaker 1: It's three GDP. So thinking debt in that holistic way 401 00:21:16,320 --> 00:21:18,920 Speaker 1: to suggest that we haven't had to face the consequences, 402 00:21:19,160 --> 00:21:21,280 Speaker 1: I'd love to know what lovely rock you were living 403 00:21:21,320 --> 00:21:23,840 Speaker 1: under a weight, because that was a massive bursting of 404 00:21:23,840 --> 00:21:26,119 Speaker 1: a debt bubble that took the entire global financial system 405 00:21:26,160 --> 00:21:30,080 Speaker 1: down with it, that unleashed massive household secretary leveraging, unleashed 406 00:21:30,119 --> 00:21:33,760 Speaker 1: massive financial secretary leveraging. But of course it's you know, 407 00:21:33,840 --> 00:21:36,960 Speaker 1: government debt continued to ramp up, and then now corporate 408 00:21:36,960 --> 00:21:39,920 Speaker 1: debt has ramped up as well. Back to the specific 409 00:21:40,000 --> 00:21:43,320 Speaker 1: federal government debt and implications. You know, the mm teers 410 00:21:43,359 --> 00:21:45,920 Speaker 1: think that, you know, we we are the global monetary standard. 411 00:21:45,960 --> 00:21:48,399 Speaker 1: We can print our own currency. Therefore we don't have 412 00:21:48,480 --> 00:21:51,880 Speaker 1: to worry about this. I say that the implication of 413 00:21:51,920 --> 00:21:55,120 Speaker 1: this high verising burden of debt is not necessarily prospectively, 414 00:21:55,520 --> 00:21:58,119 Speaker 1: but one environment we're already living in. This is the 415 00:21:58,160 --> 00:22:01,160 Speaker 1: longest economic expansion in history, also the weakest by far. 416 00:22:01,400 --> 00:22:03,760 Speaker 1: And I think this high never rotting burden of debt 417 00:22:03,800 --> 00:22:06,440 Speaker 1: the crowding out effect, the fact that so much money 418 00:22:06,440 --> 00:22:07,760 Speaker 1: has to go and will continue to have to go 419 00:22:07,840 --> 00:22:10,560 Speaker 1: to servicing the debt, it crowds out investment and more 420 00:22:10,560 --> 00:22:14,879 Speaker 1: productive uses. So we're living with the consequences. This is 421 00:22:14,880 --> 00:22:17,760 Speaker 1: not some future moment time. So I think the crisis 422 00:22:17,800 --> 00:22:20,840 Speaker 1: in terms of federal government debt is a subtler one 423 00:22:20,880 --> 00:22:24,080 Speaker 1: that persists over time. With with Japan is a perfect 424 00:22:24,119 --> 00:22:26,200 Speaker 1: example of that. They've been in a you know, three 425 00:22:26,240 --> 00:22:30,879 Speaker 1: decade economic malaise because of this burden of debt. And 426 00:22:30,960 --> 00:22:32,960 Speaker 1: nowhere is it written in stone that the dollar is 427 00:22:33,000 --> 00:22:36,240 Speaker 1: the reserve global reserve currency forever. I think it will 428 00:22:36,280 --> 00:22:39,199 Speaker 1: be in in my lifetime, which is far from forever, 429 00:22:39,359 --> 00:22:41,960 Speaker 1: but but I do think we will get to a 430 00:22:42,119 --> 00:22:45,879 Speaker 1: point where there might be multiple reserve currencies, even if 431 00:22:45,920 --> 00:22:50,840 Speaker 1: the US dollar maintains its place as the global monetary standard. 