1 00:00:10,640 --> 00:00:14,200 Speaker 1: Hello, and welcome to another episode of the All Thoughts Podcast. 2 00:00:14,280 --> 00:00:18,320 Speaker 1: I'm Tracy Allaway and I'm Joe Wisenthal. Joe, I'm struggling 3 00:00:18,320 --> 00:00:21,320 Speaker 1: to think about how to start this episode because there's 4 00:00:21,360 --> 00:00:25,439 Speaker 1: just so much going on in this particular space, which 5 00:00:25,480 --> 00:00:30,240 Speaker 1: is the corporate credit market. Yeah, I mean, big picture, 6 00:00:31,040 --> 00:00:33,360 Speaker 1: there's a lot going out in corporate credit because there 7 00:00:33,440 --> 00:00:36,040 Speaker 1: is a lot going on in the market, because there 8 00:00:36,120 --> 00:00:39,040 Speaker 1: is a lot going on in the world right now. 9 00:00:39,520 --> 00:00:42,000 Speaker 1: I feel like if people were to just listen to 10 00:00:42,040 --> 00:00:46,159 Speaker 1: our last several episodes, it would be a great trajectory 11 00:00:46,240 --> 00:00:50,320 Speaker 1: of the world just getting crazier and crazier and crazier 12 00:00:50,440 --> 00:00:55,320 Speaker 1: with EACHYPT with each episode. Yeah. Absolutely, And the sell 13 00:00:55,360 --> 00:00:58,360 Speaker 1: off in the stock market has been bad enough, but 14 00:00:58,480 --> 00:01:00,720 Speaker 1: it does feel like what a lot of people are 15 00:01:00,720 --> 00:01:04,200 Speaker 1: starting to worry about now are these strains that we've 16 00:01:04,240 --> 00:01:08,720 Speaker 1: seen in credit. So we've seen risk premiums on bonds 17 00:01:08,800 --> 00:01:14,119 Speaker 1: really blowout, Derivative indicase tied to those bonds also going 18 00:01:14,200 --> 00:01:16,880 Speaker 1: up as people try to get more protection. We've seen 19 00:01:16,920 --> 00:01:21,039 Speaker 1: some big name companies rushing to tap credit lines and 20 00:01:21,120 --> 00:01:25,880 Speaker 1: try to raise cash before that liquidity dries up. There's 21 00:01:25,920 --> 00:01:29,200 Speaker 1: just so much concern in the market, and a lot 22 00:01:29,240 --> 00:01:32,279 Speaker 1: of it goes back to warnings and issues that people 23 00:01:32,319 --> 00:01:37,800 Speaker 1: have been talking about for years, right the news that 24 00:01:37,880 --> 00:01:40,720 Speaker 1: we got yesterday, and of course, because things are moving 25 00:01:40,800 --> 00:01:43,440 Speaker 1: so fast, it's always worth pointing out when we're recording 26 00:01:43,480 --> 00:01:47,520 Speaker 1: these episodes were recording this Thursday, March twelve. The news 27 00:01:47,520 --> 00:01:53,040 Speaker 1: we got yesterday about various private equity companies telling their 28 00:01:53,120 --> 00:01:58,680 Speaker 1: portfolio companies that they should draw on credit lines was 29 00:01:58,840 --> 00:02:02,840 Speaker 1: kind of one of the real indicators that what started 30 00:02:02,840 --> 00:02:05,880 Speaker 1: off as a health crisis and then sort of became 31 00:02:05,960 --> 00:02:10,080 Speaker 1: an economic and market panic is becoming something that I 32 00:02:10,120 --> 00:02:15,120 Speaker 1: think is really becoming a major concern about the liquidity 33 00:02:15,120 --> 00:02:19,640 Speaker 1: and credit in the system available available to anyone. Yeah, 34 00:02:19,720 --> 00:02:22,799 Speaker 1: and there's one thing that makes the credit market very 35 00:02:22,919 --> 00:02:25,360 Speaker 1: different to the stock market, and that is the level 36 00:02:25,720 --> 00:02:29,760 Speaker 1: of transparency and pricing. So when markets are selling off, 37 00:02:30,120 --> 00:02:32,080 Speaker 1: you can look up a stock index, you can see 38 00:02:32,120 --> 00:02:35,600 Speaker 1: exactly where it's trading, and you know pretty much what 39 00:02:35,680 --> 00:02:38,880 Speaker 1: it's doing. But with credit it can be much more 40 00:02:38,960 --> 00:02:44,680 Speaker 1: difficult just because of the way those assets trade. So today, 41 00:02:44,760 --> 00:02:47,560 Speaker 1: in order to wrap our heads around all these themes 42 00:02:47,600 --> 00:02:49,680 Speaker 1: and sort of pick up some of the latest color 43 00:02:50,240 --> 00:02:53,639 Speaker 1: really try to answer whether or not we're facing a 44 00:02:53,720 --> 00:02:56,920 Speaker 1: new credit crunch or stress in the corporate ball market. 45 00:02:57,280 --> 00:02:59,200 Speaker 1: We're going to talk to someone who I think at 46 00:02:59,200 --> 00:03:03,560 Speaker 1: this point us be one of our repeat guests and 47 00:03:03,680 --> 00:03:09,079 Speaker 1: probably holds the crown of the most of Blots episodes ever. Yeah, 48 00:03:09,120 --> 00:03:11,120 Speaker 1: I think so, I mean this might be this might 49 00:03:11,160 --> 00:03:12,800 Speaker 1: be a fourth or fifth and so we've had a 50 00:03:12,800 --> 00:03:16,120 Speaker 1: few repeat guests, but I think this current guest is 51 00:03:16,160 --> 00:03:18,720 Speaker 1: the winner, and you know, for good reason. All right, 52 00:03:18,919 --> 00:03:21,840 Speaker 1: so we're talking to Chris White. He's the CEO of 53 00:03:21,919 --> 00:03:26,320 Speaker 1: Viable Markets, formerly of Goldman Sachs and really a long 54 00:03:26,400 --> 00:03:30,639 Speaker 1: time corporate bond market specialists, the perfect person to talk 55 00:03:30,680 --> 00:03:35,040 Speaker 1: about all this. Chris, thanks so much for coming on again. Yeah, 56 00:03:35,040 --> 00:03:37,160 Speaker 1: it's it's always a pleasure. You guys know that this 57 00:03:37,200 --> 00:03:40,440 Speaker 1: is one of my favorite shows. I listened to your podcast. 58 00:03:40,480 --> 00:03:42,880 Speaker 1: I'm a fan as well as a contributor. So it's 59 00:03:42,880 --> 00:03:45,760 Speaker 1: a it's an honor to hopefully untangle some of the 60 00:03:45,840 --> 00:03:49,360 Speaker 1: Christmas tree lights that are the US credit mark. We 61 00:03:49,440 --> 00:03:52,080 Speaker 1: gotta get you a tote bag or something. We definitely 62 00:03:52,120 --> 00:03:54,640 Speaker 1: need odd lots wag. I can't believe we haven't made that, 63 00:03:54,720 --> 00:03:57,000 Speaker 1: but we definitely need to uh, for anyone who's been 64 00:03:57,000 --> 00:03:59,160 Speaker 1: on five times, we need to give them. Yeah, I 65 00:03:59,200 --> 00:04:01,840 Speaker 1: think it's four, but but you know what, I have 66 00:04:01,920 --> 00:04:03,920 Speaker 1: a feeling that the fifth one might come up before 67 00:04:03,960 --> 00:04:08,240 Speaker 1: the end of the year, given what's happening exactly. Happy 68 00:04:08,280 --> 00:04:10,880 Speaker 1: to talk about what's happening in credit, you know, Tracy, 69 00:04:10,960 --> 00:04:13,440 Speaker 1: I think that you bring up something that's really interesting, 70 00:04:13,840 --> 00:04:17,479 Speaker 1: where when we're looking at the health of the markets 71 00:04:17,600 --> 00:04:21,640 Speaker 1: as they're reacting to COVID nineteen, we have up to 72 00:04:21,680 --> 00:04:26,080 Speaker 1: the minute information on every single global equity index, but 73 00:04:26,160 --> 00:04:29,560 Speaker 1: we really do not know what's happening in the in 74 00:04:29,600 --> 00:04:34,720 Speaker 1: the bond markets, particularly the credit bond markets. And what's 75 00:04:34,720 --> 00:04:36,520 Speaker 1: scary about that is there's so much bigger than they 76 00:04:36,520 --> 00:04:40,520 Speaker 1: were the last time we had a crisis. So walk 77 00:04:40,600 --> 00:04:45,360 Speaker 1: us through exactly how pricing happens for corporate bonds, because 78 00:04:45,360 --> 00:04:48,200 Speaker 1: I think that's going to inform a lot of our conversation. 79 00:04:48,360 --> 00:04:52,280 Speaker 1: How do corporate bonds trade nowadays? Since we began talking 80 00:04:52,400 --> 00:04:54,920 Speaker 1: with you, which I think was a few years ago, now, 81 00:04:55,720 --> 00:04:59,360 Speaker 1: there has been some evolution of the way that market functions, 82 00:04:59,480 --> 00:05:04,440 Speaker 1: but also not that much right. Actually, you know a 83 00:05:04,480 --> 00:05:07,000 Speaker 1: company that I started Bondlick is working on this problem 84 00:05:07,080 --> 00:05:11,200 Speaker 1: of fixing the the or at least establishing structure around pricing, 85 00:05:11,200 --> 00:05:13,560 Speaker 1: and I'd say that's the major difference. I would imagine 86 00:05:13,720 --> 00:05:16,760 Speaker 1: much of your audience is used to looking up prices 87 00:05:16,920 --> 00:05:21,120 Speaker 1: um for equities through their smartphones, But when you really 88 00:05:21,120 --> 00:05:23,400 Speaker 1: want to know prices and bonds, it's difficult. And this 89 00:05:23,480 --> 00:05:26,760 Speaker 1: doesn't change for the professional arena when you're talking about 90 00:05:26,760 --> 00:05:29,600 Speaker 1: trading bonds, working for an investment bank or working for 91 00:05:29,640 --> 00:05:32,839 Speaker 1: an asset manager. While there is a lot of information 92 00:05:32,880 --> 00:05:36,320 Speaker 1: that's out there, um, it's it's very difficult to discern 93 00:05:36,560 --> 00:05:40,880 Speaker 1: at times what's real and what's actionable. And so during 94 00:05:40,880 --> 00:05:44,640 Speaker 1: the past twelve years, we've had pretty sleepy markets where 95 00:05:44,680 --> 00:05:46,400 Speaker 1: any sort of sort of bump in the road was 96 00:05:46,480 --> 00:05:49,920 Speaker 1: met with central bank intervention that sort of stabilized markets. 