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Speaker 1: Welcome to the Bloomberg Penl podcast. I'm Paul swing you

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Speaker 1: along with my co host Lisa brahma Witz. Each day

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Speaker 1: we bring you the most noteworthy and useful interviews for

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Speaker 1: you and your money, whether at the grocery store or

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Speaker 1: the trading floor. Find a Bloomberg Penl podcast on Apple

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Speaker 1: podcast or wherever you listen to podcasts, as well as

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Speaker 1: at Bloomberg dot com. We've seen that federal government step

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Speaker 1: up with some significant fiscal stimulus. A lot of that

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Speaker 1: is geared towards small business loans and actually getting money

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Speaker 1: to these small businesses that need it the most. And

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Speaker 1: a key part of that is the banks that will

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Speaker 1: actually get the capital into the local marketplace. To get

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Speaker 1: a sense of how that's all playing out, we welcome

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Speaker 1: Frank Sor and Tino. Frank is the chief executive officer

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Speaker 1: of Connect One Bank that's based based on Englewood Cliffs,

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Speaker 1: New Jersey. Franks, thanks so much for joining us. So

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Speaker 1: we're really early days in terms of getting some of

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Speaker 1: this fiscal stimulus money into the marketplace, where you understand

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Speaker 1: there's been kind of a bumpy start to it all

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Speaker 1: from in terms of the banks and getting coordinated with

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Speaker 1: the government. What's been your experience, so good morning and

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Speaker 1: thank you. Um, yeah, you know, bumpy start. I guess

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Speaker 1: that may be partially true, but um, you know, think

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Speaker 1: about the scale and size of this program. Think about

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Speaker 1: how it compares to any other program that you know

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Speaker 1: would go through, like the Defense Department to go do

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Speaker 1: something huge like this. I think they're doing pretty good. Actually,

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Speaker 1: I think the SBA has done a fantastic job. I

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Speaker 1: think the banks are doing a fantastic job. And I

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Speaker 1: believe that here we are two weeks from or two

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Speaker 1: weeks and a couple of days from the signing of

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Speaker 1: the President's bill, and money is already flowing out into

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Speaker 1: the into the small business pands. So yes, there's a

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Speaker 1: backlog of applications. Banks are working as quickly as they can,

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Speaker 1: but money is flowing into small business plands. And Frank,

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Speaker 1: it's the money is flowing from your bank as well.

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Speaker 1: And can you just give us a sense of the

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Speaker 1: demand for these loans from small business is that you've

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Speaker 1: seen and and and how many have been saved and

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Speaker 1: able to maintain their staffs as a result of the loans. Well,

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Speaker 1: we have business small business owners that when we notified

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Speaker 1: them that they were approved. They just they almost break

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Speaker 1: down in that, you know, with with joy that they

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Speaker 1: are now able to keep their employees on staff, be

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Speaker 1: able to pay them. As we're dispersing funds. I can't

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Speaker 1: tell you how many text messages and emails we're receiving

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Speaker 1: from clients from all over telling us how this is

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Speaker 1: saving their livelihood for their business and in turn how

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Speaker 1: good they feel about saving their employees livelihood and their

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Speaker 1: ability to put food on their table and pay their

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Speaker 1: rent and do what they need to do. So I

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Speaker 1: think this program is critical at this moment in time. So, Frank,

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Speaker 1: do you, from your perspective just in your local markets,

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Speaker 1: do you think it will be enough or do you suspect,

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Speaker 1: given the demand that you're seeing, that Congress should and

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Speaker 1: perhaps maybe likely to come back with some more. Yeah.