432 00:22:51,359 --> 00:22:54,080 Speaker 1: One last question before we get to the crazy things too, 433 00:22:54,160 --> 00:22:56,240 Speaker 1: and I will give you my stone balloon free beer 434 00:22:56,280 --> 00:22:59,920 Speaker 1: strategy to I noticed your bullish on healthcare. I've heard 435 00:23:00,200 --> 00:23:03,320 Speaker 1: a few people say this is this mainly a demographics thing, 436 00:23:04,040 --> 00:23:07,119 Speaker 1: a defensive thing we have there. You know, there's eleven 437 00:23:07,160 --> 00:23:11,280 Speaker 1: sectors and we published tactical ratings on sectors. We're pretty 438 00:23:11,320 --> 00:23:13,600 Speaker 1: neutral right now. We only have one outperform and that's 439 00:23:13,600 --> 00:23:16,920 Speaker 1: healthcare because we think it offers what you want right 440 00:23:16,960 --> 00:23:19,320 Speaker 1: now is kind of a blend of growth but at 441 00:23:19,320 --> 00:23:24,280 Speaker 1: a reasonable price, uh you know, evaluation reasonable because of 442 00:23:24,320 --> 00:23:27,080 Speaker 1: some of the political concerns that have kept it from 443 00:23:27,240 --> 00:23:29,760 Speaker 1: kind of running away. So we just think it it's 444 00:23:29,800 --> 00:23:32,240 Speaker 1: the one area where you get that nice mix of 445 00:23:32,359 --> 00:23:35,360 Speaker 1: growth and value. With the exception of communication services, which 446 00:23:35,400 --> 00:23:38,280 Speaker 1: is an underperform, everything else is neutral. Going back to 447 00:23:38,320 --> 00:23:40,840 Speaker 1: what we started talking about initially, it's just a tough 448 00:23:41,000 --> 00:23:44,840 Speaker 1: environment to have kind of a consistent sector call. Sectors 449 00:23:44,840 --> 00:23:46,640 Speaker 1: have been all over the map in the last year, 450 00:23:46,960 --> 00:23:48,639 Speaker 1: and in that kind of environment, we just kind of 451 00:23:48,640 --> 00:23:51,080 Speaker 1: want to hug around neutral, all right. And the strategy 452 00:23:51,119 --> 00:23:52,760 Speaker 1: to get a free beer at the Stone Balloon Senter. 453 00:23:52,840 --> 00:23:54,800 Speaker 1: This was kind of a rowdy bar we've been waiting 454 00:23:55,640 --> 00:23:59,040 Speaker 1: today and one of the most favorite pastimes of uh 455 00:24:00,200 --> 00:24:02,159 Speaker 1: the men who went to this bar was getting in 456 00:24:02,200 --> 00:24:05,000 Speaker 1: fist fights with each other. So there'd be this fight 457 00:24:05,400 --> 00:24:08,240 Speaker 1: and they had these huge, burly bouncers who would go 458 00:24:08,240 --> 00:24:10,199 Speaker 1: and drag the guys out of there. And one time 459 00:24:10,200 --> 00:24:12,240 Speaker 1: they were dragging a guy out and the bouncer knocked 460 00:24:12,320 --> 00:24:14,359 Speaker 1: my beer out of my hand. So I went up 461 00:24:14,359 --> 00:24:15,800 Speaker 1: to the bart and I said, you know your your 462 00:24:15,840 --> 00:24:18,320 Speaker 1: bouncer knocked my beer out of my hand. Can get 463 00:24:18,320 --> 00:24:19,600 Speaker 1: And he's like, oh yeah, no problem. He gave me 464 00:24:19,600 --> 00:24:22,680 Speaker 1: a refill. So every time there was a fight then 465 00:24:22,760 --> 00:24:25,560 Speaker 1: I would I would finish off my beer, condoning lying 466 00:24:25,640 --> 00:24:28,560 Speaker 1: that's what he's doing right now. For the college kids 467 00:24:28,560 --> 00:24:31,200 Speaker 1: out there there, the snooting limitations, I think is over. 468 00:24:31,400 --> 00:24:33,720 Speaker 1: It's worth it. It's worth it, all right. With that said, though, 469 00:24:33,960 --> 00:24:36,280 Speaker 1: I think it's that time it's the time for the 470 00:24:36,320 --> 00:24:39,159 Speaker 1: craziest thing I ever saw in markets this week. I 471 00:24:39,160 --> 00:24:42,120 Speaker 1: believe we got a call into the what goes Up hotline, 472 00:24:42,119 --> 00:24:44,880 Speaker 1: which is very exciting. Sarah, what what is the voicemail 473 00:24:44,920 --> 00:24:46,800 Speaker 1: saying we did so. We got it from Ben Emmons. 