WEBVTT - Surveillance: Accurate Virus Testing With Pekosz 0:00:09.880 --> 0:00:13.800 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane Jay Ley. 0:00:13.960 --> 0:00:17.560 We bring you inside from the best in economics, finance, investment, 0:00:18.000 --> 0:00:23.480 and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 0:00:23.640 --> 0:00:27.160 Bloomberg dot Com, and of course on the Bloomberg At 0:00:27.160 --> 0:00:29.800 Skybridge Capital. What they do is they're fund to fund. 0:00:29.800 --> 0:00:32.600 They take money they allocated out to hedge funds, and 0:00:32.640 --> 0:00:36.680 they have had a sporting pandemic, as have so many others. 0:00:36.960 --> 0:00:39.479 They've made a choice now to go with familiar names 0:00:39.680 --> 0:00:44.120 like Dahlio, like Lobe, and like Howard Marks as well. 0:00:44.200 --> 0:00:47.479 Troy Gayski joins us the engineer from m I T 0:00:47.479 --> 0:00:50.559 Troy Gayski, How are you and Mr Scaramuchi gonna engineer 0:00:50.640 --> 0:00:53.920 forward with Dahlia, Lobe, Marks and the likes. What will 0:00:54.000 --> 0:00:58.960 be different now versus the debacco of the last twelve months. Yeah, well, 0:01:00.000 --> 0:01:02.520 don't know about twelve months, but certainly in March. But thanks, 0:01:02.560 --> 0:01:07.680 not great but great to hear talk to you as well. John, 0:01:07.720 --> 0:01:10.280 has been too long, but no, so look, I think 0:01:10.480 --> 0:01:13.480 you know any process, you have to evolve, and you 0:01:13.560 --> 0:01:16.840 have to try to use information that perhaps was the 0:01:16.880 --> 0:01:18.840 president at the time and you know, look at the 0:01:19.120 --> 0:01:22.160 reality is is we fully expect a recovery, and the 0:01:22.200 --> 0:01:25.199 primary way we're going to play that is through distress credit, 0:01:25.319 --> 0:01:28.320 both distress structure credit, whether it's rmbs or to a 0:01:28.440 --> 0:01:31.679 much lesser extent CMBs and cellos, or whether it's through 0:01:31.680 --> 0:01:34.720 good old fashioned distress restructuring. And you know, one of 0:01:34.760 --> 0:01:36.880 the things that will be different is well we'll have 0:01:37.000 --> 0:01:40.160 more exposure to larger managers that have a much more 0:01:40.200 --> 0:01:44.000 stable capital base and much more staying power if we 0:01:44.080 --> 0:01:47.480 do get another laid down that some people expect in 0:01:47.520 --> 0:01:50.200 the fall. I mean, we're pretty certain the economy's bottoming 0:01:50.200 --> 0:01:52.840 and markets have bottomed, but clearly we could be wrong. 0:01:53.400 --> 0:01:56.720 And managers, whether it's Howard Marks or or Dan Loebe 0:01:56.800 --> 0:02:00.440 or Josh Freeman Canyon, I mean, these are multi cycle 0:02:00.560 --> 0:02:03.840 distress investors that have done a tremendous job. And that's 0:02:03.880 --> 0:02:06.520 always been where you've gotten your best returns coming out 0:02:06.520 --> 0:02:09.560 of any economic dislocation. And as you guys know, like 0:02:09.639 --> 0:02:11.760 we always say that, you know, every cycle is different, 0:02:11.800 --> 0:02:14.639 but every cycle is the same um and and so 0:02:14.800 --> 0:02:17.640 you could argue that for some unknown reason, you know, 0:02:17.680 --> 0:02:20.240 the returns and distressed won't be as attractive as they 0:02:20.240 --> 0:02:22.200 were in the past. But if you look at the 0:02:22.280 --> 0:02:27.680 divergence between equity markets and credit of all stripes right now, 0:02:28.120 --> 0:02:30.280 it's as large as it's been, you know, since the 0:02:30.320 --> 0:02:34.400 financial crisis, if not larger. So on a go forward basis, 0:02:34.480 --> 0:02:36.280 that's where you're gonna get your best risk a jested 0:02:36.360 --> 0:02:39.720 returns and doing it with managers that have strong hands 0:02:39.800 --> 0:02:43.440 that can uh, you know, restructure individual companies or favor 0:02:43.480 --> 0:02:46.959 structured credit versus corporate is the is we think the 0:02:47.000 --> 0:02:50.200 way to go. But we'll still maintain a healthy exposure 0:02:50.280 --> 0:02:53.600 to smaller midsized managers that are laser focused on a 0:02:53.639 --> 0:02:57.480 few particular niche themes. Try. I understand the argument that 0:02:57.639 --> 0:03:00.960 stocks and credit are diverging in ways really haven't been 0:03:01.000 --> 0:03:04.360 seen historically. However, there are some real reasons for this. 0:03:04.440 --> 0:03:06.280 I mean, when we talk about the equity advance, we're 0:03:06.280 --> 0:03:09.680 talking about the big tech names that stand to benefit 0:03:09.720 --> 0:03:11.640 from the current environment. When you talk about some of 0:03:11.639 --> 0:03:14.000 these credits, what some of these credits, you're talking about 0:03:14.040 --> 0:03:18.240 commercial mortgage backed securities, residential real estate, and big cities 0:03:18.240 --> 0:03:21.880 that are going to be profoundly changed by this entire episode. 0:03:22.400 --> 0:03:24.960 Isn't there some real reason for why some of these 0:03:25.000 --> 0:03:27.880 assets are selling off, and also some reason for why 0:03:27.919 --> 0:03:31.840 some of these equities are gaining right now. Oh yeah, No. Look, 0:03:31.919 --> 0:03:35.960 as you know, there's the real economy, there's corporate fundamentals, 0:03:36.040 --> 0:03:38.480 and then there's capital markets. And to your point, you know, 0:03:38.520 --> 0:03:41.920 equity markets are becoming less and less reflective over time 0:03:42.400 --> 0:03:46.840 of the real economy. Uh So, uh that being said, 0:03:47.160 --> 0:03:50.200 you I don't think anyone could actually argue that the 0:03:50.240 --> 0:03:53.760 equity rebound has been driven by improving fundamentals. For the 0:03:53.800 --> 0:03:57.200 majority cases, particularly where multiples are the equity rebound has 0:03:57.240 --> 0:04:01.240 been driven by massive expansion of monetary supply after suffering 0:04:01.280 --> 0:04:05.440 a tremendous draw down. UM. Our primary focus will be 0:04:05.560 --> 0:04:11.080 on residential UH single family credit as opposed to uh CMBs. 0:04:11.200 --> 0:04:13.480 We will have a little bit of that exposure. We 0:04:13.520 --> 0:04:17.160 agree with you that clearly the fundamentals in hospitality are 0:04:17.200 --> 0:04:21.120 lodging in retail are very problematic. UM. But at the 0:04:21.160 --> 0:04:24.080 same time, you know, multifamilies hung in there exceptionally well, 0:04:24.480 --> 0:04:26.120 you know, a lot of the benefit of the p 0:04:26.120 --> 0:04:29.520 p P and more importantly, enhanced unemployment has allowed has 0:04:29.520 --> 0:04:32.400 allowed renters to continue to make their payments at a 0:04:32.400 --> 0:04:35.520 pretty shocking rate. Now everyone expects it's going to deteriate 0:04:35.560 --> 0:04:38.960 further in May, but so far, so good. So you know, 0:04:39.000 --> 0:04:41.960 within commercial real estate you have to be very specific 0:04:42.040 --> 0:04:45.919 to sector when you're doing your forward analysis UM. And 0:04:46.040 --> 0:04:48.839 in terms of residential housing, look, I mean, you know, 0:04:48.920 --> 0:04:52.440 coming into this, we had the best most pristine mortgage 0:04:52.480 --> 0:04:55.080 credit in at least a generation in terms of debt 0:04:55.080 --> 0:04:58.599 to GDP or debt to income UM if you looked 0:04:58.640 --> 0:05:02.680 at mortgage servicing costs, and so obviously there's been deterioration 0:05:02.800 --> 0:05:07.039 forbearance requests have gone up substantially UM in the markets, 0:05:07.080 --> 0:05:09.920 pricing in about a fifteen percent total forbearance requests with 0:05:10.000 --> 0:05:13.839 somewhere between two and five percent ultimate foreclosures UM. But 0:05:13.960 --> 0:05:16.920 as the economy recovers, we may end up with much 0:05:17.040 --> 0:05:22.039 less home price declines than were initially expected, particularly given 0:05:22.440 --> 0:05:24.719 you know, again when you think through the ramifications of 0:05:25.440 --> 0:05:28.440 ultra loose or hyper loose monetary policy, you know, the 0:05:29.240 --> 0:05:33.080 likelihood of a material loss of property value and residential 0:05:33.120 --> 0:05:35.839 housing is fair fairly low. I mean, we're modeling out 0:05:35.839 --> 0:05:38.120 down ten percent, but there are many forecasters I