97 00:05:50,360 --> 00:05:53,919 Speaker 1: Now we're in a period, thanks to COVID nineteen where 98 00:05:53,720 --> 00:05:56,360 Speaker 1: there is no stabilization on the horizon that people can 99 00:05:56,360 --> 00:06:00,200 Speaker 1: see really starting to see markets whip around and and 100 00:06:00,279 --> 00:06:05,520 Speaker 1: so not having coherent and reliable data is impacting the 101 00:06:05,600 --> 00:06:10,119 Speaker 1: way these markets are trading. So for people who haven't 102 00:06:10,160 --> 00:06:13,599 Speaker 1: listened to your previous episodes and people who wonder, Well, 103 00:06:13,640 --> 00:06:16,640 Speaker 1: it's why can't people just look up a bond price 104 00:06:17,120 --> 00:06:20,320 Speaker 1: on their phone like you can do with stock. Give 105 00:06:20,440 --> 00:06:23,560 Speaker 1: us this sort of thirty second explanation of why bonds 106 00:06:23,560 --> 00:06:26,720 Speaker 1: are different, just for people catching up, and then tell us, 107 00:06:26,800 --> 00:06:30,800 Speaker 1: you know what you're seeing already about how trading is 108 00:06:30,800 --> 00:06:34,240 Speaker 1: really being affected by the first crisis in a long time. 109 00:06:34,320 --> 00:06:38,200 Speaker 1: That's not a monetary crisis, and so therefore there's not 110 00:06:38,279 --> 00:06:41,760 Speaker 1: an obvious central bank fix. Sure, it's it's really simple. 111 00:06:41,839 --> 00:06:45,479 Speaker 1: About fifty years ago, the equity markets faced a crisis 112 00:06:45,560 --> 00:06:49,680 Speaker 1: around institutional trading. They answered that where liquidity had really 113 00:06:49,760 --> 00:06:52,960 Speaker 1: dried up. They answered that crisis by just saying, hey, 114 00:06:53,120 --> 00:06:56,159 Speaker 1: let's make a platform where everybody puts their pricing in 115 00:06:56,160 --> 00:06:59,240 Speaker 1: the same place, and that was NASTAC. NASTAC stands for 116 00:06:59,320 --> 00:07:03,480 Speaker 1: National Associate Ation Securities Dealers Automated Quotation System and that 117 00:07:03,600 --> 00:07:07,680 Speaker 1: concept of of I would say, crowdsourcing pricing and centralizing 118 00:07:07,680 --> 00:07:10,880 Speaker 1: it is something that we've seen in every other modernized market. 119 00:07:11,480 --> 00:07:14,080 Speaker 1: That architecture has really never shown up for the US 120 00:07:14,120 --> 00:07:16,320 Speaker 1: corporate bond market. We're trying to bring it to market 121 00:07:16,360 --> 00:07:19,200 Speaker 1: in terms of my company, but because we don't have 122 00:07:19,240 --> 00:07:23,240 Speaker 1: this piece of architecture. Prices are just everywhere and so 123 00:07:23,480 --> 00:07:26,560 Speaker 1: UM without knowing definitively where is the best bid or 124 00:07:26,600 --> 00:07:29,240 Speaker 1: best offer, it's a bit it's a bit chaotic, and 125 00:07:29,280 --> 00:07:31,200 Speaker 1: I would say in some in some cases people would 126 00:07:31,200 --> 00:07:34,280 Speaker 1: say it's chaos by design because obviously if you have 127 00:07:34,760 --> 00:07:38,560 Speaker 1: UM dislocated pricing information, there there are big opportunities out 128 00:07:38,600 --> 00:07:41,320 Speaker 1: there for certain traders in the market. So for a 129 00:07:41,320 --> 00:07:44,880 Speaker 1: lot of people, they've liked the reduction and information. However, 130 00:07:45,520 --> 00:07:47,720 Speaker 1: you know when I've said this in previous podcasts, and 131 00:07:47,760 --> 00:07:50,360 Speaker 1: I think it's really important now the market is too 132 00:07:50,360 --> 00:07:54,000 Speaker 1: big for that sort of gap in infrastructure. Just to 133 00:07:54,040 --> 00:07:57,320 Speaker 1: put in perspective, it's a ten trillion dollar market in 134 00:07:57,400 --> 00:07:59,600 Speaker 1: terms of outstanding size. I think, Tracy, when you and 135 00:07:59,600 --> 00:08:01,440 Speaker 1: I first we were talking about how big the market was, 136 00:08:01,440 --> 00:08:03,440 Speaker 1: when it was maybe six or se Yeah, I remember that. 137 00:08:03,760 --> 00:08:07,160 Speaker 1: So playing these reindeer games around pricing is just it's 138 00:08:07,240 --> 00:08:10,960 Speaker 1: not good for the UM. The overall function of a 139 00:08:11,040 --> 00:08:14,120 Speaker 1: market that I think at this point in time is 140 00:08:14,800 --> 00:08:18,800 Speaker 1: really really important for the overall health of the global economy. 141 00:08:19,080 --> 00:08:21,120 Speaker 1: There's so many bonds out there and so many companies 142 00:08:21,160 --> 00:08:23,760 Speaker 1: that depend on this market. I think we do need 143 00:08:23,800 --> 00:08:27,520 Speaker 1: to rethink around the importance of data and actually getting 144 00:08:27,520 --> 00:08:30,520 Speaker 1: it right around pricing information. So when it comes to 145 00:08:30,560 --> 00:08:33,440 Speaker 1: a sell off or a market route like what we're 146 00:08:33,440 --> 00:08:36,679 Speaker 1: seeing at the moment, how does that corporate bond market 147 00:08:36,720 --> 00:08:41,319 Speaker 1: structure actually impact what's happening in the credit space. I 148 00:08:41,520 --> 00:08:44,880 Speaker 1: guess another way of saying that is how much of 149 00:08:44,920 --> 00:08:48,640 Speaker 1: the action that we've seen is due to technical factors 150 00:08:49,040 --> 00:08:54,800 Speaker 1: versus concerns about economic fundamentals actually affecting the credit worthiness 151 00:08:54,840 --> 00:08:58,880 Speaker 1: of companies. That that's a great question. I'm actually looking 152 00:08:58,920 --> 00:09:01,360 Speaker 1: at the data right now, going back to would you 153 00:09:01,400 --> 00:09:04,920 Speaker 1: guys agree that maybe, like February is the start of 154 00:09:04,960 --> 00:09:08,520 Speaker 1: the craziness? Can we accept that as a date. Well, 155 00:09:08,559 --> 00:09:10,920 Speaker 1: if I go back for Tracy, it's been like since 156 00:09:10,960 --> 00:09:14,559 Speaker 1: mid the rest of the world. The rest of the 157 00:09:14,600 --> 00:09:17,240 Speaker 1: world woke up to it right around in late February, 158 00:09:17,240 --> 00:09:21,040 Speaker 1: said okay, great, so my my, you know, Western American 159 00:09:21,200 --> 00:09:23,880 Speaker 1: view of of COVID has been like, hey, things got 160 00:09:23,880 --> 00:09:27,679 Speaker 1: crazy on February. So if I go back to February 161 00:09:27,800 --> 00:09:30,360 Speaker 1: and just looking at our system, I can see that 162 00:09:30,559 --> 00:09:35,840 Speaker 1: the corporate bomb market as a whole has net purchase activity, 163 00:09:36,440 --> 00:09:41,200 Speaker 1: meaning that there's been more buying activity by almost twenty 164 00:09:41,280 --> 00:09:45,880 Speaker 1: billion in notional volume, than there's been selling activity. So 165 00:09:46,880 --> 00:09:50,800 Speaker 1: while the value of bonds has definitely changed, they're definitely lower. 166 00:09:51,480 --> 00:09:55,480 Speaker 1: It's not due to a technical change. It's not because 167 00:09:55,840 --> 00:09:58,960 Speaker 1: there's an oversupply and people are just selling into the market. 