WEBVTT - Buy The Dip Is Dead 0:00:14.160 --> 0:00:17.320 Hello, and welcome to What Goes Up, a Bloomberg weekly 0:00:17.400 --> 0:00:20.840 market podcast. I'm Sara pan Zack, or reporter on the 0:00:20.840 --> 0:00:23.840 Cross Asset team, and I'm Mike Reagan, a senior editor 0:00:23.880 --> 0:00:27.040 on the Markets team. This week on the show, maybe 0:00:27.120 --> 0:00:29.560 it's just me, but this week has felt like a month. 0:00:30.080 --> 0:00:32.800 Stock swings of at least five have become the norm, 0:00:32.880 --> 0:00:36.040 with trading halts going off left and right, bonds aren't 0:00:36.080 --> 0:00:39.920 necessarily providing the hedge that they should, and liquidity is 0:00:39.960 --> 0:00:45.160 being called into question. It's not just you, Sarah. Okay, 0:00:45.200 --> 0:00:48.360 that's good to know. I've got to say I'm exhausted, 0:00:48.400 --> 0:00:50.239 and I think we all are. I will say very 0:00:50.280 --> 0:00:52.560 often it is just you, I think in this case, 0:00:53.000 --> 0:00:54.600 in this case, it's not just you. I think. The 0:00:54.640 --> 0:00:56.600 craziest thing I saw in markets, I'm just gonna get 0:00:56.600 --> 0:00:59.120 it out of the way, was everything this week. It 0:00:59.200 --> 0:01:02.600 was just there's no avoiding it. But I have to 0:01:02.680 --> 0:01:05.720 give an extra special thank you to our guests this 0:01:05.760 --> 0:01:08.640 week for actually making it out into the world during 0:01:08.680 --> 0:01:12.040 this uh, this craziness we're saying and showing up today 0:01:12.080 --> 0:01:15.920 for the podcast. Returning to the show, Lauren Goodwin. She's 0:01:15.920 --> 0:01:19.320 an economist and multi asset portfolio strategist at New York 0:01:19.360 --> 0:01:23.000 Life Investments, Lauren. If I sneeze, it's allergies. I swear 0:01:23.040 --> 0:01:26.240 to God, you know what, My allergies are really bad. 0:01:27.280 --> 0:01:29.039 Every time I have a little tickle in my throat. 0:01:29.080 --> 0:01:33.560 I'm worried about the social ramifications of clearing Well. No, seriously, 0:01:33.600 --> 0:01:35.400 you have to you have to think about if this 0:01:35.440 --> 0:01:38.399 starts running into hay fever season. I mean, God help 0:01:38.480 --> 0:01:42.160 us all. So you get judged on the side of 0:01:42.160 --> 0:01:44.880 the straight now, if you sneeze, if you just look 0:01:44.920 --> 0:01:49.440 a little bit off, people are judging. Yes, I'm judging 0:01:49.480 --> 0:01:51.280 you right now, Sarah, I'm judging everyone. You're all a 0:01:51.280 --> 0:01:54.280 little suspicious to me. Every microphone I sit in front 0:01:54.320 --> 0:01:55.920 of them like, wait a minute, who is that this? 0:01:56.000 --> 0:02:00.600 Before but also joining us on the show, first time 0:02:00.640 --> 0:02:04.480 guest on the show, market Live's own Creaty Goopta Creaty. 0:02:04.480 --> 0:02:07.520 Welcome to the show. Thanks for having me. So you're welcome. 0:02:08.040 --> 0:02:11.359 Learn Let's start with you. Um now, you're a strategist 0:02:11.400 --> 0:02:14.679 and an economist. I feel like the big question is 0:02:14.680 --> 0:02:17.040 is a recession pretty much inevitable right now? I mean, 0:02:17.080 --> 0:02:20.440 is it a done deal by now? Yeah? I think 0:02:20.520 --> 0:02:23.880 so um there, it's it's interesting the way that you 0:02:23.919 --> 0:02:27.120 put it. You're a strategist and an economist, but there's 0:02:27.160 --> 0:02:32.520 no economy and no strategy to work with right now exactly. Yeah. 0:02:32.560 --> 0:02:35.680 You know, look, um, I think that, Um. One of 0:02:35.680 --> 0:02:38.480 the really really interesting things, Um, if we can take 0:02:38.480 --> 0:02:41.520 a step back from everything that's happening right now, is 0:02:41.720 --> 0:02:46.359 just how unreliable signal economic data is going to give 0:02:46.400 --> 0:02:50.280 us upcoming. So recession, no recession, I mean, look around, 0:02:50.480 --> 0:02:54.040 it's it's death. It feels almost certain that we will 0:02:54.080 --> 0:02:58.000 have recession or recession like circumstances here in the US, 0:02:58.200 --> 0:03:00.880 and even if they're transitory, they could they could be 0:03:01.000 --> 0:03:03.799 quite severe. What's going to be really interesting is we're 0:03:03.800 --> 0:03:05.800 not going to be able to tell what the official 0:03:05.840 --> 0:03:07.720 read on that is. I mean, you look at the 0:03:07.720 --> 0:03:10.560 economic data that's come in the amazing jobs report for 0:03:10.560 --> 0:03:13.760 example last week. Who cares it was before the virus. 