474 00:24:46,800 --> 00:24:49,119 Speaker 1: He's been on the show before of Medley Global Advisors, 475 00:24:49,480 --> 00:24:53,040 Speaker 1: and he was talking about Draggy and the ECB last week, 476 00:24:53,119 --> 00:24:55,600 Speaker 1: saying he couldn't believe that they went ahead with quantitative 477 00:24:55,640 --> 00:24:58,040 Speaker 1: easing even though there was just so much descent on 478 00:24:58,119 --> 00:25:01,480 Speaker 1: the Governing Council listen in, which means staff are going 479 00:25:01,560 --> 00:25:04,919 Speaker 1: to be a political revolution within the e CB and 480 00:25:04,960 --> 00:25:07,720 Speaker 1: that will be really the craziest thing we will see. 481 00:25:07,840 --> 00:25:12,240 Speaker 1: Meaning there's going to be significant outflow from from bombs 482 00:25:12,240 --> 00:25:15,119 Speaker 1: in Europe into auto markets and I think this is 483 00:25:15,160 --> 00:25:18,520 Speaker 1: the crass if not the most significant develop will behalf 484 00:25:18,640 --> 00:25:22,280 Speaker 1: last week outflows from European bonds. That would be crazy. 485 00:25:22,400 --> 00:25:24,240 Speaker 1: It would be crazy seeing yield to go back into 486 00:25:24,280 --> 00:25:27,000 Speaker 1: positive territory in our lifetime. Yeah, in our lifetime, it 487 00:25:27,040 --> 00:25:30,600 Speaker 1: will happen. And remember it was druggis last last meeting 488 00:25:30,640 --> 00:25:32,240 Speaker 1: as well, so we'll see what happens under the guard 489 00:25:32,240 --> 00:25:34,840 Speaker 1: all right, Well, thanks beat Emmons for that voicemail, Sarah, 490 00:25:34,880 --> 00:25:37,119 Speaker 1: can you top that? All right? I'll go first, and 491 00:25:37,320 --> 00:25:39,200 Speaker 1: I'll keep it short. I'll keep it as short as possible. 492 00:25:39,240 --> 00:25:42,240 Speaker 1: So if you're paying attention to Overstock at all, the 493 00:25:42,400 --> 00:25:44,959 Speaker 1: stock has had a pretty wild ride and it's just 494 00:25:45,000 --> 00:25:49,000 Speaker 1: an absolute crazy story. So, uh, when Patrick Burrn the 495 00:25:49,080 --> 00:25:51,359 Speaker 1: x CEO, is in place, they put in places digital 496 00:25:51,400 --> 00:25:54,760 Speaker 1: dividend that has this blockchain link um. And what happened 497 00:25:55,040 --> 00:25:58,000 Speaker 1: was there people who were short selling the stock and 498 00:25:58,080 --> 00:25:59,800 Speaker 1: they knew that they weren't going to be able to 499 00:25:59,800 --> 00:26:02,680 Speaker 1: get this digital dividend that was going to be set out, 500 00:26:02,760 --> 00:26:04,679 Speaker 1: so they all had to close the short position. So 501 00:26:04,720 --> 00:26:07,000 Speaker 1: you had this crazy rally to the tune of almost 502 00:26:07,640 --> 00:26:10,600 Speaker 1: in overstock UM. Then there was a lot of confusion 503 00:26:10,600 --> 00:26:13,320 Speaker 1: between the broker dealers and the regulators. So Overstock came 504 00:26:13,359 --> 00:26:15,920 Speaker 1: out and said that no, they are going to register 505 00:26:16,080 --> 00:26:19,600 Speaker 1: this digital dividend with regulatory authorities. You basically have the 506 