168 00:09:59,520 --> 00:10:02,000 Speaker 1: It's actually something that I think is better described as 169 00:10:02,160 --> 00:10:05,880 Speaker 1: as a repricing, and a repricing is hey, you know, 170 00:10:05,960 --> 00:10:07,920 Speaker 1: yesterday and we thought this bond was worth you know 171 00:10:08,000 --> 00:10:10,640 Speaker 1: what's called it? A hundred dollars um? Well I wake 172 00:10:10,720 --> 00:10:12,760 Speaker 1: up today, I wake up today, and you know what, 173 00:10:13,120 --> 00:10:15,800 Speaker 1: I think that bond is worth eight? What do you 174 00:10:15,840 --> 00:10:21,960 Speaker 1: think there hasn't been, you know, trades at seven. That's 175 00:10:22,000 --> 00:10:24,520 Speaker 1: not how the bond market works. You're not seeing that. 176 00:10:24,880 --> 00:10:28,760 Speaker 1: What you're just seeing is literally changes in value based 177 00:10:28,840 --> 00:10:33,160 Speaker 1: on an opinion. And so this is where data is now. 178 00:10:33,440 --> 00:10:36,960 Speaker 1: It's really out of premium because if you've got a 179 00:10:37,000 --> 00:10:39,640 Speaker 1: lot of data and you know how to organize it, 180 00:10:40,160 --> 00:10:43,679 Speaker 1: there's some tremendous values in this market right now. So 181 00:10:43,960 --> 00:10:47,760 Speaker 1: explain that a little further. This idea of just a 182 00:10:47,880 --> 00:10:52,680 Speaker 1: repricing verse mass selling, is that something What is it 183 00:10:52,800 --> 00:10:57,439 Speaker 1: about bond market structure that allows that to happen that 184 00:10:57,559 --> 00:11:00,400 Speaker 1: one day you have a bond trading at par, trading 185 00:11:00,400 --> 00:11:02,360 Speaker 1: at a hundred, the next day it's trading at eight. 186 00:11:03,120 --> 00:11:06,240 Speaker 1: What is it about the current structure where you see 187 00:11:06,640 --> 00:11:09,000 Speaker 1: wholesale repricings like that in a way that feels a 188 00:11:09,000 --> 00:11:12,480 Speaker 1: little bit different than you see and stocked. Sure, so 189 00:11:13,320 --> 00:11:16,600 Speaker 1: when we're talking about trading bonds, we're talking about trading credit. 190 00:11:17,400 --> 00:11:22,199 Speaker 1: The Latin origin of the word credit is credo. The 191 00:11:22,240 --> 00:11:27,600 Speaker 1: word means I believe, And so what are we talking about? 192 00:11:27,600 --> 00:11:30,720 Speaker 1: What do you believe in credit? Do you believe whether 193 00:11:30,840 --> 00:11:32,160 Speaker 1: or not a company is going to be able to 194 00:11:32,160 --> 00:11:36,160 Speaker 1: pay their debts? So what we're really trading here is 195 00:11:36,200 --> 00:11:40,599 Speaker 1: opinion on the long term prospects of certain companies to 196 00:11:40,640 --> 00:11:45,600 Speaker 1: pay off their debts. Now, depending on what industry the 197 00:11:45,640 --> 00:11:49,880 Speaker 1: company is in, those prospects may take a hit, but overall, 198 00:11:49,960 --> 00:11:52,080 Speaker 1: you still feel like at the end of the day 199 00:11:52,400 --> 00:11:55,640 Speaker 1: five years from now, uh CVS is still going to 200 00:11:55,679 --> 00:11:59,080 Speaker 1: exist as a company. So buying their buying their debt 201 00:11:59,640 --> 00:12:01,920 Speaker 1: and saying like I'll hold this paper for a few 202 00:12:02,000 --> 00:12:08,000 Speaker 1: years is a less risky prospect. However, when when things 203 00:12:08,000 --> 00:12:11,040 Speaker 1: get dangerous in the bond mark market, when default rates 204 00:12:11,080 --> 00:12:14,160 Speaker 1: do start to rise. And I think that this, this 205 00:12:14,280 --> 00:12:18,480 Speaker 1: particular type of crisis could lead to defaults because this 206 00:12:18,559 --> 00:12:22,040 Speaker 1: is a crisis of time. We don't know when things 207 00:12:22,080 --> 00:12:24,040 Speaker 1: are going to clear in the marketplace, We don't know 208 00:12:24,120 --> 00:12:27,640 Speaker 1: when things are going to normalize. And for for for 209 00:12:27,679 --> 00:12:32,160 Speaker 1: a lot of these corporate issuers, time is is urgent 210 00:12:32,360 --> 00:12:35,520 Speaker 1: because they may need to tap the corporate bond market 211 00:12:35,559 --> 00:12:39,720 Speaker 1: again in order to meet payroll or to pay off 212 00:12:39,760 --> 00:12:42,240 Speaker 1: the bond that they had previously issued. And so if 213 00:12:42,240 --> 00:12:44,760 Speaker 1: the corporate if the credit markets are closed for a 214 00:12:44,800 --> 00:12:47,160 Speaker 1: few weeks, I think we have a real problem on 215 00:12:47,200 --> 00:12:50,200 Speaker 1: our hands. Yeah. I think the time frame is really 216 00:12:50,280 --> 00:12:53,240 Speaker 1: important because just from my personal experience being here in 217 00:12:53,280 --> 00:12:56,600 Speaker 1: Hong Kong, even as we sort of get back to normal, 218 00:12:56,840 --> 00:13:00,960 Speaker 1: the rest of the world is now, you know, experiencing 219 00:13:00,960 --> 00:13:04,080 Speaker 1: what we experienced a month or two ago, and so 220 00:13:04,160 --> 00:13:06,160 Speaker 1: I think we're going to have these sort of rolling 221 00:13:06,280 --> 00:13:10,600 Speaker 1: impacts as the coronavirus circles around the globe and potentially 222 00:13:10,720 --> 00:13:13,400 Speaker 1: second waves as well. So yeah, it could be a 223 00:13:13,400 --> 00:13:26,800 Speaker 1: long time. Chris, real quickly. Uh, I want to just 224 00:13:26,800 --> 00:13:28,920 Speaker 1: sort of ask you to expand on a point when 225 00:13:28,960 --> 00:13:31,520 Speaker 1: you talk about okay, you believe either this company is 226 00:13:31,559 --> 00:13:33,760 Speaker 1: going to pay its debts or not. You know, when 227 00:13:33,840 --> 00:13:36,360 Speaker 1: we think about a stock, we think about, okay, this 228 00:13:36,480 --> 00:13:41,920 Speaker 1: stock is valued at some current discounted future cash flow, 229 00:13:41,960 --> 00:13:45,280 Speaker 1: and if that cash flow expectations drop five percent, then 230 00:13:45,360 --> 00:13:48,640 Speaker 1: theoretically the stock should drop five percent. I guess with 231 00:13:48,720 --> 00:13:51,400 Speaker 1: bonds there's just much more of a binary nous. Either 232 00:13:51,720 --> 00:13:53,880 Speaker 1: the company will eventually pay it off at the end 233 00:13:53,920 --> 00:13:57,800 Speaker 1: of its period or it won't. But there's not that 234 00:13:57,920 --> 00:14:01,400 Speaker 1: sort of there's not as much gradations in there about 235 00:14:01,400 --> 00:14:05,040 Speaker 1: the ultimate outcomes. So I think one of the things 236 00:14:05,240 --> 00:14:08,800 Speaker 1: that is um important in terms of the difference between 237 00:14:08,800 --> 00:14:11,280 Speaker 1: the stocks and the bond market is the stock market 238 00:14:11,320 --> 00:14:13,640 Speaker 1: is much more immediate in the reaction, and I'd say 239 00:14:13,679 --> 00:14:16,880 Speaker 1: a lot of the movements on stocks are technical movements 240 00:14:17,320 --> 00:14:19,440 Speaker 1: where you're getting a bunch of supply and so the 241 00:14:19,880 --> 00:14:21,880 Speaker 1: value of the stock is going down. And then you 242 00:14:21,920 --> 00:14:24,840 Speaker 1: have the term value investors in stock in the stock market, 243 00:14:24,880 --> 00:14:27,160 Speaker 1: where these are people that say, hey, this stock has 244 00:14:27,200 --> 00:14:30,120 Speaker 1: been oversold according to what we're looking at in this company, 245 00:14:30,320 --> 00:14:32,480 Speaker 1: and according to the pe ratios, this is a value 246 00:14:32,560 --> 00:14:34,280 Speaker 1: right now when we're going to buy it, and so 247 00:14:34,320 --> 00:14:35,840 Speaker 1: that those are a lot of the things that are 248 00:14:35,920 --> 00:14:38,480 Speaker 1: driving trading activity, the back and forth in the stock market, 249 00:14:38,840 --> 00:14:42,200 Speaker 1: right in the bond market. Not only are you dealing 250 00:14:42,360 --> 00:14:45,880 Speaker 1: with them complexity of whether or not you believe a 251 00:14:45,880 --> 00:14:48,080 Speaker 1: company is going to pay off its debts, you also 252 00:14:48,160 --> 00:14:51,160 Speaker 1: have this time factor because it's not just is the 253 00:14:51,160 --> 00:14:53,600 Speaker 1: company going to pay off its debts, is when is 254 00:14:53,640 --> 00:14:55,040 Speaker 1: it going to be able to pay off its debts. 255 00:14:55,040 --> 00:14:58,400 Speaker 1: I'll give you a classic example, Tesla. Let's call it. 256 00:14:58,440 --> 00:15:00,200 Speaker 1: I think it was a year ago. Elon Musk was 257 00:15:00,240 --> 00:15:02,760 Speaker 1: on the Joe Rogan podcast, a podcast that I think 258 00:15:02,840 --> 00:15:06,520 Speaker 1: is far exterior to the Odd Lots podcast, but thank you. 259 00:15:07,000 --> 00:15:09,680 Speaker 1: On that podcast, he thought it's a little more popular. 