think 0:05:38.120 --> 0:05:40.159 it's going to be closer to flat or only down five. 0:05:40.760 --> 0:05:43.039 And when you have LTVs that are as low as 0:05:43.120 --> 0:05:45.919 they were coming into this um, even in the event 0:05:45.960 --> 0:05:50.880 of a foreclosure, which would happen you know, say two, 0:05:51.240 --> 0:05:53.960 your recovery value much higher. So you know, when when 0:05:53.960 --> 0:05:56.400 we think through uh, you know, let's call it non 0:05:56.480 --> 0:06:00.200 vanilla structured credit or non vanilla credit. Residential how Z 0:06:00.400 --> 0:06:03.120 is clearly going to be a big winner as well 0:06:03.279 --> 0:06:06.039 multi family commercial real estate. We think those sectors have 0:06:06.080 --> 0:06:08.680 the most upside by far. And then you know, back 0:06:08.680 --> 0:06:11.480 to the conversation with regard to Lobe or a Mars 0:06:11.600 --> 0:06:15.080 or a or a Josh Freeman, I mean they're they're 0:06:15.200 --> 0:06:17.640 also very focused on corporate credit, right and when you 0:06:17.680 --> 0:06:21.160 think of the four team percent for twelve month of 0:06:21.200 --> 0:06:22.800 fault rates is going to be in high yield? Do 0:06:22.839 --> 0:06:24.680 you think of these seven or eight percent it's going 0:06:24.760 --> 0:06:27.760 to be present in levered loans. You know, that's going 0:06:27.800 --> 0:06:31.400 to provide them ample supply to do good old fashioned 0:06:31.400 --> 0:06:34.000 distress restructurings. Which again, if you look at the last 0:06:34.000 --> 0:06:37.240 two cycles or even the H. W. Bush recession, um 0:06:37.480 --> 0:06:41.240 that that was the most profitable hedge fund strategy by far. 0:06:42.080 --> 0:06:43.520 So I think a lot of people will be sitting 0:06:43.520 --> 0:06:45.359 here thinking why do you want to pay a hedge 0:06:45.360 --> 0:06:48.560 fund so that when the photo reserves stepped in and 0:06:48.600 --> 0:06:51.680 the distressed opportunities aren't anything like they were after all 0:06:51.880 --> 0:06:57.840 oh nine. Well, look, I mean, I don't know which 0:06:57.880 --> 0:07:01.640 analysis one would suspect or suggest isn't as great as 0:07:01.920 --> 0:07:04.760 at the end of eight or O nine. Admittedly there 0:07:04.960 --> 0:07:09.080 there won't be the same returns to high yield or 0:07:09.200 --> 0:07:13.200 distressed as you did post immediately after the Lehman failure 0:07:13.200 --> 0:07:16.040 when spreads hit their wides, but spreads it tighten in 0:07:16.120 --> 0:07:18.400 quite substantially prior to O nine, and you still have 0:07:18.520 --> 0:07:22.320 spectacular returns UM. And then back to your direct point. Look, 0:07:22.360 --> 0:07:27.080 the if you think of um where high yield is today? Right, 0:07:27.120 --> 0:07:29.960 So say you're an investor and you want to buy credit, Well, 0:07:30.080 --> 0:07:31.920 you're more than likely going to buy it through high yield. 0:07:32.560 --> 0:07:35.280 You're you're in an eight percent effective yield, which to 0:07:35.320 --> 0:07:37.880 your point is much tighter than it was coming into 0:07:37.880 --> 0:07:41.920 oh nine. Um, your your law suggested yield is basically 0:07:41.960 --> 0:07:44.800 minus two the next twelve months when you adjust for defaults. 0:07:45.360 --> 0:07:49.000 So the better opportunity is going to be in the 0:07:49.040 --> 0:07:51.480 companies that get kicked out of the ETFs or get 0:07:51.480 --> 0:07:54.960 downgraded out of the indices that have to go through restructurings. 0:07:55.240 --> 0:07:58.120 As long as you're careful and avoid too much energy exposure, 0:07:58.480 --> 0:08:00.920 you know, that's where you'll have the high teens or 0:08:00.960 --> 0:08:03.560 low twenty type returns. Whereas to your point, if you're 0:08:03.560 --> 0:08:07.040 just sticking to liquid vanilla on the un ETFs, it's 0:08:07.080 --> 0:08:09.040 being much harder to put up a tract of returns 0:08:09.040 --> 0:08:11.320 the next several years. Truck, I ask you, thank you 0:08:11.440 --> 0:08:19.560 so much. Thanks Skybridge Capital, greatly appreciated. There's a math 0:08:19.600 --> 0:08:22.200 to it in the heritage of Society General and