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Speaker 1: I believe Congress will come back for more. I think

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Speaker 1: there will be demand for more than they I do

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Speaker 1: believe that it is doing the job that it needs

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Speaker 1: to do, and it is helping to float the economy

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Speaker 1: through the next you know, for the last couple of

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Speaker 1: weeks and through the next few weeks. I think if

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Speaker 1: we think this is going to go on beyond May then, Yeah,

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Speaker 1: I think they're going to need a lot more, But

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Speaker 1: for right now, I think between this this current draft

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Speaker 1: of billion plus what they're contemplating in the new bill

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Speaker 1: of two hundred and fifty billion should be sufficient. So

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Speaker 1: that's on the small business side. You have a long

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Speaker 1: history in the mortgage market, in the housing market, in

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Speaker 1: the building market, and there isn't growing concern that that

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Speaker 1: particular market is suffering disproportionately without necessarily a clear backstop

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Speaker 1: from the government, particularly for mortgages that are not backed

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Speaker 1: by Fannie and Freddie May. What are you seeing on

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Speaker 1: that up front? How concerned are you there? It's going

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Speaker 1: to be a concern as we move through the next

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Speaker 1: phase of this right right now where everyone's focused on

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Speaker 1: stabilizing where we are today, but if you can think out,

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Speaker 1: you know, sixty days, ninety days, or even a year

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Speaker 1: from now, and people start applying for mortgages and there

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Speaker 1: was this huge business disruption um and by the way,

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Speaker 1: I think that you know, constructions come to the halt,

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Speaker 1: which is also an issue, but the but the disruption

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Speaker 1: that's gone on and people's financial lives is going to

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Speaker 1: have to be reconciled at some point. And it probably

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Speaker 1: will have some negative effects of the market. So that's

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Speaker 1: kind of where I want to go. Based upon your

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Speaker 1: discussion with your customers and your clients, are you getting

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Speaker 1: a sense that, boy, this is really gonna have some

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Speaker 1: long lasting implications for you know, business cycles and maybe

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Speaker 1: even consumer psyche in terms of demand. Well, I think

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Speaker 1: the Fed is very concerned about deflation in the marketplace.

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Speaker 1: And so I think that's and that should tell you

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Speaker 1: everything you need to know. Right. That tells you that

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Speaker 1: the consumer is probably going to move less consumption and

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Speaker 1: more savings. And so what's that saying. It's saying that

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Speaker 1: they're changing their psyche about how they think about the world.

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Speaker 1: I think what we're doing today, I think the programs

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Speaker 1: that the Federal Reserve is pushing forward today, the programs

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Speaker 1: that the Administration's pushing forward, the programs that Congress is

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Speaker 1: thinking about, is all to help to keep that psyche

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Speaker 1: you know, where it's been and you know, keep the

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Speaker 1: United States the great country that has always been in that.

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Speaker 1: You know, we are a country that likes to spend,

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Speaker 1: We are a country that innovates, We are a country

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Speaker 1: that takes risks. And so by freeing up this capital

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Speaker 1: so that people don't have to worry about that. We

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Speaker 1: will minimize that disruption of the future. So, Frank, we're

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Speaker 1: hearing from JP Morgan and Wells Fargo today. We're going

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Speaker 1: to hear from City Group and some of the other

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Speaker 1: banks throughout the rest of the week, and we're really

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Speaker 1: focusing on loan loss prevent Jians. What are you seeing

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Speaker 1: with respect to that at your bank? So, I think

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Speaker 1: what you've seen from those larger institutions is that no

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Speaker 1: one really knows, and so they've taken some certainly they've

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Speaker 1: taken some general approaches to what they have modeled that

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Speaker 1: they think things could be, But nobody really knows for sure.

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Speaker 1: It is way too early in the game to make

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Speaker 1: decisions about, you know what, what what losses may occur,

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Speaker 1: who's going to be impacted, what segments are going to

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Speaker 1: be hurt the most. It really depends a lot on

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Speaker 1: how successful some of these programs are, how we all

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Speaker 1: work together to get through this next phase to reopen

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Speaker 1: the economy, how long that looks like. I think without

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Speaker 1: answering those questions, I think it's difficult to really assess

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Speaker 1: what what damage, If there's damage, how much damage, and

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Speaker 1: what it's going to look like on the bank's financial statement.

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Speaker 1: Frank Sartino, thank you so much for being with us

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Speaker 1: and all my best to you through this period as

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Speaker 1: you work to manage and get loans out to all

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Speaker 1: of those small businesses in the path forward. Frank Sorrentino

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Speaker 1: as chief executive officer of Connect One Bank, joining us

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Speaker 1: from Englewood Cliffs, New Jersey, oh JP, Morgan Chase and

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Speaker 1: Wells Fargo kicked off earning season for the big banks today,

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Speaker 1: and I think what investors are really focusing on was

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Speaker 1: those loan lost provisions. Combine those two banks set aside

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Speaker 1: more than twelve billion dollars to cover the faults across

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Speaker 1: the economy. So just extraordinary numbers coming out of there.