00:26:19,640 --> 00:26:22,080 Speaker 1: stock completely come back down, reverse all of it. And 507 00:26:22,119 --> 00:26:25,840 Speaker 1: then after all that happened, x CEO Patrick Byrne posted 508 00:26:25,880 --> 00:26:28,320 Speaker 1: on his blog that he was selling all of his 509 00:26:28,440 --> 00:26:31,200 Speaker 1: Overstock shares and he's putting it in gold, silver, and 510 00:26:31,280 --> 00:26:34,000 Speaker 1: two cryptocurrencies because he sees where the economy is going 511 00:26:34,040 --> 00:26:36,800 Speaker 1: and it's not good. Um, so pretty crazy that that 512 00:26:36,880 --> 00:26:42,200 Speaker 1: guy has a habit of making listen. Did they weren't 513 00:26:42,200 --> 00:26:46,160 Speaker 1: about our gimmick here are traditional? Yes? They did so 514 00:26:46,760 --> 00:26:50,719 Speaker 1: mine maybe because I had my fifty fifth birthday earlier 515 00:26:50,720 --> 00:26:55,080 Speaker 1: this week, so feeling old. And I was having a 516 00:26:55,080 --> 00:26:58,840 Speaker 1: conversation two nights ago with a group of investors, um, 517 00:26:58,880 --> 00:27:00,520 Speaker 1: some of whom were on the young ger end of 518 00:27:00,560 --> 00:27:03,679 Speaker 1: the spectrum, and we were talking about the FED, and 519 00:27:03,720 --> 00:27:06,200 Speaker 1: I mentioned I made the comment but don't fight the Fed, 520 00:27:06,400 --> 00:27:08,840 Speaker 1: and and this young gentleman said, I've heard that line. 521 00:27:08,880 --> 00:27:11,360 Speaker 1: I said, actually that that phrase was coined by my 522 00:27:11,520 --> 00:27:14,640 Speaker 1: first Boston mentor in the business, Marty's wife, for whom 523 00:27:14,640 --> 00:27:19,440 Speaker 1: I worked from six to and so he had never 524 00:27:19,440 --> 00:27:23,320 Speaker 1: heard of of Marty. And in addition to don't fight 525 00:27:23,320 --> 00:27:26,439 Speaker 1: the Fed, the trend is your friend was was often 526 00:27:26,480 --> 00:27:29,080 Speaker 1: credited to Marty. And then don't fight the tape? So 527 00:27:29,119 --> 00:27:31,520 Speaker 1: I mentioned don't fight the tape? And he said, what's 528 00:27:31,560 --> 00:27:35,480 Speaker 1: the tape? So I explained it, well, it's in reference 529 00:27:35,520 --> 00:27:38,280 Speaker 1: to the ticker tape. And he had the follow up, 530 00:27:38,320 --> 00:27:41,800 Speaker 1: what's the ticker tape. So and then as we were 531 00:27:41,800 --> 00:27:45,680 Speaker 1: talking earlier, you know, I come down the circular escalator 532 00:27:45,720 --> 00:27:48,720 Speaker 1: to come to Bloomberg and there's the little museum gallery 533 00:27:48,800 --> 00:27:51,760 Speaker 1: of all the Bloomberg terminals and they go from left 534 00:27:51,800 --> 00:27:54,840 Speaker 1: to right, old to new, and I don't go all 535 00:27:54,880 --> 00:27:57,320 Speaker 1: the way to the far left one, but the second 536 00:27:57,400 --> 00:28:00,680 Speaker 1: to left one, reminiscing is a good the mid from 537 00:28:00,680 --> 00:28:08,359 Speaker 1: the mid I think I was vintage and myst and 538 00:28:08,520 --> 00:28:10,560 Speaker 1: that is why Lizanne is on the Wall of Fame 539 00:28:10,640 --> 00:28:12,560 Speaker 1: at the University of Delaware. I think my name is 540 00:28:12,600 --> 00:28:15,800 Speaker 1: on the bathroom at the Stone Place. Yeah, might still 541 00:28:15,800 --> 00:28:20,159 Speaker 1: be there. To Alex, was there anything crazier than the 542 00:28:20,200 --> 00:28:23,600 Speaker 