their 0:08:22.240 --> 0:08:26.240 derivatives effort, their math centric effort as well, and of 0:08:26.280 --> 0:08:29.720 course that's scene in their rate strategy with Sobrado Rajapa 0:08:29.800 --> 0:08:32.240 who joins us right now, Sobrad, I'm gonna cut to 0:08:32.240 --> 0:08:34.640 the chase on a Friday, John can ask all the 0:08:34.679 --> 0:08:38.400 fancy questions with Lisa. The real yield, phenominal yield, John 0:08:38.440 --> 0:08:41.160 is a real yield coming back. I don't know. Hopefully, 0:08:42.280 --> 0:08:45.160 careful negotiations, if we get things back together, hopefully we 0:08:45.200 --> 0:08:48.360 can bring it back. Saying broad, I get distracted. I 0:08:48.400 --> 0:08:51.000 want you to give me the levels. I'm ten year 0:08:51.200 --> 0:08:54.760 in thirty year where you really break into a sweat. 0:08:54.840 --> 0:08:58.240 Where's the ten year level that matters? Lower yield, where's 0:08:58.280 --> 0:09:02.160 the thirty year bond yield, lower yield, where things really 0:09:02.200 --> 0:09:07.600 fall apart um, I'd be concerned, especially in the tenure, 0:09:07.679 --> 0:09:10.679 if we break through forty basis points. I feel like that, 0:09:10.880 --> 0:09:14.520 to me is a low that we've seen that's far 0:09:14.760 --> 0:09:18.080 during the crisis that I think the market can manage. 0:09:18.600 --> 0:09:21.920 But I think anything below that the market there definitely 0:09:21.960 --> 0:09:25.360 be a little bit of a concern over how bad 0:09:25.400 --> 0:09:28.199 this can get, and that you know, that would be um, 0:09:28.240 --> 0:09:31.560 you know, a new paradigm shifting mappin in because what 0:09:31.760 --> 0:09:35.600 I think currently the markets pricing in is exactly what 0:09:36.000 --> 0:09:39.559 set share pouse that which is a range of possible outcomes. 0:09:40.000 --> 0:09:44.400 I would say that's broader disagreement on virtually every topic 0:09:45.040 --> 0:09:48.400 of discussion, whether it be the direction of rates, inflation, 0:09:49.120 --> 0:09:51.920 inflation expectations, and now you're starting to see that even 0:09:52.000 --> 0:09:55.560 the equity market, there's very little agreement on the future 0:09:55.600 --> 0:09:59.439 direction of how things are headed. So I would argue 0:09:59.440 --> 0:10:01.840 that the of the markets are basically pricing in a 0:10:01.960 --> 0:10:04.600 range of possible outcomes, and you're seeing that born out 0:10:05.200 --> 0:10:07.400 in some of the pricing we're seeing in the bond 0:10:07.440 --> 0:10:10.480 market sobadre You could take a look at the low 0:10:10.559 --> 0:10:13.040 yields and say this is negative, it's a commentary on 0:10:13.200 --> 0:10:16.320 low expected inflation. You could also say it's a positive 0:10:16.320 --> 0:10:18.640 because the US has to buy a borrow a lot 0:10:18.720 --> 0:10:20.920 a lot of money and they're doing it at record 0:10:20.960 --> 0:10:24.400 low costs. Next week twenty year bond issue is the 0:10:24.440 --> 0:10:27.480 first one since the nineteen eighties, is expected to come 0:10:27.480 --> 0:10:30.640 with a yield of one point zero nine percent. Why 0:10:30.640 --> 0:10:32.439 aren't we seeing a fifty year or a hundred year 0:10:32.480 --> 0:10:37.040 issuance from the US. Well, because there's really no natural 0:10:37.200 --> 0:10:40.280 buyer or fifty hundred year bonds in the US. I 0:10:40.320 --> 0:10:44.400 mean the alan community or the asset liability managers in 0:10:44.480 --> 0:10:48.160 the US like pensions and insurance companies typically don't want 0:10:48.200 --> 0:10:52.959 to buy very very long duration bonds. So really it's 0:10:53.040 --> 0:10:55.839 it's a question of where the demand's going to come from, 0:10:56.120 --> 0:10:59.640 and from the studies that the Treasury has done um 0:10:59.679 --> 0:11:04.320 as well as the the Advisory Committee. Really the sweet 0:11:04.320 --> 0:11:08.040 spart for issuing more is in the twenty years factor, 0:11:08.160 --> 0:11:12.040 because that's really where insurance companies can step in and 0:11:12.040 --> 0:11:16.280 and take down some of the supply. Speaking of taking 0:11:16.280 --> 0:11:18.880 down the supply