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Speaker 1: To get a sense of kind of what we're going

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Speaker 1: to see from the banking sector coming up, we welcome

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Speaker 1: Chris Whale and chairman of Whale and Global Advisors, based

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Speaker 1: in New York. Chris, thanks so much for joining us. Boy,

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Speaker 1: those low lost provisions were just extraordinary. What's your takeaway, Well,

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Speaker 1: I was actually too conservative in my model for the industry.

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Speaker 1: I said, fine, well, double provisions this month and then

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Speaker 1: double them or this quarter and then duble them again

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Speaker 1: second quarter that gets up to two thousand and eight levels.

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Speaker 1: But I think JP Morgan and decided to go big.

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Speaker 1: I agree with what they've done. Takes a little pressure

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Speaker 1: off them in the next couple of quarters because they've

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Speaker 1: put a fair amount of money out there. But they've

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Speaker 1: also said that they expect loss rates to be extraordinary,

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Speaker 1: and and that says to me, well above two thousand

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Speaker 1: and eight levels. So we're starting to use the nineteen

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Speaker 1: thirties as our model simply because of the dislocation both

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Speaker 1: in terms of unemployment and small and midsized enterprises, which

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Speaker 1: looks to be a horror show. I think we could

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Speaker 1: see a large chunk of the service sector essentially disappear

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Speaker 1: simply because they don't have a lot of capital, and

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Speaker 1: if you impose losses on them, you take them out

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Speaker 1: of uh, you know, circulation in terms of revenue. They

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Speaker 1: die and small businesses turn over quite a lot anyway,

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Speaker 1: but when you put this kind of stress situation on them.

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Speaker 1: The only sector of this economy that's liquid right now

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Speaker 1: are basically those that are supported directly by the government,

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Speaker 1: particularly the mortgage sector. But everything else is in um

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Speaker 1: and I think that's going to have a real serious

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Speaker 1: repercussion on GDP and how long it takes us to

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Speaker 1: get through a you know that. I think a couple

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Speaker 1: of observers, in fact, have suggested we may not see

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Speaker 1: normal earnings, normal kind of trend earnings for a couple

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Speaker 1: of years. Uh. And I think that's what the banks

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Speaker 1: are telling us. What about when it comes to the

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Speaker 1: health of the banks themselves, because a lot of regulators

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Speaker 1: and analysts who said that the banks are incredibly well

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Speaker 1: capitalized and the fact that they can put aside such

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Speaker 1: a big amount for loan losses that they're expecting shows

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Speaker 1: their fortitude and their fortress like balance sheets. Would you

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Speaker 1: agree with that characterization? Oh very much? And I think

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Speaker 1: you know, the political dialogue on this is immediately focused

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Speaker 1: on the banks and the fact that they pay dividends. Um,

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Speaker 1: we've already gotten most banks to or stop share repurchases,

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Speaker 1: which is worth a hundred and ten billion dollars a

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Speaker 1: year in terms of capital retention for the top twenty banks.

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Speaker 1: That's enough that funds your reserve built by the way, Paul, So,

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Speaker 1: I think that what I would tell policy makers is

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Speaker 1: leave the dividends alone. You're going to deal with this

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Speaker 1: on a bank by bank basis, but you don't want

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Speaker 1: to cut off that cash flow to investors because there

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Speaker 1: are a lot of people who depend on dividends from

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Speaker 1: public companies to pay their bills. And I think it's

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Speaker 1: important for us to realize that the banks are well

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Speaker 1: capitalized and they have a hundred and fifty billion dollars

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Speaker 1: in cash flow every quarter, earnings, share repurchases, dividends that

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Speaker 1: they can draw on to meet this wave of default.