0:03:13.800 --> 0:03:17.040 But also if you can think to the other side 0:03:17.080 --> 0:03:19.240 of this, because we will come to the other side eventually, 0:03:20.040 --> 0:03:23.680 we're not going to trust bad data because it was oh, 0:03:23.760 --> 0:03:26.519 you know, from before things got better, and we might 0:03:26.560 --> 0:03:30.360 get you know, a really brief, nice big bang of 0:03:30.639 --> 0:03:33.200 pent up demand, but no one will trust that either, 0:03:33.240 --> 0:03:34.840 because it's just the pent up demand. So I think 0:03:34.840 --> 0:03:36.880 it's going to be a year before we get a 0:03:36.880 --> 0:03:40.040 reliable signal from economic data. Doesn't mean that we won't 0:03:40.080 --> 0:03:44.280 still have useful clues. Um, But recession, no recession. I mean, 0:03:44.360 --> 0:03:47.120 the biggest indicator I'm using right now is my eyes 0:03:47.640 --> 0:03:50.840 looking what's going on. And I'll give you a statistic. 0:03:51.200 --> 0:03:53.600 This week, we put out a story, um, and it's 0:03:53.640 --> 0:03:56.880 just some food for thought. Since the SMP five hundreds inception, 0:03:57.280 --> 0:03:59.920 there have been thirteen bear markets, So thirteen times when 0:03:59.920 --> 0:04:02.960 we fell from a record too below as we have 0:04:03.240 --> 0:04:07.200 this week, and and only two of those experiences did 0:04:07.240 --> 0:04:11.240 a recession not come after. Um. So sure markets sell off, 0:04:11.280 --> 0:04:13.360 we get corrections a lot, but it's pretty rare to 0:04:13.400 --> 0:04:17.160 actually get this bear market and na see a recession. 0:04:17.200 --> 0:04:19.279 And with that, Lauren, I saw in your notes that 0:04:19.320 --> 0:04:21.719 you sent over to us, you had a line and 0:04:21.760 --> 0:04:24.120 you said, by the dip is dead. And it sure 0:04:24.160 --> 0:04:27.680 feels that way. Um, We've just had day after day 0:04:27.880 --> 0:04:30.760 of extreme pressure. But but why do you say that 0:04:30.839 --> 0:04:32.880 and why do you think we feel that way right now? 0:04:34.200 --> 0:04:39.080 I think that one of the really really interesting developments 0:04:39.080 --> 0:04:42.800 in markets right now is um or changes perhaps is 0:04:42.920 --> 0:04:45.279 just in the last ten years we've gotten really used 0:04:45.279 --> 0:04:46.960 to buy the dip, just the idea that if you 0:04:47.000 --> 0:04:50.560 had a really bad week, UM, that there was always 0:04:50.560 --> 0:04:53.119 a reason to think positively as long as things weren't 0:04:53.160 --> 0:04:56.280 going really really badly. Right, We've had monetary policy almost 0:04:56.279 --> 0:05:01.680 always stepping in when we've hit roadblocks, UM mid cycle slowdowns, 0:05:01.680 --> 0:05:06.159 we can always justify markets moving down. Meanwhile, over the 0:05:06.160 --> 0:05:09.680 course of that ten years, profit conditions have been decelerating, 0:05:09.680 --> 0:05:13.960 if not deteriorating. We are late cycle, and so when 0:05:14.000 --> 0:05:16.400 I'm looking at you know, let's say three weeks ago, 0:05:16.839 --> 0:05:19.560 valuations are really high. All these late cycle dynamics are 0:05:19.560 --> 0:05:23.760 in play. We've been defensively positioned in our portfolio for 0:05:23.800 --> 0:05:26.360 six months saying, look, it's probably worth it even if 0:05:26.360 --> 0:05:29.080 we're a year early, because at some point we'll get 0:05:29.080 --> 0:05:31.920 a catalyst. I did not know that coronavirus was going 0:05:31.960 --> 0:05:35.920 to be the catalyst, but