SEVTRA, how much of this supply will 0:11:18.880 --> 0:11:24.600 the FETE be buying? Um. The set typically doesn't buy 0:11:25.240 --> 0:11:27.679 on their own issues, but they have been sort of 0:11:28.480 --> 0:11:31.160 buying at a piece of VOT, say anywhere between seventy 0:11:31.200 --> 0:11:34.440 ten billion on average for the last couple of I 0:11:34.559 --> 0:11:37.480 just mean in terms of scize evat, not of course, 0:11:37.520 --> 0:11:39.480 not participating in the primary market. I just mean in 0:11:39.559 --> 0:11:42.760 terms of size. Once they start buying these treasuries, in 0:11:42.880 --> 0:11:45.520 terms of the supply versus how much the feed will 0:11:45.559 --> 0:11:48.199 be buying, will they be buying more than than is 0:11:48.240 --> 0:11:52.320 actually supplied by the treasury um. That's a very good 0:11:52.400 --> 0:11:55.839 question because it's you know, the set has been extraordinarily 0:11:55.880 --> 0:11:58.800 careful and not sort of showing its card. They have 0:11:58.960 --> 0:12:02.880 not told us or pre announced the the size of 0:12:02.920 --> 0:12:05.680 the asset purchases and for how long they're going to 0:12:05.720 --> 0:12:08.400 continue to purchase. I think the broad consensus is that 0:12:08.960 --> 0:12:12.120 if asset purchases were intended to provide the quidity, they've 0:12:12.120 --> 0:12:15.720 already accomplished that. So maybe they're continuing to sort of 0:12:15.760 --> 0:12:18.200 have skin in the game to keep interest rates low 0:12:18.880 --> 0:12:21.200 so that you don't see a pop and yields with 0:12:21.440 --> 0:12:24.080 the uh, you know, they're you just to buy your 0:12:24.200 --> 0:12:28.079 name hit the markets, brot. I got like four questions here, 0:12:28.080 --> 0:12:30.280 but I'm gonna go right to where you were. I 0:12:30.320 --> 0:12:35.640 still don't understand how a central bank effects yield curve control, 0:12:36.160 --> 0:12:38.240 which is what you're talking about. They're showing they're not 0:12:38.360 --> 0:12:41.720 they're hiding their cards because they're trying to control movements. 0:12:41.760 --> 0:12:44.959 I get that maybe that's a precursor to yield curve control. 0:12:45.240 --> 0:12:48.480 Do you have confidence at sock Chin that any central 0:12:48.480 --> 0:12:53.680 bank and quote unquote control the yield curve? Well, I 0:12:53.679 --> 0:12:57.160 think some of the you know, I mean the US 0:12:57.240 --> 0:13:01.760 for instance, or Japan or even Europe. I think that 0:13:01.920 --> 0:13:05.360 you know, you have the luxury of being a reserve currency, 0:13:05.559 --> 0:13:08.199 and you know, people are always going to flock to 0:13:09.080 --> 0:13:11.920 safe haven assets, and there's a lot of credibility for 0:13:12.040 --> 0:13:15.439 these these large governments and in central banks. So I 0:13:15.520 --> 0:13:19.160 think for these countries, you know, there's the FED policy 0:13:19.200 --> 0:13:21.800 and FED actions, We're going to keep a lid on 0:13:22.040 --> 0:13:25.600 treasury or it really depends on you know, the credit 0:13:25.600 --> 0:13:27.800 worthiness of the country, and that's really where you tend 0:13:27.800 --> 0:13:30.959 to see yields move high. I just don't think that's 0:13:30.960 --> 0:13:35.000 going to happen in the US, Savadra Rajapa of Society General. 0:13:35.080 --> 0:13:37.040 You've nailed it again and again when it comes to 0:13:37.120 --> 0:13:40.360 expecting guilds to go lower before the pandemic, when a 0:13:40.360 --> 0:13:43.200 lot of people expected them to start heading higher. I 0:13:43.240 --> 0:13:45.800 want to ask you about the political ramifications for the 0:13:45.800 --> 0:13:48.679 Federal Reserve as it essentially monetizes the debt of the 0:13:48.760 --> 0:13:52.240 United States. As the former chief economist of PIMCO said, 0:13:52.440 --> 0:13:54.839 we've had a merger of monetary and fiscal policy. We've 0:13:54.880 --> 0:13:58.280 broken down the church and state separation between the two. 0:13:58.840 --> 0:14:03.360 How consequential is that a you know, it's it's it's 0:14:03.480 --> 0:14:07.560 quite consequential, and it's meaningful at the current time, UM 