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Speaker 1: And so I think that's the good news. I would

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Speaker 1: agree with you, Lisa. So Chris, let's take a look

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Speaker 1: at some maybe some of the regional banks. Are they

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Speaker 1: in a similar position in terms of relative health of

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Speaker 1: their balance sheets? Well, they deal with a smaller community typically,

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Speaker 1: so they will have more idiosyncratic risk elements in their portfolio.

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Speaker 1: They're not that diversified. But diversification is not going to

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Speaker 1: help us this time. I think the country generally is

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Speaker 1: going to see both heavy consumer default activity and we're

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Speaker 1: also going to see a lot of business defaults. So

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Speaker 1: the good news is, unlike two thou eight, this didn't

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Speaker 1: start on Wall Street. It didn't start with subprime mortgages

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Speaker 1: that nobody wanted anymore truly and something. Remember uh, this

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Speaker 1: time around, it's an external shock which has taken GDP

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Speaker 1: down significantly and is pushing unemployment up to ridiculous levels.

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Speaker 1: I mean, you know, in credit models, unemployments your biggest factor,

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Speaker 1: that's what you start with. Over the weekend, my wife

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Speaker 1: kept looking at me and go, why are you in

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Speaker 1: such a bad It was because I was writing my

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Speaker 1: earnings note for the banks, and basically, by the second quarter,

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Speaker 1: I think two thirds of bank earnings are going to

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Speaker 1: be gone because of provisioning and other expenses, operating expenses,

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Speaker 1: and then over time they're going to come out of

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Speaker 1: the whole. So to me, I'm still very positive on

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Speaker 1: the banks. I own banks, you know, Jay piece at

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Speaker 1: one point two times book value this morning, so it's

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Speaker 1: not like they're cheap cheap. But on the other hand,

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Speaker 1: I think that the whole industry is going to have

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Speaker 1: to divert income. They're not going to consume capital. That's

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Speaker 1: always the misnomer in these discussions, right, They're going to

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Speaker 1: use the income that they generate, the plow through the

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Speaker 1: losses and they'll be Okay, yeah, when you talk about

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Speaker 1: job losses, I'm just struck by the fact that nearly

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Speaker 1: one in ten Americans lost their jobs in the past

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Speaker 1: three weeks. And probably we're gonna get another multimillion print

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Speaker 1: in the jobless claims report that we're getting out on Thursday.

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Speaker 1: In the meantime, there's a question about consolidation. Does the

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Speaker 1: likes of JP Morgan end up more powerful at the

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Speaker 1: end of this because they do have the capacity to

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Speaker 1: withstand this and that fortress like balance sheet. What do

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Speaker 1: you think, Well, JP is not going to get any bigger,

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Speaker 1: but they do have a lot of monopoly power. Um

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Speaker 1: They are also reacting to the madness we see in

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Speaker 1: Washington at the Federal Housing Finance Administration. The regulator for

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Speaker 1: Fanning and Freddie mac basically came out and said that

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Speaker 1: they wouldn't support the non bank servicers were the most

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Speaker 1: important part of the mortgage market. Um. So JP changed

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Speaker 1: their warehouse guidelines last week. They basically cut off all

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Speaker 1: the non banks in terms of funding for new loans

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Speaker 1: and also for servicing advances. And it's really bad. We

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Speaker 1: need to get the government on track here because we

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Speaker 1: don't need them saying bad things in public, and we

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Speaker 1: don't need to have a regulator out attacking the institutions

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Speaker 1: he's responsible for regulating and preserving. So I think we

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Speaker 1: need to get everybody on the same page. The FEDS great,

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Speaker 1: The other regulators, Jenny May and f h A are awesome.

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Speaker 1: They've been moving heaven and earth. Um, Chris, I'm worried

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Speaker 1: that the default wave we're gonna see, Lisa is going

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Speaker 1: to be really big. Chris Whalen, thank you so much

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Speaker 1: for being with us, Chairman of Whalen Global Advisors. This

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Speaker 1: period of time so unprecedented and jarring, and its magnitude

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Speaker 1: and depth has lead to a lot of philosophical musings

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Speaker 1: and a lot of historical references. One that really caught

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Speaker 1: my attention, Paul, was about the hobbsy and state of Man,

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Speaker 1: and the and and and the West versus the East,

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Speaker 1: and sort of jostle for power that we see going

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Speaker 1: on and perhaps transforming at this moment as the world

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Speaker 1: fights the pandemic. And I'm so glad to join us

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Speaker 1: right now. I'm pleased to say John mckelthwaite, editor in

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Speaker 1: chief of Bloomberg News, who wrote this column the virus

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Speaker 1: should wake up the West, and John, I want to

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Speaker 1: frame this from the view of an argument that people

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Speaker 1: are making that China's success in fighting off the spread

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Speaker 1: of the coronavirus shows that autocracies are preferable to democracies.