260 00:15:12,160 --> 00:15:15,960 Speaker 1: He thought it was a good idea to um smoke pod. 261 00:15:16,080 --> 00:15:18,800 Speaker 1: On the podcast, what we saw on the bond market 262 00:15:18,880 --> 00:15:21,080 Speaker 1: for Tesla bonds were the bonds that we're going to 263 00:15:21,120 --> 00:15:25,240 Speaker 1: be maturing in eighteen months. Prices hardly moved, but the 264 00:15:25,280 --> 00:15:28,280 Speaker 1: bonds that we're going to be maturing in almost I 265 00:15:28,280 --> 00:15:33,040 Speaker 1: think four years, those bonds lost significant value. And that's 266 00:15:33,080 --> 00:15:36,120 Speaker 1: because it's the I believe factor. I believe the Tesla 267 00:15:36,200 --> 00:15:37,400 Speaker 1: is gonna be able to pay off their debts. In 268 00:15:37,400 --> 00:15:41,200 Speaker 1: the next eighteen months, but perhaps their prospects of paying 269 00:15:41,240 --> 00:15:43,720 Speaker 1: off their debt four years from now are not as good, 270 00:15:44,480 --> 00:15:47,200 Speaker 1: and so that that this is where you get I've 271 00:15:47,200 --> 00:15:50,000 Speaker 1: said to people during this crisis, you can't just simply 272 00:15:50,040 --> 00:15:52,760 Speaker 1: say the credit markets are upper, the credit markets are 273 00:15:52,760 --> 00:15:57,400 Speaker 1: down right. That's impossible, because in different areas of the 274 00:15:57,400 --> 00:16:00,440 Speaker 1: credit markets, you're going to see stability and are going 275 00:16:00,480 --> 00:16:04,680 Speaker 1: to see panic. Um. But to make things sound less 276 00:16:04,720 --> 00:16:08,120 Speaker 1: gloom and doom, I do think that what COVID nineteen 277 00:16:08,160 --> 00:16:11,280 Speaker 1: is doing for credit markets, it is bringing yield back 278 00:16:11,480 --> 00:16:14,840 Speaker 1: and it's creating value for the investor. The only problem 279 00:16:14,920 --> 00:16:17,960 Speaker 1: is many people were already fully invested, so they've given 280 00:16:18,000 --> 00:16:20,240 Speaker 1: a lot of those returns back in the last few weeks. 281 00:16:21,400 --> 00:16:24,320 Speaker 1: Just on that note, one of the criticisms of corporate 282 00:16:24,320 --> 00:16:27,240 Speaker 1: credit over you know, the last five years or so, 283 00:16:27,400 --> 00:16:31,080 Speaker 1: has been this idea that investors are buying stuff and 284 00:16:31,080 --> 00:16:34,600 Speaker 1: they're not necessarily getting compensated for some of it, or 285 00:16:34,640 --> 00:16:39,160 Speaker 1: the notion that credit is priced to perfection and something 286 00:16:39,400 --> 00:16:44,840 Speaker 1: like the coronavirus outbreak just doesn't feature in the price 287 00:16:44,920 --> 00:16:48,840 Speaker 1: at all. How much of the chaos that we're currently 288 00:16:48,880 --> 00:16:52,280 Speaker 1: seeing is just due to valuations having gotten out of 289 00:16:52,320 --> 00:16:56,280 Speaker 1: hand previously. Tracy, that's an excellent, excellent point. And I'm 290 00:16:56,280 --> 00:16:58,400 Speaker 1: gonna I'm gonna tell you the story of a bond 291 00:16:58,920 --> 00:17:02,160 Speaker 1: that actually illus rates exactly what you're talking about. And 292 00:17:02,200 --> 00:17:04,800 Speaker 1: the story is the bond, a bond that was recently 293 00:17:04,840 --> 00:17:09,560 Speaker 1: issued by American Airlines UM it's their new issue maturing 294 00:17:09,800 --> 00:17:13,080 Speaker 1: in two thousand. It's there there there three and a 295 00:17:13,160 --> 00:17:15,800 Speaker 1: quarter coupon bond that came to market. At that time. 296 00:17:16,280 --> 00:17:18,240 Speaker 1: When that bond came to market, it was coming to 297 00:17:18,280 --> 00:17:22,600 Speaker 1: market at a dollar price of of effectively par a hundred. 298 00:17:23,520 --> 00:17:26,720 Speaker 1: Today that same bond is trading at seventy cs in 299 00:17:26,760 --> 00:17:31,800 Speaker 1: the dollar. So just the change in sentiment, like the 300 00:17:31,840 --> 00:17:35,479 Speaker 1: fact that that American Airlines deal came through the market 301 00:17:35,560 --> 00:17:39,159 Speaker 1: and people bought it at that level, I think, tells 302 00:17:39,200 --> 00:17:43,000 Speaker 1: you what the environment was around yield, which is, Hey, 303 00:17:43,080 --> 00:17:45,280 Speaker 1: I know that there's an airline bond, and I know 304 00:17:45,320 --> 00:17:47,840 Speaker 1: that it's coming only two and forty basis points over 305 00:17:48,119 --> 00:17:51,240 Speaker 1: the five year treasury, which is really really tight. But 306 00:17:51,280 --> 00:17:53,200 Speaker 1: you know what I need yield, and so I'm gonna 307 00:17:53,200 --> 00:17:56,400 Speaker 1: buy it. And and now what we're seeing is, I mean, 308 00:17:56,960 --> 00:17:59,520 Speaker 1: now the spread on that bond is almost over a 309 00:17:59,560 --> 00:18:02,120 Speaker 1: thousand um when compared to treasures. And in fact, when 310 00:18:02,119 --> 00:18:04,560 Speaker 1: we get to this point, we don't even talk about spreads. 311 00:18:04,560 --> 00:18:07,800 Speaker 1: We talked about bonds and dollar prices, because literally what 312 00:18:07,800 --> 00:18:10,120 Speaker 1: we're trading, it's purely the credit. This is not an 313 00:18:10,119 --> 00:18:12,440 Speaker 1: interest rate play at all. The way that this bond 314 00:18:12,480 --> 00:18:13,800 Speaker 1: is going to be traded is going to be based 315 00:18:13,840 --> 00:18:16,720 Speaker 1: on whether or not you believe that American Airlines it's 316 00:18:16,720 --> 00:18:18,000 Speaker 1: gonna be able to pay off their debts, and it's 317 00:18:18,000 --> 00:18:20,200 Speaker 1: gonna have nothing to do with the current interest rate environment, 318 00:18:20,359 --> 00:18:23,280 Speaker 1: which is really where high yield and distress debt trades. 319 00:18:23,320 --> 00:18:26,720 Speaker 1: It trades in that sort of environment where prevailing interest 320 00:18:26,800 --> 00:18:31,640 Speaker 1: rates really don't matter. Something I'm curious about is, uh, 321 00:18:31,720 --> 00:18:34,360 Speaker 1: you know, in the post crisis era, there has been 322 00:18:34,480 --> 00:18:39,080 Speaker 1: this big effort to de risk the banks themselves, and 323 00:18:39,280 --> 00:18:41,880 Speaker 1: so that you know, even already we're talking a lot 324 00:18:42,000 --> 00:18:46,600 Speaker 1: about stress from companies and companies drawing down credit lines 325 00:18:46,640 --> 00:18:48,960 Speaker 1: on the bond market and so forth, but we don't 326 00:18:49,040 --> 00:18:52,600 Speaker 1: hear a lot yet about much stress to the sort 327 00:18:52,640 --> 00:18:56,879 Speaker 1: of core institutions of the financial system. And we we 328 00:18:57,000 --> 00:19:00,399 Speaker 1: know that through the Vulcal rule and so forth, the banks, 329 00:19:00,480 --> 00:19:04,360 Speaker 1: they hold less credit inventory on their books at any 330 00:19:04,600 --> 00:19:10,119 Speaker 1: given time. How does that change the trading experience, the 331 00:19:10,200 --> 00:19:13,920 Speaker 1: price experience, the price discovery experience right now during this 332 00:19:14,080 --> 00:19:19,920 Speaker 1: crisis versus past crises passed bouts of volatility in which 333 00:19:20,480 --> 00:19:24,840 Speaker 1: there was more centralized, centralized risk. Well, first of all, Joe, 334 00:19:24,840 --> 00:19:28,560 Speaker 1: I think you're I haven't heard anybody else really pull 335 00:19:28,680 --> 00:19:31,960 Speaker 1: that out in this discussion and of where markets are going. 336 00:19:32,560 --> 00:19:34,440 Speaker 1: And I actually think we need to tip our caps 337 00:19:34,480 --> 00:19:37,359 Speaker 1: to the regulators here because there was a lot of 338 00:19:37,880 --> 00:19:41,320 Speaker 1: screaming and gnashing of teeth around, uh, you know, the 339 00:19:41,440 --> 00:19:44,320 Speaker 1: risking the banks, but we we aren't actually at this 340 00:19:44,400 --> 00:19:47,320 Speaker 1: point in time worried about banks going under, which is 341 00:19:47,359 --> 00:19:49,720 Speaker 1: totally different than the tenor of two thousand and eight. 342 00:19:50,080 --> 00:19:51,359 Speaker 1: I think a lot of that has to do with 343 00:19:51,440 --> 00:19:54,600 Speaker 1: the measures that were taken. And you know, it's almost 344 00:19:54,600 --> 00:19:56,320 Speaker 1: like your parents. I'm sure your parents gave you some 345 00:19:56,400 --> 00:19:58,680 Speaker 1: advice Joe that at the time you said, whatever Mom 346 00:19:58,760 --> 00:20:02,200 Speaker 1: and Dad, and now you really actually appreciate their insight. 