I'm not I'm not a 0:05:35.960 --> 0:05:40.640 buyer until I see a real reason for durable upside, 0:05:41.040 --> 0:05:44.880 and you know, case volumes still rising, UM credit markets 0:05:44.880 --> 0:05:49.440 still figuring this out. I don't that catalyst will certainly come, 0:05:49.600 --> 0:05:52.480 but it's it's not right now. Well, it was fascinating 0:05:52.640 --> 0:05:56.880 on Thursday. UM, you know, so much stress has been 0:05:56.920 --> 0:06:00.760 centered in the dollar funding markets UM, as well as 0:06:00.800 --> 0:06:02.919 the credit markets. But but really a lot of stress 0:06:02.960 --> 0:06:05.920 in the in the dollar uh you know cruss uh 0:06:06.120 --> 0:06:08.920 currency basis swap type of thing which don't ask me 0:06:08.960 --> 0:06:11.039 to even explain them, but I know there's stress there. 0:06:11.040 --> 0:06:13.599 I can't I've I've have it on good authority that 0:06:13.640 --> 0:06:15.600 they're stressed there, even though I can't quite explain it. 0:06:16.160 --> 0:06:18.039 And then you see the FED come out with really 0:06:18.080 --> 0:06:21.960 this surprise bazooka, a five hundred billion dollars worth of 0:06:22.240 --> 0:06:28.160 REPO operations UM effective the same day and spread out 0:06:28.200 --> 0:06:30.920 across the curve. So we can finally put that is 0:06:30.960 --> 0:06:32.960 a QI or is it not QI? Debates sort of 0:06:32.960 --> 0:06:35.279 a bed. I mean, I think this is much more 0:06:35.360 --> 0:06:37.680 like QUI than than what they're doing before. And you 0:06:37.720 --> 0:06:39.600 did see a pop in the smp F. I found 0:06:39.600 --> 0:06:41.560 it was like six percent off the lows, but then 0:06:41.600 --> 0:06:44.800 immediately for ten minutes ten minutes, and then you see 0:06:45.200 --> 0:06:49.080 headlines from Italy with a dramatic increases of cases and 0:06:49.160 --> 0:06:52.640 deaths and and right back down and I you know, 0:06:53.040 --> 0:06:54.839 I feel like the government in some ways, that the 0:06:54.880 --> 0:06:57.520 FED at least is getting a bad rap because there's 0:06:57.520 --> 0:06:59.360 only so much they can do. I mean, you can't 0:06:59.600 --> 0:07:02.840 repair this economic damage with monetary policy right now. I mean, 0:07:02.880 --> 0:07:05.640 is there you know, and and and the same as 0:07:05.680 --> 0:07:07.760 to some degree I think true of the federal government. 0:07:07.800 --> 0:07:09.680 I mean, they're going to throw everything they can at it, 0:07:09.760 --> 0:07:14.559 presumably that we have this really dysfunctional political situation which 0:07:14.840 --> 0:07:20.120 might make that impossible. I mean, it's just all hope 0:07:20.160 --> 0:07:22.920 loss basically as far as the putting a floor under 0:07:23.440 --> 0:07:29.080 equities with either monetary or fiscal policy, no, no, no, Um, 0:07:29.120 --> 0:07:31.280 it might feel that way for another few weeks. And 0:07:31.320 --> 0:07:33.160 I think that what we will get in the next 0:07:33.160 --> 0:07:36.720 few weeks is exactly what you're describing policy and and 0:07:36.720 --> 0:07:40.320 and hopefully in certain cases, really good policy, coordinated policy 0:07:40.680 --> 0:07:44.400 will reach the market in a way that is positive. 0:07:44.800 --> 0:07:48.160 And until we see geographic spread and case members of 0:07:48.160 --> 0:07:50.960 this virus decline, it just won't meet anything. And I 0:07:50.960 --> 0:07:53.720 think we actually need both of those things, um to 0:07:53.840 --> 0:07:56.600 go right to start to put a floor. And again, 0:07:56.600 --> 0:07:58.800 I think it will take a couple of weeks, if 0:07:58.840 --> 0:08:00.960 not longer, but but we will. We will get there. 0:08:00.960 --> 0:08:03.160 All hope is not lost in the short term though. 