1: REPO madness this week? Now? This was this? This was it, 543 00:28:23,760 --> 00:28:25,680 Speaker 1: And I mean even people who have been in this 544 00:28:25,920 --> 00:28:28,879 Speaker 1: market for decades, we're calling each other and like, this 545 00:28:29,119 --> 00:28:32,159 Speaker 1: is crazy. Every repodesc I talked to was just like, 546 00:28:32,320 --> 00:28:38,240 Speaker 1: this is crazy. This is crazy, because it was. And 547 00:28:38,800 --> 00:28:41,080 Speaker 1: that was the thing, because you couldn't necessarily see it, 548 00:28:41,360 --> 00:28:44,280 Speaker 1: and that most most of the community said, yes, we 549 00:28:44,400 --> 00:28:47,840 Speaker 1: know these are the issues, and that that unknown was 550 00:28:48,040 --> 00:28:50,600 Speaker 1: lingering and it's still lingering, and I think it's making 551 00:28:50,640 --> 00:28:53,720 Speaker 1: people very weary going forward as to what this is 552 00:28:53,760 --> 00:28:55,280 Speaker 1: going to be like for the rest of the year. 553 00:28:55,560 --> 00:28:57,560 Speaker 1: Let me ask you, if this feed hadn't stepped in 554 00:28:58,160 --> 00:29:00,560 Speaker 1: when they did, and this had gone on for say, 555 00:29:00,600 --> 00:29:02,560 Speaker 1: the rest of the week, would we have started to 556 00:29:02,600 --> 00:29:04,800 Speaker 1: see some firms flow up? Do you think? No? I 557 00:29:04,880 --> 00:29:07,000 Speaker 1: don't think so. And this is this is the problem, 558 00:29:07,200 --> 00:29:08,720 Speaker 1: is that what I was hearing is that the FED 559 00:29:08,760 --> 00:29:11,880 Speaker 1: actually came into late in this set of operations that 560 00:29:12,200 --> 00:29:14,720 Speaker 1: they had needed to come in sooner. I think you saw, 561 00:29:15,040 --> 00:29:18,520 Speaker 1: you know, the Tuesday operation was way too late in 562 00:29:18,680 --> 00:29:21,200 Speaker 1: terms of timing because most of the financing is done 563 00:29:21,320 --> 00:29:23,760 Speaker 1: very early in the morning, so ten o'clock it was 564 00:29:23,800 --> 00:29:26,120 Speaker 1: pretty much done, which is why you didn't see the 565 00:29:26,200 --> 00:29:29,240 Speaker 1: full seven you know, full seventy billion hit the way 566 00:29:29,280 --> 00:29:32,920 Speaker 1: you saw it Wednesday and Thursday. And then you know, 567 00:29:33,160 --> 00:29:35,400 Speaker 1: the other thing is too there are factors that were 568 00:29:35,440 --> 00:29:38,400 Speaker 1: showing that repo was starting to normalize a bit. And 569 00:29:38,560 --> 00:29:40,640 Speaker 1: one of the things is every month you have the 570 00:29:40,720 --> 00:29:45,560 Speaker 1: government sponsored entities collect mortgage payments from homeowners, and there 571 00:29:45,800 --> 00:29:47,800 Speaker 1: is a lag between what they collect and then what 572 00:29:48,000 --> 00:29:51,200 Speaker 1: goes out to the bond holders, and that gets put 573 00:29:51,280 --> 00:29:53,320 Speaker 1: into the repo market. So you do get a cash 574 00:29:53,400 --> 00:29:56,320 Speaker 1: influx and that helps bring repo rates down. So it's 575 00:29:56,360 --> 00:29:58,280 Speaker 1: hard to say as to whether or not the Feds 576 00:29:58,320 --> 00:30:00,640 Speaker 1: really having an effect here, or it's just this influx 577 00:30:00,720 --> 00:30:02,920 Speaker 1: of cash that we're seeing in the market right now. 578 00:30:03,320 --> 00:30:05,720 Speaker 1: You know, we'll see you next week, we'll see quarter end. 579 00:30:06,080 --> 00:30:09,320 Speaker 1: If they can actually be proactive and prevent something, maybe 580 00:30:09,800 --> 00:30:12,360 Speaker 1: I'll feel better about the FED and their role in this. 581 00:30:12,600 --> 00:30:14,600 Speaker 1: But it's really too hard to say whether it was 582 00:30:14,720 --> 00:30:16,840 Speaker 1: them or was this influx of cash that was also 583 00:30:16,920 --> 00:30:19,640 Speaker 1: coming in. All Right, my craziest thing, I'll make it quick. 