347 00:20:02,800 --> 00:20:05,879 Speaker 1: So tip of the cap. But I think that, um, 348 00:20:06,160 --> 00:20:09,960 Speaker 1: when we're speaking particularly about credit, Uh, there's been just 349 00:20:10,280 --> 00:20:13,480 Speaker 1: so much cash built up in the system that really 350 00:20:13,520 --> 00:20:16,400 Speaker 1: where the bid is coming from right now, Um, it's 351 00:20:16,440 --> 00:20:20,000 Speaker 1: really coming from the buy side. So these markets are functioning, 352 00:20:20,160 --> 00:20:24,520 Speaker 1: I believe because insurance companies, pension funds, they're so thirsty 353 00:20:24,640 --> 00:20:28,440 Speaker 1: for yield that even though even those American Airlines bonds 354 00:20:28,480 --> 00:20:31,879 Speaker 1: are trading down. And again I'm gonna look right now 355 00:20:32,040 --> 00:20:34,200 Speaker 1: on our system and just try to see on a 356 00:20:34,400 --> 00:20:38,080 Speaker 1: net purchasing basis whether or not from when this bond 357 00:20:38,200 --> 00:20:40,800 Speaker 1: was issued too. Now it's only slightly negative in terms 358 00:20:40,840 --> 00:20:43,920 Speaker 1: of selling activity, which just tells you that there have 359 00:20:43,960 --> 00:20:46,000 Speaker 1: been a lot of people buying this bond. Where's that 360 00:20:46,080 --> 00:20:49,240 Speaker 1: money coming from. It's coming from from an insurance company 361 00:20:49,280 --> 00:20:52,080 Speaker 1: that may have issued annuities at six percent, but it's 362 00:20:52,119 --> 00:20:54,679 Speaker 1: only been yield. But their portfolio itself has only been 363 00:20:54,800 --> 00:20:57,040 Speaker 1: yielding four and a half percent for the past five years, 364 00:20:57,320 --> 00:20:59,840 Speaker 1: so they know they have a shortfall. We we exp 365 00:21:00,000 --> 00:21:02,320 Speaker 1: act that that bid is supposed to come from the dealers, 366 00:21:02,720 --> 00:21:05,280 Speaker 1: it's not coming from the dealers anymore. It's coming from 367 00:21:05,520 --> 00:21:07,520 Speaker 1: from the by side, because they're the ones with the 368 00:21:07,600 --> 00:21:09,639 Speaker 1: money in the cash to put to work. Right. So 369 00:21:09,800 --> 00:21:12,920 Speaker 1: this has been a major theme in corporate credit over 370 00:21:13,000 --> 00:21:15,920 Speaker 1: the past few years. The power the growing power of 371 00:21:16,000 --> 00:21:18,960 Speaker 1: the BY side in that market. Just on that note, 372 00:21:19,359 --> 00:21:21,080 Speaker 1: does that mean that we need to look at the 373 00:21:21,119 --> 00:21:24,440 Speaker 1: BYE side to sort of find the bag holders of 374 00:21:24,760 --> 00:21:27,320 Speaker 1: the recent stress in credit markets? Is that where we 375 00:21:27,359 --> 00:21:31,159 Speaker 1: should look for portfolio losses? And also where in the 376 00:21:31,320 --> 00:21:35,679 Speaker 1: credit market do you see the most potential for um 377 00:21:36,600 --> 00:21:39,520 Speaker 1: for pain? Well, the the I think that the by 378 00:21:39,600 --> 00:21:43,560 Speaker 1: side right now is able to they have enough cash 379 00:21:43,680 --> 00:21:46,240 Speaker 1: where they are stepping into this market. I don't know 380 00:21:46,359 --> 00:21:48,840 Speaker 1: how long they can do that for. And I don't 381 00:21:48,880 --> 00:21:54,119 Speaker 1: know whether the opinion on where yields should reset is 382 00:21:54,160 --> 00:21:57,359 Speaker 1: going to change, because again, you know this this is 383 00:21:57,440 --> 00:22:00,200 Speaker 1: like you know, when we're looking at yields of the 384 00:22:00,280 --> 00:22:03,640 Speaker 1: past twelve years, really post two thousand and eight, it's 385 00:22:03,720 --> 00:22:07,119 Speaker 1: been a desert. So any sort of bump in the 386 00:22:07,200 --> 00:22:10,240 Speaker 1: market has been met with buying. But now this is 387 00:22:10,280 --> 00:22:13,800 Speaker 1: a prolonged bump, and so we we actually we might 388 00:22:13,840 --> 00:22:16,960 Speaker 1: see a resetting where what investors are demanding for the 389 00:22:17,080 --> 00:22:20,880 Speaker 1: market um is even greater in terms of yield pick up, 390 00:22:21,160 --> 00:22:24,120 Speaker 1: and that would move prices down even further. In terms 391 00:22:24,160 --> 00:22:27,399 Speaker 1: of the dangers, There's been something on the horizon that 392 00:22:27,920 --> 00:22:29,840 Speaker 1: I know Muhammad al Arian has been talking about it. 393 00:22:29,920 --> 00:22:33,560 Speaker 1: I've written about it um but the real danger has 394 00:22:33,640 --> 00:22:37,439 Speaker 1: to do with the triple B area of the market. 395 00:22:38,359 --> 00:22:40,440 Speaker 1: And what the triple B area of the market just 396 00:22:40,560 --> 00:22:44,520 Speaker 1: for your listeners, the bond market has credit ratings the 397 00:22:44,560 --> 00:22:47,600 Speaker 1: same way that you have a credit score, and based 398 00:22:47,680 --> 00:22:50,080 Speaker 1: on your credit rating, you either fall into something called 399 00:22:50,160 --> 00:22:54,399 Speaker 1: investment grade, which means hey, probability that you're gonna pay 400 00:22:54,440 --> 00:22:57,320 Speaker 1: off your debt, or below investing grade, which is we're 401 00:22:57,359 --> 00:22:59,880 Speaker 1: not so sure. And depending on how low below invest 402 00:23:00,000 --> 00:23:02,159 Speaker 1: and grade or the high yield or junk market you're in, 403 00:23:02,720 --> 00:23:05,480 Speaker 1: that that that basically dictates the probability that you'll pay 404 00:23:05,480 --> 00:23:08,600 Speaker 1: off your debt. So the triple B tranche of credit 405 00:23:09,119 --> 00:23:12,600 Speaker 1: is really the it's the lowest rung of investment grade. 406 00:23:12,760 --> 00:23:16,239 Speaker 1: It's the it's the B minus on your report card. Right. 407 00:23:16,280 --> 00:23:18,320 Speaker 1: Anything lower than that, you've got a little bit of 408 00:23:18,359 --> 00:23:22,520 Speaker 1: a problem. So, uh, that area of the market is 409 00:23:22,760 --> 00:23:26,720 Speaker 1: has been growing exponentially as the market itself has grown. 410 00:23:27,119 --> 00:23:31,680 Speaker 1: You've got record issuance in non non financial companies, and 411 00:23:31,960 --> 00:23:34,400 Speaker 1: many of those companies have this trip will be rating 412 00:23:34,440 --> 00:23:38,360 Speaker 1: in their debt. Here's where the problem comes in. If 413 00:23:38,400 --> 00:23:41,200 Speaker 1: you look at something like black rocks um. You know, 414 00:23:41,400 --> 00:23:45,399 Speaker 1: investment grade e T fifty of the e t F 415 00:23:45,560 --> 00:23:50,640 Speaker 1: is comprised of triple B rated debt. If those bonds 416 00:23:50,920 --> 00:23:53,640 Speaker 1: get downgraded or some of those some of those names 417 00:23:53,680 --> 00:23:57,760 Speaker 1: get downgraded, black Rock is forced to sell those out 418 00:23:57,800 --> 00:24:01,280 Speaker 1: of their portfolio, as well as every other investment grade 419 00:24:01,359 --> 00:24:05,600 Speaker 1: bond fund that has triple bees that get downgraded. Now, 420 00:24:05,880 --> 00:24:08,760 Speaker 1: this is the problem that people have been concerned about 421 00:24:08,800 --> 00:24:12,360 Speaker 1: when we're talking about the credit market bubble. It's been 422 00:24:12,440 --> 00:24:16,440 Speaker 1: this scenario in which oversupply would hit an area of 423 00:24:16,480 --> 00:24:18,720 Speaker 1: the market and we don't know where bonds go from there. 424 00:24:19,400 --> 00:24:20,840 Speaker 1: So I'll stop for a second. I know that was 425 00:24:20,880 --> 00:24:23,680 Speaker 1: a mouthful, but if you guys have any questions on 426 00:24:23,720 --> 00:24:27,280 Speaker 1: that scenario, no, I want to continue on this scenario. 427 00:24:27,480 --> 00:24:29,879 Speaker 1: So one of the things you mentioned is with the 428 00:24:29,920 --> 00:24:33,719 Speaker 1: stock market. Uh, you know, stocks get hammered, but then 429 00:24:33,800 --> 00:24:37,840 Speaker 1: maybe a different group of investors becomes interested in it, 430 00:24:38,040 --> 00:24:40,720 Speaker 1: and so okay, now there's a value stock. Talk to 431 00:24:40,840 --> 00:24:45,080 Speaker 1: us about the discontinuity in the bond market such that 432 00:24:45,920 --> 00:24:48,960 Speaker 1: if there is this sort of massive liquidation from investment 433 00:24:49,040 --> 00:24:52,000 Speaker 1: grade funds where they have to sell due to downgrades, 434 00:24:52,440 --> 00:24:56,360 Speaker 1: there is not some clean handoff to a new group 435 00:24:56,440 --> 00:24:58,960 Speaker 1: of investors that can just pick them up because their 436 00:24:59,160 --> 00:25:02,360 Speaker 1: mandate maybe for risk are credit. Sure. So so let's 437 00:25:02,440 --> 00:25:05,800 Speaker 1: start here. The biggest asset managers in credit and for 438 00:25:06,000 --> 00:25:09,040 Speaker 1: corporate bond space our our investment grade asset managers. And 439 00:25:09,119 --> 00:25:12,359 Speaker 1: what they've basically said is we're gonna have our portfolio 440 00:25:12,560 --> 00:25:14,399 Speaker 1: is only going to have debt in it that is 441 00:25:14,480 --> 00:25:18,400 Speaker 1: investment grade. And so they have to stand by that mandate. 