0:14:07.600 --> 0:14:11.200 that the Fed is intervening because you know, we've had, 0:14:11.400 --> 0:14:14.679 as you know, a very unprecedented rise and deficits in 0:14:14.760 --> 0:14:17.200 a very short period of time. You know, three point 0:14:17.280 --> 0:14:21.280 four trillion for physically or twenty and you know two 0:14:21.360 --> 0:14:25.680 trillion plus for fiscal or and this is just as 0:14:25.720 --> 0:14:28.920 of now. We're not accommodating new plans that are put 0:14:29.000 --> 0:14:32.680 forth by UM the House. And you know, I mean 0:14:32.760 --> 0:14:35.240 to the odds of that passing are probably low, but 0:14:36.320 --> 0:14:39.080 definit gro only rise from here, not you know, go 0:14:39.200 --> 0:14:42.280 lower over the next couple of years. So in that context, 0:14:42.400 --> 0:14:46.440 you know, FED support is extraordinarily welcome. But I think, 0:14:46.880 --> 0:14:48.520 you know, we're going to look back at this and 0:14:48.720 --> 0:14:51.240 and pass judgment. But in my opinion, I feel like 0:14:51.280 --> 0:14:53.760 the FETs doing the right thing to support the broader economy. 0:14:55.320 --> 0:14:56.680 I think a lot of people feel the same. Wise 0:14:56.760 --> 0:14:58.800 a better of course, you'll always get people criticizing the 0:14:58.800 --> 0:15:01.160 FEED and often on that side of things. But yeah, 0:15:01.240 --> 0:15:03.280 I think they've done a brilliant job stepping in and 0:15:03.320 --> 0:15:06.520 really alleviating some of the financial pain on the financial 0:15:06.560 --> 0:15:08.320 condition side. Just to wrap things up and build on 0:15:08.320 --> 0:15:10.840 what Tom said, the Bank Japan did a brilliant job 0:15:11.200 --> 0:15:13.920 of capin a tenure yield in Japan, and they don't 0:15:13.960 --> 0:15:16.520 really need to participate much in the bond market now 0:15:16.720 --> 0:15:19.040 to do it. When you think of yield curve control, 0:15:19.160 --> 0:15:21.360 is that what you're thinking could happen in the United 0:15:21.400 --> 0:15:25.520 States what we've seen play out in Japan. Absolutely, I 0:15:25.520 --> 0:15:29.600 think that that's really the the the the important feature. 0:15:29.640 --> 0:15:32.840 It says, what I desire out of yota control is 0:15:32.880 --> 0:15:36.720 that you know, the communication channel works just as effectively, 0:15:36.720 --> 0:15:40.040 so the seed doesn't have to uh, you know, continue 0:15:40.040 --> 0:15:42.880 to buy assets and and and blow up its balance sheet. 0:15:43.280 --> 0:15:46.920 I mean, as we all know, during the post crisis period, 0:15:46.960 --> 0:15:50.360 it took the FED a long time, over ten years 0:15:50.480 --> 0:15:53.160 before it could start thinking about unwinding its balance sheet. 0:15:53.200 --> 0:15:56.800 If anything, it started raising rates before it started unwinding 0:15:56.840 --> 0:15:59.800 it's it's balancy. This was a debate earlier on on 0:16:00.040 --> 0:16:02.000 what they should do. First, they shouldn't mind the balance. 0:16:02.040 --> 0:16:03.960 She did then raise rates, but then they landed up 0:16:04.200 --> 0:16:09.040 raising rates and then gradually unminding its bound. She is 0:16:09.080 --> 0:16:11.000 the balance. She gets to be too large, and the 0:16:11.040 --> 0:16:14.240 aspiration of ever bringing it back down is going to 0:16:14.880 --> 0:16:17.640 is going to fail. So I think the yield curve 0:16:17.720 --> 0:16:20.280 control from that perspective is a great tool because the 0:16:20.280 --> 0:16:25.600 communication channel tends to work just as effectively as as 0:16:25.680 --> 0:16:30.000 the as as actually going out and purchasing uh, you know, 0:16:30.360 --> 0:16:34.520 treasuries to keep yields low. So um, I think that 0:16:34.520 --> 0:16:38.080 that's when you know, once they've done exhausting uh, once 0:16:38.120 --> 0:16:41.080 they've done bump purchasing as much as they can, I 0:16:41.120 --> 0:16:44.520 think that they will they will try to employ yield 0:16:44.520 --> 0:16:48.520 curve control subaal fantastic to catch up with you this morning, 0:16:48.680 --> 0:16:50.120 My best to you and yours er the whole of 0:16:50.120 --> 0:16:52.440 