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Speaker 1: How much of that has been borne out by what

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Speaker 1: we've seen in the past few weeks and months, Well,

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Speaker 1: I would argue um that high disciple. Um, I would

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Speaker 1: argue very little, because I think that if you look

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Speaker 1: at it, yes, I mean China has done quite well,

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Speaker 1: and we should immediately put an enormous caveat against both

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Speaker 1: its numbers, which people raise considerable suspicions about, and also

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Speaker 1: its role in the very um starting point of the virus,

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Speaker 1: where if it had had less of a police state

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Speaker 1: and wuhren't more, people would have known about the virus

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Speaker 1: much earlier. So China is definitely cultival than that. But

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Speaker 1: in terms of the sort of secondary stage of reacting

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Speaker 1: to it, yes, China does look better than the United States.

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Speaker 1: But um, there the truth is there are good they

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Speaker 1: are good performing autocracism, bad performance axes, good performing democracies,

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Speaker 1: and bad performing boxes. If you compare China to Germany,

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Speaker 1: if you can compare it to Switzerland, if you compare

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Speaker 1: it um to places like Norway, if you compare it

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Speaker 1: to South Korea as you prepared to Taiwan and Singapore,

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Speaker 1: China does not look great. So in other words, the

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Speaker 1: democracies still do it better. Um, and people who jumped

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Speaker 1: towards the idea that this has been particularly for China,

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Speaker 1: I would rather see it as a warning, especially to America,

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Speaker 1: but you know also to that matter, to Britain where

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Speaker 1: I am at the moment that you know, really if

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Speaker 1: the West does not get it to government into shape, um,

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Speaker 1: you know, it will lose the lead that it has

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Speaker 1: held over Asia for the past four years. So John,

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Speaker 1: just looking at the U S here, what's you know

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Speaker 1: kind of brewing? Here is a battle between the you know,

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Speaker 1: the federal government in the States, and we're seeing regional

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Speaker 1: formations of coalitions, whether it's New York, Connecticut, New Jersey,

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Speaker 1: or even out on the West coast with California and Washington.

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Speaker 1: How do you think that's going to play out? Because

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Speaker 1: it seems like that's the next big bonus contention as

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Speaker 1: countries think about, including the US, about reopening the economy.

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Speaker 1: So I think that's the reasonable thing. I think you

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Speaker 1: can make the argument. I think most outsiders looking at

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Speaker 1: the federal reaction to this would say it has been useless. Um,

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Speaker 1: you know, it's there are some places which are being worse.

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Speaker 1: I think maybe Italy, depending how you measure, but in general,

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Speaker 1: you know, this has not been Donald Trump's finest hour.

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Speaker 1: By contrast, actually, I think you can give Gavin Newsom

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Speaker 1: in California some some good points. Um, you know they

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Speaker 1: did with California did react much quicker. It's thought about

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Speaker 1: what to do. There are still problems there self, evidently,

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Speaker 1: but it's you know, the numbers there speak for themselves

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Speaker 1: of some extent, and he had to do it against

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Speaker 1: the background of the federal government not being very helpful.

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Speaker 1: So in terms of efficacy, I think you could argue

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Speaker 1: that the governors have got some right to do this.