442 00:25:18,520 --> 00:25:21,679 Speaker 1: So all of the capital that they take in um, 443 00:25:21,760 --> 00:25:26,159 Speaker 1: they're not allowed by law, by compliance to invest that 444 00:25:26,280 --> 00:25:30,400 Speaker 1: capital in anything but investment grade debt. Right now, as 445 00:25:30,480 --> 00:25:32,720 Speaker 1: the bond market has gotten bigger since two thousand and eight, 446 00:25:33,240 --> 00:25:37,720 Speaker 1: the overwhelming majority of new debt has been triple B 447 00:25:37,920 --> 00:25:40,920 Speaker 1: rated investment grade debt on that lowest rung. And to 448 00:25:41,000 --> 00:25:44,240 Speaker 1: put it in perspective for you, fort of a ten 449 00:25:44,359 --> 00:25:46,879 Speaker 1: trillion dollar market is now made up of triple B 450 00:25:47,040 --> 00:25:50,879 Speaker 1: rated debt. The triple B tranch alone is bigger than 451 00:25:50,920 --> 00:25:53,920 Speaker 1: the entire investment grade market was in two thousand and eight. 452 00:25:55,200 --> 00:25:58,040 Speaker 1: There's been nowhere for you to go as an investment 453 00:25:58,080 --> 00:26:00,720 Speaker 1: grade bond fund because not only are there so many 454 00:26:00,760 --> 00:26:04,240 Speaker 1: triple BE bonds out there, the yields have been so 455 00:26:04,400 --> 00:26:06,280 Speaker 1: low for so long that if you want really to 456 00:26:06,359 --> 00:26:09,720 Speaker 1: show any positive return in your portfolio, you had to 457 00:26:09,800 --> 00:26:12,639 Speaker 1: buy those bonds and you had to hold them. So 458 00:26:12,800 --> 00:26:16,359 Speaker 1: now the scenario is this as as if any of 459 00:26:16,400 --> 00:26:19,399 Speaker 1: those triple B bonds like big names start getting downgraded, 460 00:26:19,680 --> 00:26:24,200 Speaker 1: they must be purged from the investment grade asset management community. 461 00:26:24,640 --> 00:26:27,959 Speaker 1: That purge it's something called it's a well, the bonds 462 00:26:28,080 --> 00:26:31,800 Speaker 1: changing direction from being investment grade to high yield something 463 00:26:31,880 --> 00:26:34,520 Speaker 1: called fallen angels. I think it's a really nice way 464 00:26:34,600 --> 00:26:37,120 Speaker 1: to explain, like, you know, hey, you were in heaven 465 00:26:37,160 --> 00:26:40,000 Speaker 1: and now you're back down to Earth. But those those 466 00:26:40,119 --> 00:26:43,600 Speaker 1: fallen angels that supply this massive supply of fallen angels, 467 00:26:44,000 --> 00:26:46,639 Speaker 1: it has a knock on effect. The first knock on 468 00:26:46,720 --> 00:26:50,040 Speaker 1: effect is there simply is not enough capital in the 469 00:26:50,200 --> 00:26:54,119 Speaker 1: high yield market. High yield investors do not have that 470 00:26:54,280 --> 00:26:57,719 Speaker 1: much cash to start buying up all these fallen fallen angels, 471 00:26:57,800 --> 00:27:00,400 Speaker 1: so they're the fear is there won't be a bid. 472 00:27:01,920 --> 00:27:04,600 Speaker 1: The other knock on effect that really isn't being talked about, 473 00:27:04,640 --> 00:27:08,240 Speaker 1: which is quite dangerous, is if you are pure high yield, 474 00:27:08,640 --> 00:27:10,840 Speaker 1: if you are a B rated company or triple C 475 00:27:11,000 --> 00:27:14,960 Speaker 1: rated company. The the the debt markets, the capital debt 476 00:27:15,000 --> 00:27:19,520 Speaker 1: markets to you are going to become incredibly expensive because 477 00:27:19,560 --> 00:27:23,280 Speaker 1: the oversupply of now high yield paper is going to 478 00:27:23,359 --> 00:27:25,160 Speaker 1: make it so that if you want people to buy 479 00:27:25,280 --> 00:27:28,320 Speaker 1: your bonds, and you're going to be issuing new new bonds, 480 00:27:28,680 --> 00:27:31,640 Speaker 1: then the yields that you must um offer to them 481 00:27:31,960 --> 00:27:34,840 Speaker 1: are going to have to be incredibly attractive, and so 482 00:27:35,000 --> 00:27:38,800 Speaker 1: everything gets more expensive for companies that quite frankly are 483 00:27:38,880 --> 00:27:41,600 Speaker 1: are sort of on the sort of damocles around whether 484 00:27:41,680 --> 00:27:43,680 Speaker 1: or not they're going to make it. Where you're most 485 00:27:43,720 --> 00:27:47,240 Speaker 1: likely to see in this scenario is a domino effect 486 00:27:47,280 --> 00:27:50,920 Speaker 1: that creates that really spikes the default rates. And and 487 00:27:51,080 --> 00:27:54,880 Speaker 1: that's what you know, the the larger conversation of will 488 00:27:54,960 --> 00:27:59,119 Speaker 1: the corporate bond market due to the global economy? What 489 00:27:59,400 --> 00:28:02,399 Speaker 1: the more good markets did to the global economy in 490 00:28:02,440 --> 00:28:06,560 Speaker 1: two thousand and eight. Yeah, we've already seen a cluster 491 00:28:06,800 --> 00:28:10,080 Speaker 1: of fallen angels, including I think Kraft Heins was the 492 00:28:10,119 --> 00:28:13,959 Speaker 1: biggest one. Just on your last point, if you think 493 00:28:13,960 --> 00:28:17,200 Speaker 1: about two thou one of the problems was that home 494 00:28:17,320 --> 00:28:22,400 Speaker 1: loans or mortgages were massively levered in different ways through 495 00:28:22,480 --> 00:28:26,640 Speaker 1: different financial products like synthetic c d O s, through 496 00:28:26,680 --> 00:28:29,880 Speaker 1: the repo market, through things like that. Is there any 497 00:28:30,040 --> 00:28:33,760 Speaker 1: sign of that kind of leverage when it comes to 498 00:28:33,840 --> 00:28:36,639 Speaker 1: the corporate credit market or is the concern that the 499 00:28:36,760 --> 00:28:42,240 Speaker 1: real economy itself is now over levered visit the corporate 500 00:28:42,280 --> 00:28:46,840 Speaker 1: credit market. Yeah, that's a great question. Um. I think 501 00:28:46,920 --> 00:28:49,880 Speaker 1: that there are signs of over leverage, but they don't 502 00:28:49,920 --> 00:28:52,080 Speaker 1: look exactly like what we saw in two thousand eight. 503 00:28:52,160 --> 00:28:55,520 Speaker 1: Here's a sign if you if you look at a 504 00:28:55,600 --> 00:28:58,600 Speaker 1: lot of actually pretty healthy companies that have been issuing debt. 505 00:28:59,080 --> 00:29:01,560 Speaker 1: What they've been doing is that the yields have been 506 00:29:01,640 --> 00:29:04,120 Speaker 1: so low in the debt market. For example, a company 507 00:29:04,200 --> 00:29:06,760 Speaker 1: like Apple didn't have an outstanding bond before two thousand 508 00:29:06,840 --> 00:29:09,840 Speaker 1: eight and now has over a hundred billion and outstanding debt. 509 00:29:10,520 --> 00:29:13,480 Speaker 1: Apple doesn't need cash, but what they've been doing with 510 00:29:13,840 --> 00:29:17,760 Speaker 1: that capital, the debt capital that they've that they've borrowed, 511 00:29:18,280 --> 00:29:21,200 Speaker 1: is they've been buying back their own stock. So the 512 00:29:21,360 --> 00:29:23,640 Speaker 1: lever the leverage that you're seeing in the market is 513 00:29:24,000 --> 00:29:27,520 Speaker 1: one in which uh companies are issuing bonds using the 514 00:29:27,600 --> 00:29:30,800 Speaker 1: cash that they've gotten from those bond bond proceeds to 515 00:29:30,920 --> 00:29:33,760 Speaker 1: go and buy their own stock, which is then changing 516 00:29:33,800 --> 00:29:37,600 Speaker 1: the dynamics of financial markets. Mostly, what we've seen historically 517 00:29:37,760 --> 00:29:40,360 Speaker 1: is the stock market and the bond market moving opposite 518 00:29:40,400 --> 00:29:43,080 Speaker 1: directions of each other, and that's why having a diversified 519 00:29:43,120 --> 00:29:46,640 Speaker 1: portfolio portfolio you're hedged. What we've been seeing though, over 520 00:29:46,720 --> 00:29:49,040 Speaker 1: the past ten years is the stock market and the 521 00:29:49,080 --> 00:29:52,160 Speaker 1: bond market moving in tandem. They both have been going 522 00:29:52,360 --> 00:29:55,760 Speaker 1: up at the same time. That to me is the 523 00:29:55,840 --> 00:29:58,080 Speaker 1: sign that there's there's something wrong with the leverage in 524 00:29:58,080 --> 00:30:00,640 Speaker 1: the system, because now you actually have new heads here. 525 00:30:00,720 --> 00:30:02,400 Speaker 1: We're all high fiving each other when both the bond 526 00:30:02,440 --> 00:30:04,240 Speaker 1: market and the stock market stock market are going up 527 00:30:04,280 --> 00:30:07,160 Speaker 1: because our four one case looked great, but now what 528 00:30:07,240 --> 00:30:09,840 Speaker 1: are we seeing? Both the bond market and the stock 529 00:30:09,920 --> 00:30:12,800 Speaker 1: market are repricing. The only market that's actually gained in 530 00:30:12,880 --> 00:30:16,400 Speaker 1: value is the treasury market, which this week was the 531 00:30:16,480 --> 00:30:21,040 Speaker 1: first time ever that the entire treasury curve um had 532 00:30:21,120 --> 00:30:24,720 Speaker 1: yields lower than one percent. So we're we're an uncharted 533 00:30:24,800 --> 00:30:27,000 Speaker 1: territory here, but there's a there's a lot of evidence 534 00:30:27,040 --> 00:30:29,200 Speaker 1: of leverage over leverage. I mean, I think that the 535 00:30:29,280 --> 00:30:31,840 Speaker 1: stats I gave you on the trip will be market alone. 