584 00:30:19,880 --> 00:30:24,440 Speaker 1: Morgan Stanley has developed artificial intelligent robot we'll call it, 585 00:30:24,720 --> 00:30:29,280 Speaker 1: that reads MUNI bond prospectuses UM. And for all the 586 00:30:29,280 --> 00:30:31,360 Speaker 1: people that complain about robots taking their job, I'm not 587 00:30:31,400 --> 00:30:33,480 Speaker 1: sure anyone's going to complain about not having to read 588 00:30:33,560 --> 00:30:37,440 Speaker 1: MUNI bond prospectives. But a couple of quick things that 589 00:30:37,560 --> 00:30:40,720 Speaker 1: it's discovered, the more words the better. UH. They figured 590 00:30:40,760 --> 00:30:44,760 Speaker 1: out that UH, documents that have at least twenty thousand 591 00:30:44,920 --> 00:30:49,440 Speaker 1: words longer than average. UM. I believe I believe it's 592 00:30:49,440 --> 00:30:52,520 Speaker 1: average tend to default less, so longer is better. But 593 00:30:52,720 --> 00:30:57,920 Speaker 1: here's here's my favorite um Speculative developments tend to rely 594 00:30:58,080 --> 00:31:00,200 Speaker 1: on the word mr to highlight the manage in of 595 00:31:00,240 --> 00:31:02,720 Speaker 1: the project since the risk of your deals need to 596 00:31:02,800 --> 00:31:07,000 Speaker 1: play up their executive skills. So the more they say mr. 597 00:31:07,320 --> 00:31:09,800 Speaker 1: Will watch out. And that's a great story by our 598 00:31:09,840 --> 00:31:12,240 Speaker 1: own Amanda all break, All right, check that out. But 599 00:31:12,880 --> 00:31:14,920 Speaker 1: we've got to say crazy things really stand the gamut 600 00:31:14,960 --> 00:31:17,480 Speaker 1: this week. There are so many options, but Alex Harris, 601 00:31:17,720 --> 00:31:19,920 Speaker 1: Liz an Saunders, thanks so much for joining us today. 602 00:31:19,960 --> 00:31:28,120 Speaker 1: Thank you, What Goes Up. We'll be back next week. 603 00:31:28,280 --> 00:31:30,560 Speaker 1: Until then, you can find us on the Bloomberg Terminal, 604 00:31:30,720 --> 00:31:33,920 Speaker 1: website and app or wherever you'll get your podcasts. We 605 00:31:34,040 --> 00:31:35,640 Speaker 1: love it if you took the time to rate and 606 00:31:35,680 --> 00:31:38,800 Speaker 1: interview the show on Apple podcast so more listeners can 607 00:31:38,840 --> 00:31:41,560 Speaker 1: find us. And you can find us on Twitter. Follow 608 00:31:41,640 --> 00:31:45,200 Speaker 1: me at at Sarah Ponzack, Mike is at Rea Anonymous, 609 00:31:45,520 --> 00:31:48,520 Speaker 1: Our guest Liz and Saunders is at Liz and Saunders, 610 00:31:48,760 --> 00:31:51,960 Speaker 1: and Alex Harris is Who's Alex Harris. You can also 611 00:31:52,040 --> 00:31:55,920 Speaker 1: follow Bloomberg Podcast at podcasts. What Goes Up is produced 612 00:31:55,920 --> 00:31:59,600 Speaker 1: by Topur Foreheads. The head of Bloomberg Podcast is Princesca Levie. 613 00:32:00,000 --> 00:32:01,480 Speaker 1: Thanks for listening, See you next time.