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Speaker 1: The great tragedy, of course, is that one thinks about

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Speaker 1: what other presidents might have done. Is what should have

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Speaker 1: happened here is that first the president should have rallied

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Speaker 1: the entire country. The beauty of the federal system is, yes,

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Speaker 1: you can use states to experiment, but it should also

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Speaker 1: be a kind of federal It should be a federally

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Speaker 1: coordinated response. What's happened instead of that Trump has used

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Speaker 1: suppress compets and things to attack governors, and they have

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Speaker 1: also used them to attack him. Meanwhile, it's not just

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Speaker 1: in terms of what's happening inside America. The other huge

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Speaker 1: tragedy for the West is that you would have hoped

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Speaker 1: that America would be leading what might be described as

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Speaker 1: the Western pandemic response, and that hasn't happened at all

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Speaker 1: in the Even even when it came down to warning

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Speaker 1: the Europeans that they were about to impose no fly zones,

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Speaker 1: a lot not played, but Pope closed fly bands on

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Speaker 1: European countries. You know, America did not tell its closest

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Speaker 1: allies about that, and so there is such distrust at

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Speaker 1: the moment. It's not working in the traditional coordinating role

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Speaker 1: of the presidency in crises is not working. And this

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Speaker 1: is this is one of the ramifications of it, and

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Speaker 1: it's it's very sad. John, thanks so much for joining us.

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Speaker 1: Really appreciated as an interesting column that you wrote. John mckelthwaite,

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Speaker 1: editor in chief, Bloomberg News, joining us from Britain, giving

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Speaker 1: us his thought, Well, we talked about the incredib stimulus,

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Speaker 1: We've got to talk about credit and the rally that

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Speaker 1: we have seen that's been a complete snap back of

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Speaker 1: a lot of the losses that we saw earlier. Just

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Speaker 1: to give you a sense of how big this snap

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Speaker 1: back was, the extra yield that investors earned UH earned

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Speaker 1: to possess junk bonds has compressed from eleven percent to

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Speaker 1: seven and a half percentage points over rates in just

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Speaker 1: a couple of weeks. Here there's a question hasn't gone

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Speaker 1: too far? And the person to answer it is Tad Rafel,

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Speaker 1: chief investment officer for fixed income at TCW with more

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Speaker 1: than two billion dollars firm wide, joining us from Los Angeles.

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Speaker 1: Had I'm so glad that you're the person we're speaking

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Speaker 1: to right now. We've heard the Federal Reserve is going

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Speaker 1: to start buying credit. But if Trainer has gotten ahead

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Speaker 1: of themselves in terms of how broad and how deep

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Speaker 1: and how far into below investment grade credit, the Federal

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Speaker 1: Reserve will go. Of course, that's the sixty four trillion

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Speaker 1: dollar question. I mean, I think the subtext is our investors,

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Speaker 1: is the consensus exp patient out there that we are

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Speaker 1: going to go back to January, that we're going to

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Speaker 1: get a v bottom, that the health issues are going

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Speaker 1: to be resolved in the relatively near term, and then

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Speaker 1: we just resumed resume the historical trend line, and consequently

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Speaker 1: the levels that we saw in the credit markets in January,

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Speaker 1: according to that way of thinking, would be reasonably justifiable.

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Speaker 1: I think that's unrealistic. I think that therefore, there is

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Speaker 1: a lot of mispricing that's going on in the credit markets.

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Speaker 1: And the reason that we believe that way is basically several.

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Speaker 1: One reason is is that, first of all, a lot

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Speaker 1: of uncertainty remains about when the global economy gets back

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Speaker 1: up on its feet, and in any case, even if

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Speaker 1: it does, it doesn't going to get all up on

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Speaker 1: its feet at the same time. So you have kind

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Speaker 1: of a rolling recession type situation where even if China

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Speaker 1: is in fact getting a little bit better, other parts

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Speaker 1: of the world evidently are sinking, unfortunately more so. And

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Speaker 1: even if we do solve the public health problem, then

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Speaker 1: we still have the reality that we went through a

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Speaker 1: long and vast leveraging process over the course of the

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Speaker 1: last five plus years. At least, let's say, there were

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Speaker 1: a lot of excesses, and the virus, to a greater

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Speaker 1: or lesser degree, isn't so much the cause of the

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Speaker 1: repricing that we've seen in the credit markets, as it

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Speaker 1: is also the catalyst for revealing a lot of those excesses.