the same as sok Gen sabatras Jampa there the head 0:16:52.440 --> 0:17:00.920 of US Right Strategy sat as General Andrew holln Holst 0:17:01.040 --> 0:17:02.920 a city joining us now place to site to get 0:17:02.920 --> 0:17:05.280 the lightest on his perspective, and they have few out 0:17:05.280 --> 0:17:07.440 for a city group. Andrew, your first take off the 0:17:07.440 --> 0:17:10.679 back of this dice of place. Yeah, wow, this is 0:17:10.720 --> 0:17:14.520 just more evidence of how deep this contraction is in 0:17:14.640 --> 0:17:17.919 April in particular and in Q two overall. You know, 0:17:17.960 --> 0:17:20.720 I think really what we're thinking about now is not 0:17:20.800 --> 0:17:22.719 so much the April data where we knew we were 0:17:22.720 --> 0:17:25.199 going to see these big contractions. And yeah, I've been 0:17:25.200 --> 0:17:27.679 looking at this number of anything even bigger than what 0:17:27.760 --> 0:17:30.520 has been forecast. Um. But the question that is where 0:17:30.560 --> 0:17:33.160 do we go from here? Um? Can we rebound off 0:17:33.200 --> 0:17:36.240 of the very very negative numbers that we're seeing for 0:17:36.320 --> 0:17:39.000 April and for Q two? Andrew, I was so shocked 0:17:39.000 --> 0:17:41.119 I forgot to bring in, and John saved me and 0:17:41.160 --> 0:17:43.879 brought you in because I'm looking at these numbers and 0:17:43.920 --> 0:17:47.800 they're absolutely shocking. From where you sit with Katherine Mander. 0:17:47.840 --> 0:17:54.200 They change the political debate in Washington Yeah, it's so interesting. Right. 0:17:54.240 --> 0:17:57.400 We have a large fiscal package that's being debated right now, 0:17:57.440 --> 0:18:00.560 and I think the numbers do matter. I think the 0:18:00.640 --> 0:18:04.000 activity numbers matter. I think the jobless numbers matter a 0:18:04.080 --> 0:18:08.440 lot as we're thinking about unemployment insurance and what we're 0:18:08.480 --> 0:18:11.760 doing to top of incomes which are obviously being very 0:18:11.880 --> 0:18:14.920 very deeply impacted by this. So that the debate is 0:18:14.960 --> 0:18:17.000 probably going to continue to play out over over weeks, 0:18:17.040 --> 0:18:19.680 but certainly the I can data place into that, Lisa, 0:18:19.720 --> 0:18:21.840 I just got the control group in Folks. This is 0:18:21.880 --> 0:18:24.240 the number. I look at the retail sales Folks is 0:18:24.280 --> 0:18:27.680 like jobs claims. Tons of data comes out. The control 0:18:27.760 --> 0:18:32.560 group is taking out the goofy stuff, gasoline, building materials, 0:18:33.040 --> 0:18:37.400 um all sorts of different things, spam. It takes out spama. Yes, 0:18:37.480 --> 0:18:41.200 the retail control group. We went from minus two percent, Lisa, 0:18:41.800 --> 0:18:46.040 to a survey minus five and we clocked in with 0:18:46.119 --> 0:18:50.480 a minus fifteen percent. That says it all. It's brutal, 0:18:50.920 --> 0:18:53.440 it's depressing, and I gotta say, if any del Judas 0:18:53.600 --> 0:18:55.560 every time he gives one of these data reads, you 0:18:55.640 --> 0:18:59.600 can feel the weight of these numbers on his voice. Andrew, 0:18:59.720 --> 0:19:02.000 a lot of people saying, we will get a big 0:19:02.040 --> 0:19:04.600 recovery when people can go out and spend. And yet, 0:19:04.640 --> 0:19:07.720 as we saw from the Chinese data overnight, it's not 0:19:07.800 --> 0:19:11.639 that simple. People aren't that willing to go to restaurants 0:19:11.640 --> 0:19:14.720 how quickly. As John was saying, how quickly can we 0:19:14.760 --> 0:19:19.480 rebound based on what we are seeing in China, Yeah, 0:19:19.480 --> 0:19:22.920 I think it's definitely not that simple for categories like restaurants, 0:19:22.960 --> 0:19:25.560 for categories like travel, and it's not that simple for 0:19:25.600 --> 0:19:29.280 the economy overall. I think we are seeing some positive 0:19:29.320 --> 0:19:31.320 signs in the US now. We're watching a lot of 0:19:31.440 --> 0:19:34.320 high frequency data that we don't usually watch daily data 0:19:34.320 --> 0:19:36.960 on things like gasoline demand, on things like driving their 0:19:37.000 --> 