0:08:03.160 --> 0:08:06.640 We're playing this market very tactically. Um. It's interesting someone 0:08:06.720 --> 0:08:09.800 asked me earlier today, you know what's if you're talking 0:08:09.840 --> 0:08:12.200 to a long term investor, what do you tell them? 0:08:12.200 --> 0:08:15.200 And it's just honker down. You know, you gotta you 0:08:15.200 --> 0:08:16.720 have to take what you got, and what we have 0:08:16.840 --> 0:08:18.960 for now is is going to be these ebbs and flows, 0:08:18.960 --> 0:08:21.600 and if you're getting eight percent swings within a day, 0:08:22.160 --> 0:08:24.640 that's that's what you have to work with. Now. When 0:08:24.680 --> 0:08:29.280 we do see that decline in case volume, declining, geographic 0:08:29.320 --> 0:08:33.520 spread and policy that's meant to sustain that positive outcome, 0:08:33.920 --> 0:08:35.800 that's when we're we'll get back into the markets, but 0:08:35.840 --> 0:08:38.400 it'll probably still be in a really targeted way, looking 0:08:38.400 --> 0:08:41.640 at cyclicals for example, to to capture that upside, and 0:08:41.679 --> 0:08:44.160 it might not last long. We're just there's so much 0:08:44.240 --> 0:08:47.079 uncertainty around every element of this market that you've got 0:08:47.080 --> 0:08:49.839 to play a day by day. Yeah, everyone's already wondering, well, 0:08:49.880 --> 0:08:51.720 maybe it will subside a little bit in the summer, 0:08:51.760 --> 0:08:53.679 but then you have to worry about a reoccurrence in 0:08:53.720 --> 0:09:13.439 the fall. I guess obviously, you know, events last weekend 0:09:14.000 --> 0:09:16.880 really accelerated this sell off as far as the this 0:09:17.000 --> 0:09:19.960 oil price war that we've seen. Um, you know, Saudi 0:09:20.000 --> 0:09:23.079 Arabia came out over the weekend and drastically lowered their 0:09:23.120 --> 0:09:27.080 selling prices, said they were gonna, you know, pump a 0:09:27.120 --> 0:09:30.559 tremendous amount of oil. Russia kind of responding, Uh, curty, 0:09:30.600 --> 0:09:32.080 I wanted to ask you about the center you you 0:09:32.080 --> 0:09:34.480 follow this pretty closely. I mean, to me, this feels 0:09:34.559 --> 0:09:39.959 like a game of chicken between Saudi Arabia and Russia. Um, 0:09:40.320 --> 0:09:42.320 is that a good way to look at it? And 0:09:42.679 --> 0:09:44.319 I gotta say, you know, as we get near the 0:09:44.360 --> 0:09:46.520 end of the week here, it doesn't seem like anyone's blinking. 0:09:46.559 --> 0:09:50.920 I mean, is there any sign of when this you know, 0:09:51.320 --> 0:09:56.240 tremendous price war in oil could sort of end. Well, 0:09:56.400 --> 0:09:58.520 this has happened before, and that's what you really need 0:09:58.559 --> 0:10:00.640 to keep in mind here when you're talking about time 0:10:00.679 --> 0:10:05.240 frame and the sort of thing. Looking back, when we 0:10:05.240 --> 0:10:07.440 saw the U S. Shail market really boom, and and 0:10:07.520 --> 0:10:11.400 these players overseas face the same fears and have to 0:10:11.440 --> 0:10:13.520 go and try to flood the market and then cut 0:10:13.559 --> 0:10:15.400 once again to try to eliminate these players. So I 0:10:15.400 --> 0:10:17.400 would look to history for that. As far as the 0:10:17.440 --> 0:10:19.560 time frame goes, it doesn't look like this is going 0:10:19.600 --> 0:10:22.800 to end anytime soon. Once again, this is that second 0:10:22.840 --> 0:10:25.240 punch in the one to punch we saw for markets 0:10:25.280 --> 0:10:28.120 this week. This is really a key as we're going 0:10:28.160 --> 0:10:31.560 into just kind of an already recessionary period, already seeing 0:10:31.600 --> 0:10:35.280 a demand really drop anyways, and to see this price 0:10:35.280 --> 0:10:37.480 war potentially last for two or three months, which is 0:10:37.480 --> 0:10:39.880 what I'm hearing from strategist and traders, that could change 0:10:39.880 --> 0:10:41.839 the game. And it seems like, you know that, as 0:10:41.880 --> 0:10:43.560 you say, the show patch in the US is just 0:10:43.600 --> 0:10:46.720 caught in the middle. Um, it doesn't seem like there's 0:10:46.760 --> 0:10:49.160 anything they can do to punch back. I mean even 0:10:49.240 --> 0:10:53.000 President Trump politically, Uh, you know, he's got so much 0:10:53.000 --> 0:10:55.680 else on his plate that how can he push