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Speaker 1: So I think that it's a fair statement to say

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Speaker 1: that the FED has done its helicopter drops. It's certainly

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Speaker 1: improved the liquidity environment. It's compressed liquidity premium. But can

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Speaker 1: it fix fundamentally broken business models that are being revealed

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Speaker 1: as we speak, No, it can't do that, all right,

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Speaker 1: So tadd and you've been consistently I would say cautious,

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Speaker 1: you know, over the last year so that we've been

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Speaker 1: chatting on the fixing markets. What is your sense for

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Speaker 1: defaults going forward? How do you think this is going

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Speaker 1: to play out? And of course that's a I'm also

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Speaker 1: asking you to kind of share with this kind of

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Speaker 1: your economic outlook as well. Well. The if we begin

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Speaker 1: maybe by looking at the loan market as well as

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Speaker 1: the high yield market, the compression that we spoke to

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Speaker 1: the UH, the overall compression and spread that we've seen

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Speaker 1: in high yield. I think high yield now is just

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Speaker 1: a touch inside of eight hundred basis points over treasuries

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Speaker 1: ignores the fact that there's also been tremendous bifurcation within

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Speaker 1: the high yield space. And the bank loan space, meaning

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Speaker 1: that there's actually been growth in the size of the

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Speaker 1: cohorts that are are priced to yield more than ten percent.

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Speaker 1: Let's say, UM, so as we've seen improvement in the

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Speaker 1: better credits the ones that are viewed as probably survivors

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Speaker 1: or at least survivors for some period of time through this,

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Speaker 1: let's ignore the fact that we have a significant cohort

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Speaker 1: of names that are going to have to go through

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Speaker 1: some kind of restructuring type of process. I think, if

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Speaker 1: anyone's gas, you know how high defaults are going to get,

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Speaker 1: but they're going to go a whole lot higher. Um,

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Speaker 1: you've got the first hint of that in a way,

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Speaker 1: I suppose from the bank earnings today from Wells IS

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Speaker 1: and JP Morgan's and the significant increase in loan loss

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Speaker 1: allowance that goes into the earnings numbers. So we're still

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Speaker 1: I think at the front end of this, we should

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Speaker 1: remember we've only been shut down for a matter of weeks,

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Speaker 1: maybe a month, um. And it's really unclear, as I

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Speaker 1: said earlier, what the ultimate impact of shutting down large

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Speaker 1: swats of the U S economy are going to be.

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Speaker 1: Just as a total anecdote, but an important one I

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Speaker 1: think is my understanding is is at twenty of the

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Speaker 1: workforce in Michigan has already applied for unemployment. But I

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Speaker 1: think kind of starts to give you an idea that

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Speaker 1: any type of optimism in terms of pricing at this

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00:23:44,119 --> 00:23:47,600
Speaker 1: point maybe getting a little bit ahead of itself. Well,

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Speaker 1: haven't you checked the stock market. Everything's fine, Ted, everything's great.

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Speaker 1: We just had the biggest REALI since seventy four. You know,

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Speaker 1: I remember when we talked to you, as as Paul referenced,

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00:23:55,920 --> 00:23:58,040
Speaker 1: you've embarished for a while, and back in November you

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00:23:58,080 --> 00:24:00,480
Speaker 1: wrote about the liquidity issues that we're going to be

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00:24:00,520 --> 00:24:02,879
Speaker 1: facing the credit markets, and certainly that did come to

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00:24:02,920 --> 00:24:06,680
Speaker 1: pass in a massive way. Are you becoming more constructive

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00:24:06,680 --> 00:24:09,000
Speaker 1: in terms of what you're buying just based on some

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00:24:09,040 --> 00:24:11,080
Speaker 1: of the dislocations, or do you think that there is

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00:24:11,119 --> 00:24:14,959
Speaker 1: another leg lower in the pricing that we're seeing across

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00:24:15,000 --> 00:24:18,760
Speaker 1: credit markets. Well, first of all, there has been actually

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00:24:18,840 --> 00:24:22,359
Speaker 1: tremendous opportunity in certain parts of the credit markets, and

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00:24:22,440 --> 00:24:24,679
Speaker 1: we've taken advantage of that the first place that we

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00:24:24,680 --> 00:24:26,560
Speaker 1: took advantage of it. In fact, the way we have

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00:24:26,640 --> 00:24:30,320
Speaker 1: oftentimes articulated the game plan in the late cycle type