0:19:41.439 people driving their cars, um what we're hearing from auto 0:19:41.440 --> 0:19:44.680 dealerships or that are reopening as they're seeing a similar 0:19:44.720 --> 0:19:47.879 amount of demand to what they saw before the COVID 0:19:48.000 --> 0:19:51.719 nineteen downturn. So I mean, very very early days on this, 0:19:51.800 --> 0:19:55.040 but I think they'll do this this very differential effect 0:19:55.119 --> 0:19:58.280 where you'll see some industry some sectors that come back quickly, 0:19:58.280 --> 0:20:01.520 and other travel staurans are good examples where that could 0:20:01.560 --> 0:20:03.960 be a much longer story. Andrew, there was a story 0:20:04.040 --> 0:20:06.840 in the Wall Street Journal this morning, the headline coronavirus 0:20:06.960 --> 0:20:10.359 finishes the retail reckoning that Amazon started, and talked about 0:20:10.600 --> 0:20:14.240 the expectation for about a hundred thousand stores to close 0:20:14.320 --> 0:20:17.520 over the next five years, bankruptcies to surge among brick 0:20:17.600 --> 0:20:21.840 and mortar retailers. How much does this accelerate that trend? Yeah, 0:20:21.880 --> 0:20:24.119 I think we'll see a big acceleration of that. That. 0:20:24.240 --> 0:20:27.680 That was one of our initial thoughts when stores started closing, 0:20:27.800 --> 0:20:30.600 is I think we all knew, we all expected that 0:20:30.640 --> 0:20:33.640 there would be further brick and mortar closing of stores 0:20:33.960 --> 0:20:36.880 in coming months and coming years. Now that you were 0:20:37.040 --> 0:20:39.360 forced to close down, there's just gonna be a lot 0:20:39.400 --> 0:20:41.520 of store owners to say it doesn't make sense to 0:20:41.600 --> 0:20:44.440 reopen again. So we've seen the shift online, we've seen 0:20:44.640 --> 0:20:47.760 shift away from brick and mortar. Definitely accelerate that substantially. 0:20:47.880 --> 0:20:49.840 I mean, Tom, we've been talking about this for years. 0:20:49.920 --> 0:20:52.399 This is what we've been seeing on the avenues of 0:20:52.520 --> 0:20:55.400 New York City. In Manhattan, if you go high enough 0:20:55.440 --> 0:20:57.960 up on Lexington, in fact, if you come down towards Midtown, 0:20:58.040 --> 0:21:01.760 we've seen shut store fronts for long time. I totally agree, 0:21:01.840 --> 0:21:05.359 But Andrew, what's so importantly, here is when the facts change. 0:21:05.480 --> 0:21:09.600 Politicians change. At eight thirty this morning, six minutes ago, 0:21:09.720 --> 0:21:15.639 did the facts just change for our August politicians? Again, 0:21:15.840 --> 0:21:18.880 I think it's probably more the labor market that's going 0:21:18.920 --> 0:21:21.560 to matter. And in some ways that's that's that's a 0:21:21.720 --> 0:21:23.840 good way of looking at it, because you really want 0:21:23.880 --> 0:21:26.240 to think about what is the negative impact that this 0:21:26.600 --> 0:21:28.560 is having on individuals? And we know that it's huge. 0:21:28.600 --> 0:21:30.720 We know it's huge from the jobless claims data, we 0:21:30.760 --> 0:21:32.560 know it's huge from the jobs reports that have come 0:21:32.560 --> 0:21:35.280 out already. So um so again, I think the economic 0:21:35.320 --> 0:21:39.840 data matter. Does you know one retail sales reading change significantly? 0:21:39.840 --> 0:21:42.400 The political calculus, I'm not sure we can make that stapent. 0:21:42.640 --> 0:21:44.679 The two things that I think market participants are going 0:21:44.720 --> 0:21:46.600 to really have to grapple within the months to come. 0:21:46.840 --> 0:21:49.920 Andrew quite clearly, quite clearly, will get some sequential month 0:21:49.960 --> 0:21:52.560 on month improvement as we work our way through summer. 0:21:52.680 --> 0:21:56.560 That's clear to everybody. How do you establish the limit 0:21:56.720 --> 0:21:59.600 to that sequential month a month improvement, the limits of 0:21:59.600 --> 0:22:02.920 the over will recovery, the limits of normalizing. How do 0:22:02.960 --> 0:22:06.320 you get your hands around that? Yeah, I think that's 0:22:06.359 --> 0:22:08.400 what we really need to be watching day by day 0:22:08.440 --> 0:22:10.719