536 00:30:32,320 --> 00:30:35,080 Speaker 1: I think if we're if the analog between what's happening 537 00:30:35,120 --> 00:30:38,280 Speaker 1: now and the mortgage crisis is this. People point to 538 00:30:38,520 --> 00:30:42,720 Speaker 1: easy money being given to individuals who really didn't have 539 00:30:42,920 --> 00:30:45,840 Speaker 1: the credit profile to qualify for loans like the Ninja 540 00:30:45,920 --> 00:30:49,400 Speaker 1: loans and you know other mortgages that had really loose 541 00:30:49,480 --> 00:30:54,960 Speaker 1: covenants as being the start the catalyst. Well, we replace 542 00:30:55,120 --> 00:31:01,880 Speaker 1: that individual mortgage or homeowner with large corporations who have 543 00:31:02,080 --> 00:31:05,320 Speaker 1: also gotten access to easy credit, who were getting access 544 00:31:05,320 --> 00:31:09,680 Speaker 1: to credit at levels that were inappropriate for their fundamentals. 545 00:31:10,120 --> 00:31:12,920 Speaker 1: So they really can't afford to be borrowing this much money. 546 00:31:13,040 --> 00:31:15,080 Speaker 1: But as long as the credit cycle has been eased 547 00:31:15,160 --> 00:31:17,840 Speaker 1: for the past twelve years, nobody really cared. I think 548 00:31:17,920 --> 00:31:20,000 Speaker 1: now is the time to definitely care. You're going to 549 00:31:20,080 --> 00:31:25,320 Speaker 1: see some sort of material the materialization of these lax 550 00:31:25,400 --> 00:31:28,080 Speaker 1: credit standards, and it looks like it's much much bigger 551 00:31:28,120 --> 00:31:30,320 Speaker 1: than what we saw in two thousand and eight. I 552 00:31:30,480 --> 00:31:34,760 Speaker 1: was I've just gotten more depressed and stressed out throughout 553 00:31:34,800 --> 00:31:38,680 Speaker 1: this entire conversation, and then with that last line, it, uh, 554 00:31:39,040 --> 00:31:41,760 Speaker 1: it's even gotten worse. I want to ask a questions 555 00:31:41,800 --> 00:31:44,320 Speaker 1: because we we talked a lot about the fed easy 556 00:31:44,560 --> 00:31:47,560 Speaker 1: monetary policy and low rate But of course there's a 557 00:31:47,600 --> 00:31:52,320 Speaker 1: difference between rate policy and credit, and of course with 558 00:31:52,400 --> 00:31:55,960 Speaker 1: the bond, both of those are components. Did the two 559 00:31:56,120 --> 00:31:58,760 Speaker 1: necessarily go hand in hand, by which I mean okay? 560 00:31:59,040 --> 00:32:03,680 Speaker 1: Is there a way to keep credit standards stringent amid 561 00:32:03,800 --> 00:32:06,760 Speaker 1: lower rates? Or did the weakening of credit standards that 562 00:32:06,840 --> 00:32:11,040 Speaker 1: we saw, or the willingness of credit investors to take 563 00:32:11,120 --> 00:32:15,560 Speaker 1: on perhaps undue risk. Was it an inherent byproduct of 564 00:32:15,920 --> 00:32:19,880 Speaker 1: a macroeconomic policy to keep rates low and to keep 565 00:32:19,920 --> 00:32:23,200 Speaker 1: the economy growing well, Joe, not only was an inherent byproduct, 566 00:32:23,320 --> 00:32:26,600 Speaker 1: it was literally the intention of the central banks to 567 00:32:26,840 --> 00:32:31,760 Speaker 1: make investors focus on less credit worthy companies. See what 568 00:32:32,320 --> 00:32:36,080 Speaker 1: what central banking policy has basically done is they've been 569 00:32:36,280 --> 00:32:40,360 Speaker 1: the net purchasers, like big purchasers of government debt and 570 00:32:40,600 --> 00:32:45,760 Speaker 1: high quality corporate bond debt. By lowering those yields. The 571 00:32:45,880 --> 00:32:49,520 Speaker 1: knock on effect has been to lower the overall yield 572 00:32:49,640 --> 00:32:53,520 Speaker 1: environment for all bonds, whether or not their government or 573 00:32:53,680 --> 00:32:57,800 Speaker 1: highly rated corporate debt. Because if I'm a company with 574 00:32:58,120 --> 00:33:00,960 Speaker 1: you know, a lower credit rating, can take advantage of 575 00:33:01,000 --> 00:33:04,760 Speaker 1: the fact that you can't find yield anywhere else and 576 00:33:04,840 --> 00:33:09,720 Speaker 1: therefore my debt can be more expensive from an investor standpoint. 577 00:33:10,080 --> 00:33:11,719 Speaker 1: That's been going on for a long time, and if 578 00:33:11,760 --> 00:33:13,960 Speaker 1: you read what the central bank has been talking about, 579 00:33:14,280 --> 00:33:18,360 Speaker 1: they've done that to particularly stimulate the economy. The problem 580 00:33:18,600 --> 00:33:20,720 Speaker 1: though with this is there are a couple of facets 581 00:33:20,760 --> 00:33:23,080 Speaker 1: of this problem. Problem Number one, um, you do this 582 00:33:23,200 --> 00:33:26,360 Speaker 1: for a long enough time, you start to bankrupt the 583 00:33:26,720 --> 00:33:31,160 Speaker 1: people who are looking to save money and effectively live 584 00:33:31,240 --> 00:33:34,920 Speaker 1: off of their investments, because what they're what's happening is 585 00:33:35,160 --> 00:33:38,160 Speaker 1: they're not getting enough yield in exchange for the risk 586 00:33:38,240 --> 00:33:41,120 Speaker 1: that they're taking on. And eventually we get to a 587 00:33:41,200 --> 00:33:45,400 Speaker 1: moment like we are right now, where spread start blowing 588 00:33:45,440 --> 00:33:49,200 Speaker 1: out and companies where you had invested at a very 589 00:33:49,560 --> 00:33:52,520 Speaker 1: low yield are now looking like companies that could default 590 00:33:53,640 --> 00:33:55,960 Speaker 1: and you you have not been getting compensated for that. 591 00:33:56,120 --> 00:33:59,040 Speaker 1: So again it's it's sort of like this double body 592 00:33:59,160 --> 00:34:02,320 Speaker 1: blow to a lot of the the end investors that 593 00:34:02,400 --> 00:34:04,880 Speaker 1: are in the marketplace. I think that you know, there's 594 00:34:04,920 --> 00:34:07,160 Speaker 1: a lot of theory around central banking. I think a 595 00:34:07,200 --> 00:34:09,960 Speaker 1: lot of testing them things that they've done, but we 596 00:34:10,120 --> 00:34:13,800 Speaker 1: are going to see some some negative We're going to 597 00:34:13,840 --> 00:34:16,280 Speaker 1: see a negative environment that I think has been fomented 598 00:34:16,360 --> 00:34:19,359 Speaker 1: by a lot of central banking policy up to this point. 599 00:34:20,719 --> 00:34:24,240 Speaker 1: Joe and I just recorded an episode talking about US 600 00:34:24,400 --> 00:34:28,400 Speaker 1: energy and shale energy really and how it connects to 601 00:34:28,480 --> 00:34:30,880 Speaker 1: capital markets, and a lot of that reminds me of 602 00:34:31,000 --> 00:34:33,880 Speaker 1: what's happened in shale. On the one hand, the Federal 603 00:34:34,000 --> 00:34:37,399 Speaker 1: Reserve really encouraged a lot of capital to go into 604 00:34:37,440 --> 00:34:40,440 Speaker 1: the energy space because they were looking for returns, and 605 00:34:40,560 --> 00:34:44,200 Speaker 1: that was beneficial for the US economy and for employment, 606 00:34:44,440 --> 00:34:47,279 Speaker 1: as all these shale producers, you know, hired a bunch 607 00:34:47,320 --> 00:34:50,720 Speaker 1: of people. But of course now we're sort of facing 608 00:34:50,960 --> 00:34:54,440 Speaker 1: the reckoning with COVID as well as the big oil 609 00:34:54,560 --> 00:34:58,719 Speaker 1: price sell off. Chris, one more question for you. Let's 610 00:34:58,800 --> 00:35:04,279 Speaker 1: try to cheer up Joe. Uh yeah, please please? What 611 00:35:04,520 --> 00:35:08,600 Speaker 1: could stop the current strains and credit? What can stop 612 00:35:08,680 --> 00:35:11,439 Speaker 1: it from getting worse? If we're looking for a silver 613 00:35:11,640 --> 00:35:14,600 Speaker 1: silver lining with COVID nineteen, the silver lining might be 614 00:35:15,239 --> 00:35:19,400 Speaker 1: that we needed this cleansing around the debt markets in 615 00:35:19,600 --> 00:35:23,640 Speaker 1: order to get yields to normalize, and normalizing yield normalized 616 00:35:23,680 --> 00:35:27,640 Speaker 1: fields are actually very good for all end investors because 617 00:35:28,120 --> 00:35:30,880 Speaker 1: we end up having a portfolio that performs better over 618 00:35:30,920 --> 00:35:32,960 Speaker 1: the long term. In the short term, there's going to 619 00:35:33,040 --> 00:35:36,360 Speaker 1: be some pain because the mark to market value of 620 00:35:36,400 --> 