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00:24:30,320 --> 00:24:33,720
Speaker 1: of environment that we felt we were in is step zero,

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00:24:33,760 --> 00:24:37,040
Speaker 1: so to speak, is get prepared and build defensive. And

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00:24:37,080 --> 00:24:41,480
Speaker 1: then step one was the foray into those segments of

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00:24:41,520 --> 00:24:45,560
Speaker 1: the marketplace that are the most bendable, the types of

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00:24:45,640 --> 00:24:48,520
Speaker 1: assets that are not really going to be subject to

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00:24:48,560 --> 00:24:53,160
Speaker 1: solvency challenge. And so step one was a significant increase

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00:24:53,160 --> 00:24:56,359
Speaker 1: in our agency mortgage type of exposure in port with

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00:24:56,440 --> 00:24:59,840
Speaker 1: the expectation that the FED would probably liquefy that area first,

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00:25:00,160 --> 00:25:03,440
Speaker 1: So we added substantially to our positions and agency mortgages.

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00:25:03,640 --> 00:25:07,119
Speaker 1: We've actually been selling them down as the prices have improved.

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Speaker 1: The next step and we've um have have engaged this

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00:25:10,600 --> 00:25:15,400
Speaker 1: as well, is the liquefication of fortress balance sheets. So

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00:25:15,560 --> 00:25:20,200
Speaker 1: we've seen Intel come to the market, Exxon, Kimberly, Cark, Procter,

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00:25:20,240 --> 00:25:23,800
Speaker 1: and Gamble Disney, and the spread levels were two hundred

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Speaker 1: to two hundred and fifty basis points wider than where

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00:25:26,840 --> 00:25:29,879
Speaker 1: they had been in January. Okay, so do the math right?

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00:25:30,280 --> 00:25:33,240
Speaker 1: Two hundred basis points on its twenty duration a thirty

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00:25:33,280 --> 00:25:37,719
Speaker 1: year maturity instrument is it's forty points and we've already

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00:25:37,720 --> 00:25:41,000
Speaker 1: realized actually we've actually round tripped through some of those

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00:25:41,080 --> 00:25:44,639
Speaker 1: names already, so we are constructive on the Fortress balance

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00:25:44,680 --> 00:25:48,640
Speaker 1: sheets and credit. We certainly already have almost round trip

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00:25:48,800 --> 00:25:51,720
Speaker 1: with respect to the agency mortgages, and we expect it's

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00:25:51,720 --> 00:25:54,600
Speaker 1: going to be a lot more opportunity um, but it

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00:25:54,640 --> 00:25:57,520
Speaker 1: will probably be in areas that you have to do

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00:25:57,600 --> 00:26:01,560
Speaker 1: a little bit more credit analysis than nine sconds worth,

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00:26:01,640 --> 00:26:04,080
Speaker 1: which we kind of joke about almost is all you

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00:26:04,160 --> 00:26:06,480
Speaker 1: need to do when you're looking at Disney, P and

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Speaker 1: G and and Intel. Tat thanks so much for joining us.

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Speaker 1: We're so glad we're able to chat with you today

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Speaker 1: to get your thoughts on what has just been an

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Speaker 1: extraordinary time in the markets and uh you the experience

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Speaker 1: that you have. Tad Revelle, chief Investment Officer for Fixed

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00:26:20,000 --> 00:26:24,159
Speaker 1: Income at TCW. Thanks for listening to the Bloomberg P

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00:26:24,240 --> 00:26:26,800
Speaker 1: and L podcast. You can subscribe and listen to interviews

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00:26:26,800 --> 00:26:29,960
Speaker 1: at Apple Podcasts or whatever podcast platform you prefer. M

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00:26:30,000 --> 00:26:32,480
Speaker 1: Paul Sweeney, I'm on Twitter at p T. Sweeney. I'm

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00:26:32,520 --> 00:26:35,199
Speaker 1: Lisa Abramoy. It's I'm on Twitter at Lisa abram Woyd's

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00:26:35,240 --> 00:26:38,080
Speaker 1: one before the podcast. You can always catch us worldwide

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Speaker 1: I'm Bloomberg Radio