back 0:10:55.720 --> 0:10:58.000 at at both Russian and Saudi Arabia. Just seems like, 0:10:58.400 --> 0:11:01.600 you know, asking too much, even from someone like him 0:11:01.640 --> 0:11:04.040 who's not afraid to mix it up geo politically, right, 0:11:04.040 --> 0:11:06.120 And when we were seeing these headlines, I believe this 0:11:06.200 --> 0:11:09.360 really Our colleague Xavier Blasso around the Energy team actually 0:11:09.360 --> 0:11:11.280 tweeted this out and said that the real start of 0:11:11.320 --> 0:11:14.320 this price war was when Energy Minister Novak walked out 0:11:14.320 --> 0:11:17.320 of the OPEC meeting and said all OPEC producers are 0:11:17.320 --> 0:11:19.440 free to pump at will starting April first. I was 0:11:19.480 --> 0:11:22.400 really when all this sparked, really angered the saudis UH 0:11:22.440 --> 0:11:25.360 And the original reasoning for all of this was to 0:11:25.400 --> 0:11:28.839 attack the U S shale market, which has anyway kind 0:11:28.840 --> 0:11:31.800 of threatened market share and certainly threatened prices as well. 0:11:32.320 --> 0:11:35.320 So what we're seeing here is not just a term 0:11:35.440 --> 0:11:37.440 of kind of we need to flush out the US 0:11:37.480 --> 0:11:39.839 policy market, but there are geopolitics that play in the U. S. 0:11:39.920 --> 0:11:41.520 Is still very much a part of it. When those 0:11:41.520 --> 0:11:44.920 headlines came out, we were expecting a policy response from 0:11:45.120 --> 0:11:48.440 the US and and we didn't get much. Lauren, what's 0:11:48.480 --> 0:11:50.960 the effect of this oil price shock actually on the 0:11:51.000 --> 0:11:53.679 stock market and on the economy, Because sure, we had 0:11:53.840 --> 0:11:57.079 the worst day in the oil market since go for 0:11:57.480 --> 0:12:00.520 But then you think about energy companies a share of 0:12:00.520 --> 0:12:02.840 the SMP five hundred being at a record low around 0:12:02.880 --> 0:12:06.040 three per cent or so. But also at the same time, 0:12:06.240 --> 0:12:08.959 does don't oil companies make up a pretty large amount 0:12:09.000 --> 0:12:11.760 of capex spending? Like, how do you think about filtering 0:12:11.760 --> 0:12:15.600 with oil price shock into examining not just the equity markets, 0:12:15.600 --> 0:12:17.959 but also the economy at large. Well, we'll start with 0:12:18.000 --> 0:12:20.440 the economy. This is a net negative for the U 0:12:20.520 --> 0:12:23.760 S economy period um. I think normally, when you think 0:12:23.800 --> 0:12:27.160 about oil prices falling, you think about boost to the 0:12:27.160 --> 0:12:29.840 consumer through lower gas prices, especially in the in the 0:12:29.920 --> 0:12:34.000 U S where lots of people drive. But right now, 0:12:34.080 --> 0:12:37.880 when economic activity is already under stress from the virus, 0:12:38.120 --> 0:12:40.760 that positive impact can't really make its way through the 0:12:40.760 --> 0:12:42.480 way it normally would. If if half of us aren't 0:12:42.480 --> 0:12:44.880 going to work, then you're you don't get that benefit, 0:12:45.200 --> 0:12:47.160 if you don't have a job, then you then that 0:12:47.240 --> 0:12:49.960 that's just just such a small impact relative to some 0:12:50.000 --> 0:12:53.560 of the bigger picture things going on. Meanwhile, as you're mentioning, 0:12:53.600 --> 0:12:58.040 we have the energy sector under stress, especially energy services. 0:12:58.559 --> 0:13:02.520 You and and this, as you mentioned, is such a 0:13:02.559 --> 0:13:05.040 sector that's already taken such a beating. You know that 0:13:05.280 --> 0:13:08.160 of of everyone that was struggling before, this energy has 0:13:08.200 --> 0:13:11.200 had has such had such a hard couple of years. 