00:35:38,840 Speaker 1: the bonds has gotten has gone down. But over a 621 00:35:38,880 --> 00:35:41,320 Speaker 1: longer period of time, you actually might be compensated for 622 00:35:41,360 --> 00:35:43,359 Speaker 1: taking risk, which is good for all of us who 623 00:35:43,400 --> 00:35:47,000 Speaker 1: have a long time horizon before we retire. I think 624 00:35:47,040 --> 00:35:49,800 Speaker 1: another another positive thing, and we have to, you know, 625 00:35:49,920 --> 00:35:52,920 Speaker 1: remember this because remember we're we're all old enough to 626 00:35:53,040 --> 00:35:54,520 Speaker 1: be around in two thousand and eight and think the 627 00:35:54,560 --> 00:35:58,080 Speaker 1: sky was falling. Then, you know, market dislocations like this, 628 00:35:58,440 --> 00:36:03,680 Speaker 1: real crisises, do create an environment in which innovation becomes 629 00:36:04,280 --> 00:36:07,839 Speaker 1: starts to take hold. So I actually, what I think 630 00:36:08,000 --> 00:36:09,719 Speaker 1: might be happening here might be the same thing that 631 00:36:09,840 --> 00:36:12,600 Speaker 1: was happening to the equity markets after the crash, the 632 00:36:12,640 --> 00:36:16,240 Speaker 1: flash crash of nineteen nineteen sixty two. The equity markets 633 00:36:16,239 --> 00:36:18,719 Speaker 1: had a three day flash crash in which people were 634 00:36:18,800 --> 00:36:21,279 Speaker 1: freaking out and they didn't know where prices were, and 635 00:36:21,360 --> 00:36:24,680 Speaker 1: that eventually led to the creation of central pricing systems. 636 00:36:25,320 --> 00:36:29,880 Speaker 1: So I think this, this market, especially for credit, is 637 00:36:30,320 --> 00:36:33,759 Speaker 1: finally going to change the cultural idea that not having 638 00:36:33,880 --> 00:36:37,040 Speaker 1: information is the best thing for trading. And what we 639 00:36:37,160 --> 00:36:39,840 Speaker 1: may see at the end of this is people actually 640 00:36:39,880 --> 00:36:42,880 Speaker 1: stepping into the idea that maybe it's a good idea 641 00:36:42,960 --> 00:36:45,240 Speaker 1: that we actually know where all the bids and offers 642 00:36:45,280 --> 00:36:49,640 Speaker 1: are before we start making multimillion dollar trading decisions. And 643 00:36:49,719 --> 00:36:54,080 Speaker 1: the net result of that, Joe and Tracy is the 644 00:36:54,680 --> 00:36:58,000 Speaker 1: end investor getting better treatment in the bond market than 645 00:36:58,000 --> 00:37:01,400 Speaker 1: they've ever gotten before. And that always a positive when 646 00:37:01,480 --> 00:37:05,600 Speaker 1: we're looking at the the just the overall global economic 647 00:37:05,680 --> 00:37:11,200 Speaker 1: outlook for individuals. I guess that's something I tried, Joe. 648 00:37:11,320 --> 00:37:13,920 Speaker 1: I tried to thank Yeah, you're trying. Thank thank you, 649 00:37:14,200 --> 00:37:18,040 Speaker 1: thank you for trying. Okay, Um, Chris, we're going to 650 00:37:18,160 --> 00:37:21,760 Speaker 1: leave it there. That's Chris White, CEO of Viable Markets. 651 00:37:21,920 --> 00:37:24,919 Speaker 1: Thank you so much for coming on yet again. Really 652 00:37:24,960 --> 00:37:28,080 Speaker 1: appreciate it. Thanks so much, guys. It's it's always wonderful 653 00:37:28,120 --> 00:37:29,800 Speaker 1: talking to you. I wish it was something to be 654 00:37:29,960 --> 00:37:33,000 Speaker 1: cheerier about. But I do think that a better day 655 00:37:33,040 --> 00:37:36,480 Speaker 1: is coming when the bond market actually embraces transparency. Um 656 00:37:36,800 --> 00:37:39,320 Speaker 1: and and hopefully I'll be on your podcast again to 657 00:37:39,400 --> 00:37:51,759 Speaker 1: talk about that. Looking important to that. Thanks Chris, so Joe. 658 00:37:52,080 --> 00:37:54,600 Speaker 1: I love how Chris tried at the end to bring 659 00:37:54,719 --> 00:37:57,359 Speaker 1: that silver lining. But the other reason I really enjoy 660 00:37:57,440 --> 00:38:00,839 Speaker 1: speaking with him is because he's so good at describing 661 00:38:00,920 --> 00:38:04,360 Speaker 1: the differences between the stock market and the credit market, 662 00:38:04,440 --> 00:38:07,920 Speaker 1: but also talking a lot about how they interact. And 663 00:38:08,040 --> 00:38:11,799 Speaker 1: I do think an underappreciated aspect of the bull run 664 00:38:12,160 --> 00:38:15,160 Speaker 1: in equities over the past few years has been just 665 00:38:15,360 --> 00:38:20,359 Speaker 1: how much it has been supported by corporate credit. Yes, 666 00:38:20,560 --> 00:38:24,040 Speaker 1: thinking about where the leverage has migrated to, I mean, 667 00:38:24,160 --> 00:38:27,360 Speaker 1: it does seem like, you know, banks are in a 668 00:38:27,560 --> 00:38:31,680 Speaker 1: healthier situation to some extent that they were prior to 669 00:38:31,719 --> 00:38:37,000 Speaker 1: the crisis. Households, uh, not leveraged to the same degree 670 00:38:37,719 --> 00:38:40,440 Speaker 1: that they were pre crisis, especially their own leverage to 671 00:38:40,560 --> 00:38:45,920 Speaker 1: their literal home. But obviously, this sort of emergence of 672 00:38:45,960 --> 00:38:50,680 Speaker 1: a giant boom in corporate credit has always been vulnerable 673 00:38:50,920 --> 00:38:56,240 Speaker 1: to a serious downturn in the economy. And because serious 674 00:38:56,360 --> 00:38:59,799 Speaker 1: sustained downturns in which people don't know when they're going 675 00:38:59,840 --> 00:39:03,000 Speaker 1: to and such as this inherently puts at risk the 676 00:39:03,080 --> 00:39:05,680 Speaker 1: question of is Chris put it, do we believe that 677 00:39:05,760 --> 00:39:08,040 Speaker 1: these companies will be able to pay back their debts? 678 00:39:08,760 --> 00:39:12,400 Speaker 1: And uh, that is coming under quite some strain right now. 679 00:39:12,440 --> 00:39:16,200 Speaker 1: That yeah, and on that point, The coronavirus outbreak is 680 00:39:16,400 --> 00:39:19,640 Speaker 1: so dangerous for a lot of these companies because it 681 00:39:19,840 --> 00:39:21,759 Speaker 1: basically means that some of them are going to get 682 00:39:22,239 --> 00:39:25,439 Speaker 1: their cash flows cut off for as Chris was saying, 683 00:39:25,600 --> 00:39:29,000 Speaker 1: an unknown period of time. Many of them might still 684 00:39:29,160 --> 00:39:33,479 Speaker 1: have to pay out salaries and other expenses in that time, 685 00:39:33,600 --> 00:39:36,839 Speaker 1: and so you really have this big hit to earnings. 686 00:39:37,160 --> 00:39:40,480 Speaker 1: Combined with all the technical factors of what's going on 687 00:39:40,719 --> 00:39:44,400 Speaker 1: in the market, sell off very very painful when it 688 00:39:44,480 --> 00:39:47,680 Speaker 1: comes to corporate credit. Um, I'm worried. I'm going to 689 00:39:47,840 --> 00:39:50,719 Speaker 1: depress you again. When Chris tried to end it on 690 00:39:50,840 --> 00:39:55,719 Speaker 1: an optimistic note, Oh what's the optimistic note? Oh, well, 691 00:39:55,960 --> 00:39:59,840 Speaker 1: that we could get a repricing in credit and investors 692 00:40:00,080 --> 00:40:03,560 Speaker 1: could maybe be better compensated for the risks that they're 693 00:40:03,600 --> 00:40:06,200 Speaker 1: actually taking on, and that could be better over the 694 00:40:06,280 --> 00:40:11,319 Speaker 1: long term. That was his argument. Oh yeah, I mean, 695 00:40:11,400 --> 00:40:14,560 Speaker 1: I yeah, I know it's important. I'm just you're like, no, 696 00:40:14,680 --> 00:40:18,800 Speaker 1: I'd rather not have coronavirus. Yeah, yeah, that's yeah, that 697 00:40:18,920 --> 00:40:22,840 Speaker 1: makes sense. Okay. This has been another episode of the 698 00:40:23,000 --> 00:40:25,880 Speaker 1: All Thoughts podcast. I'm Tracy Alloway. You can follow me 699 00:40:26,000 --> 00:40:29,920 Speaker 1: on Twitter at Tracy Alloway and I'm Joe. Why Isn't Thal? 700 00:40:30,040 --> 00:40:33,279 Speaker 1: You can follow me on Twitter at the Stalwart, and 701 00:40:33,440 --> 00:40:36,640 Speaker 1: you should follow our guest on Twitter, Chris White, under 702 00:40:36,800 --> 00:40:40,800 Speaker 1: his company's handle Viable Markets. It's actually at Viable m 703 00:40:40,960 --> 00:40:44,960 Speaker 1: k t s. And you should follow our producer on Twitter, 704 00:40:45,200 --> 00:40:49,200 Speaker 1: Laura Carlson. She's at Laura M. Carlson. Follow the Bloomberg 705 00:40:49,280 --> 00:40:53,080 Speaker 1: head of podcast on Twitter, Francesca Levi at Francesca Today, 706 00:40:53,160 --> 00:40:56,000 Speaker 1: and check out all of our podcasts under the handle 707 00:40:56,400 --> 00:41:08,239 Speaker 1: at podcasts. Thanks for listening to