0:13:11.559 --> 0:13:14.400 You don't have the business capex, you have the drag 0:13:14.520 --> 0:13:18.160 on confidence, and you have this depends on the day 0:13:18.200 --> 0:13:22.480 but seeming correlation and assets being drawn down that makes 0:13:22.520 --> 0:13:25.000 the equity market sell offs feel so much worse. It 0:13:25.360 --> 0:13:29.440 just to me seems like a clear indicator that we 0:13:29.520 --> 0:13:32.319 won't have the rebound in Q three that people were 0:13:32.360 --> 0:13:36.160 hoping for, even if the virus does improve a little bit. Yeah, 0:13:36.160 --> 0:13:37.840 I wanted to ask you about that. That's sort of 0:13:38.559 --> 0:13:41.240 odd correlations that we're saying. You know, there's some points 0:13:41.320 --> 0:13:44.600 during this week where you know, treasure yields actually started 0:13:44.679 --> 0:13:47.880 rising off the lows. Gold has been really hit hard. 0:13:48.400 --> 0:13:51.760 I mean, I guess the sort of easy way to 0:13:51.760 --> 0:13:55.360 to theorize about it is that again it's that dollar 0:13:55.559 --> 0:14:00.320 funding stress. There's margin calls being made. That's sort of thing. 0:14:00.320 --> 0:14:02.280 I mean, is it that simple? Do you think? You know? 0:14:02.320 --> 0:14:04.840 Because it really, in a way it feels like markets 0:14:04.880 --> 0:14:08.440 just aren't functioning the way they should be. I think 0:14:08.480 --> 0:14:12.719 it could be that simple. Hindsight will be on this one. 0:14:12.840 --> 0:14:15.320 I mean, there's there's there's a lot going on. I 0:14:15.360 --> 0:14:19.120 think not all of these we talk about cross currents 0:14:19.160 --> 0:14:21.760 such strong cross currents. Not everything is going to be 0:14:21.800 --> 0:14:23.960 a one to one. But you have fear, which is 0:14:24.120 --> 0:14:26.840 of course a big sell off. I think you probably 0:14:26.840 --> 0:14:31.760 do have some financial deleveraging where investment companies that are 0:14:31.840 --> 0:14:35.920 under stress or trying to make sales without making a 0:14:35.920 --> 0:14:38.240 big deal of things. And and so you're seeing some 0:14:38.840 --> 0:14:43.560 of what would normally be uncorrelated assets all moved down together. Um. 0:14:43.760 --> 0:14:46.800 But but for example, in the Wednesday of this week, 0:14:46.840 --> 0:14:48.760 that was very much the case, like the only things 0:14:48.840 --> 0:14:52.160 that did. Okay, we're orange juice, you know, in terms 0:14:52.200 --> 0:14:55.240 of financial assets, um, other days there has been a 0:14:55.280 --> 0:14:58.040 little bit more of what we would call normal market 0:14:58.040 --> 0:15:02.320 activityor normal risk off behavior. I don't know. To me, 0:15:02.400 --> 0:15:05.000 it seems that that financial de leveraging piece has to 0:15:05.000 --> 0:15:07.080 be a part of the story, otherwise we would see 0:15:07.120 --> 0:15:10.640 something consistent across these days. Orange juice, baby vitamin C is. 0:15:10.640 --> 0:15:16.640 The other one was CoCom which, yeah, maybe you're hungering 0:15:16.640 --> 0:15:21.480 down and need to feel better, so pretty I'm curious, 0:15:21.640 --> 0:15:23.720 is you know, you read a lot of the research 0:15:23.760 --> 0:15:27.080 and the news in the oil patch. Is anyone predicting 0:15:27.120 --> 0:15:29.560 sort of what the bottom in oil prices will be 0:15:30.000 --> 0:15:32.200 or you know, I know a lot depends on where 0:15:32.280 --> 0:15:35.120 what the sort of break even prices for the Saudi 0:15:35.600 --> 0:15:38.480 government's budget and the Russian government's budget. I mean, can 0:15:38.520 --> 0:15:41.720 we depend on those sort of break even levels of 0:15:41.760 --> 0:15:44.480 the budget to act as a floor. So we've dropped 0:15:44.560 --> 0:15:46.720 way past those. And what's key here to note is 0:15:46.760 --> 0:15:49.080 that the Saudis have been really struggling with this and 0:15:49.160 --> 0:15:51.200 why this is why they were trying to bring the 0:15:51.280 --> 0:15:53.800 Russians and and other OPEC members really to the table here, 0:15:53.840 --> 0:15:56.720 because they need that eighty dollar price level to just 0:15:56.840 --> 0:15:59.360 balance their budget. Uh and then of course for their 0:15:59.520 --> 0:16:01.440 RAMCO uh I p O as well, that's a big 0:16:01.480 --> 0:16:04.320 part of the story. The Russians can have a little 0:16:04.320 --> 0:16:06.280 bit more room to play with here because forty is 0:16:06.280 --> 0:16:08.600 their price limit, forty to forty two, depending on how 0:16:08.600 --> 0:16:11.960 you calculate. For U shale producers, that number before we 0:16:12.040 --> 0:16:14.480 hit bankruptcy. And I remember the U S shale patch 0:16:14.600 --> 0:16:17.800 is a private kind of sector, not necessarily a state 0:16:17.840 --> 0:16:20.120 owned one. Uh So when you're looking at the U 0:16:20.120 --> 0:16:23.960 S shale sector, those numbers were forty fifty, were way 0:16:24.000 --> 0:16:25.960 past them. And now the strategists and the traders I'm 0:16:26.000 --> 0:16:27.600 talking to her saying it could go down as low 0:16:27.640 --> 0:16:30.040 as ten dollars a barrel, which really puts all three 0:16:30.080 --> 0:16:33.200 players in troubles. So it's a matter of everyone's feeling pain. 0:16:33.280 --> 0:16:36.000 It's just who can who can who who kind of 0:16:36.360 --> 0:16:40.120 calls for mercy first? Right, right? Honestly, the only saving 0:16:40.440 --> 0:16:42.360 grace that I see in what's going on in the 0:16:42.360 --> 0:16:45.880 oil sector is that because we've experienced this rapid decline 0:16:45.880 --> 0:16:48.240 in oil prices so recently, you know, it's only been 0:16:48.280 --> 0:16:50.440 three or four years since we were experiencing this, we've 0:16:50.440 --> 0:16:53.440 tested these levels a little bit. We know that shale 0:16:53.560 --> 0:16:56.480 really starts to hurt before forty below forty five dollars barrel. 0:16:56.480 --> 0:16:58.240 It's not everybody. The range for u S show is 0:16:58.240 --> 0:17:00.840 really right. It's like between seven and eighty or something 0:17:00.880 --> 0:17:04.119 where companies are solvent, but at forty five level is 0:17:04.359 --> 0:17:07.840 really sensitive. We also know which countries start to really hurt, 0:17:08.119 --> 0:17:11.880 and so I think, while that's not good news that 0:17:12.000 --> 0:17:15.760 those dynamics are coming up again, it is a slightly 0:17:15.840 --> 0:17:19.840 more known unknown than the virus. I think if we 0:17:19.840 --> 0:17:22.400 were experiencing this for the first time like we did 0:17:22.400 --> 0:17:25.439 through or four years ago, our first times of recent memory, 0:17:25.760 --> 0:17:28.520 this would this would be even feel even more pandemic 0:17:28.560 --> 0:17:31.679 pandemonium than it does right now. And then before we 0:17:31.720 --> 0:17:33.280 get to the craziest thing, I have to ask you, 0:17:33.359 --> 0:17:35.800 Lauren about the credit markets, because it did feel like 0:17:35.840 --> 0:17:38.800 that was where we really saw a large change this week. 0:17:38.840 --> 0:17:41.640 I mean you think of Boeing drawing down a full 0:17:41.680 --> 0:17:43.880 amount of its thirteen point eight billion dollar credit line, 0:17:43.960 --> 0:17:45.960 Hilton drawing down its credit line. Then you have the 0:17:46.000 --> 0:17:49.119 likes of Blackstone and other firms telling their companies to 0:17:49.200 --> 0:17:51.359 draw down their credit lines to high old t d 0:17:51.600 --> 0:17:55.440 X breads jumping. I mean, what's the credit market telling 0:17:55.440 --> 0:17:57.800 you at this point? Is this at the point where 0:17:57.800 --> 0:18:00.560 people have to truly start worrying more because we are 0:18:00.640 --> 0:18:04.720 now seeing some signs of credit stress. I I'd say, so, um, 0:18:04.800 --> 0:18:09.639 we're not jumping yet. Um from a portfolio management perspective. 0:18:09.760 --> 0:18:12.639 And when it comes to are we truly in a 0:18:12.680 --> 0:18:14.840 credit event, I think we're three to four weeks away. 0:18:15.119 --> 0:18:17.240 But what we've seen and and this week was the 0:18:17.320 --> 0:18:20.800 first time we've started to see that pressure in the 0:18:20.840 --> 0:18:24.440 public markets, but in private credit and private equity markets, 0:18:24.920 --> 0:18:28.920 deal flow or the pipeline flow has dried up. It's 0:18:28.920 --> 0:18:31.399 been a couple of weeks. Makes sense, right, You can't 0:18:31.400 --> 0:18:34.680 travel to do due diligence. No one's gonna lend in 0:18:34.840 --> 0:18:37.440 this environment when you're not really sure what's going on. 0:18:37.520 --> 0:18:40.160 And so I think three to four weeks from now, 0:18:40.240 --> 0:18:42.840 we'll be looking at companies saying we're not going to 0:18:42.880 --> 0:18:45.320 be able to do deal flow until the fall. And 0:18:45.640 --> 0:18:50.560 that's when we start to be much more concerned about 0:18:50.600 --> 0:18:53.000 the knock on effects of this virus to the economy. 0:18:53.040 --> 0:18:57.480 Because if you can keep credit markets stable and secure, 0:18:57.600 --> 0:19:00.080 and you can and you can keep small busines, this 0:19:00.320 --> 0:19:03.520 is afloat to sort of wade through a couple of months. 0:19:03.680 --> 0:19:06.200 You're fine. If we're looking at four months of stress, 0:19:06.359 --> 0:19:08.359 stress and six months of defaults, that it's a different, 0:19:08.400 --> 0:19:11.680 different scenario. I love how relaxed you said, Oh, we're 0:19:11.720 --> 0:19:16.560 three or three or four weeks away from PRIMI major credit. Okay, 0:19:16.600 --> 0:19:18.920 but I do wonder. You know, there's been so many 0:19:18.920 --> 0:19:22.199 reforms put in place in the banking system, and we 0:19:22.280 --> 0:19:25.760 also you know, in the global financial crisis of of 0:19:25.800 --> 0:19:29.919 a two eight, the whole credit default swap market was 0:19:29.960 --> 0:19:33.760 this giant gorilla in the room that had uh grown, 0:19:34.040 --> 0:19:36.240 you know, way out of proportion to the point there, 0:19:36.280 --> 0:19:39.320 you know, there was much more default swaps out on 0:19:39.840 --> 0:19:42.160 certain types of debt than there was actually the debt. 0:19:42.280 --> 0:19:44.840 You know, it's like ensuring your house for ten times 0:19:44.840 --> 0:19:47.280 what it's worth. So I do feel like we've sort 0:19:47.280 --> 0:19:51.240 of eliminated some of those risks, you know the banking system. Uh, 0:19:51.480 --> 0:19:54.399 for all the complaints about all the uh, you know, 0:19:54.720 --> 0:19:59.320 liquidity requirements and reserves they've had to maintain. UM, I 0:19:59.400 --> 0:20:02.920 do feel like, you know, they're in a better shape 0:20:02.920 --> 0:20:05.600 to handle a stress. I don't think anyone had ever 0:20:05.640 --> 0:20:09.200 stress test for exactly what we're being faced with. I mean, 0:20:10.400 --> 0:20:14.800 when do we start worrying about the banks? You know, 0:20:15.119 --> 0:20:18.480 like five or six weeks my my father, My father 0:20:18.600 --> 0:20:20.720 called and asked me this question this morning, which I 0:20:20.760 --> 0:20:24.280 think is perhaps telling UM really interesting because you know 0:20:25.240 --> 0:20:27.800 Dad's and I tend to we were on the same wavelength. Well, 0:20:28.480 --> 0:20:30.920 that's not what I meant that people laugh at my job. 0:20:33.880 --> 0:20:35.919 Nobody said, Look, I have X number of months of 0:20:35.960 --> 0:20:38.600 payroll in the bank. I was feeling really good about that. 0:20:38.640 --> 0:20:40.359 Do I need to be really worried about that? And 0:20:40.400 --> 0:20:42.520 I think because of the regulations that have been put 0:20:42.560 --> 0:20:45.040 into place, the answer to that question is probably not. 0:20:45.119 --> 0:20:46.800 I think. I think that the banks are in a 0:20:46.840 --> 0:20:50.520 really good spot now where what that regulation has done 0:20:50.680 --> 0:20:54.560 is shift some of that activity into the private credit markets, 0:20:54.560 --> 0:20:57.920 which is why we're monitoring that space so closely. So UM. 0:20:57.960 --> 0:21:00.720 Where you did have leverage in the banking system, now 0:21:00.800 --> 0:21:03.760 you have leverage in in private credit and private equity. 0:21:03.800 --> 0:21:06.760 Now that doesn't mean every private equity or private credit 0:21:06.760 --> 0:21:08.960 provider is in bad shape. Quite the contrary. If you've 0:21:09.000 --> 0:21:13.639