WEBVTT - Home Values Will Decline In Coastal Cities: Mohtashami (Podcast) 0:00:02.640 --> 0:00:05.360 Welcome to the Bloomberg Penl podcast. I'm Paul Swinge. You, 0:00:05.360 --> 0:00:07.680 along with my co host Lisa Brahma wits each day 0:00:07.720 --> 0:00:10.240 we bring you the most noteworthy and useful interviews for 0:00:10.280 --> 0:00:12.520 you and your money, whether at the grocery store or 0:00:12.560 --> 0:00:15.480 the trading floor. Find a Bloomberg Penl podcast on Apple 0:00:15.520 --> 0:00:17.959 podcast or wherever you listen to podcasts, as well as 0:00:17.960 --> 0:00:23.320 at Bloomberg dot com. Well, after raising interest rates several 0:00:23.360 --> 0:00:27.160 notches in ten, the FETE appears to be on the sidelines, 0:00:27.360 --> 0:00:29.440 at least for the near term. So let's get a 0:00:29.480 --> 0:00:32.280 sense of what that means for the US housing market. 0:00:32.360 --> 0:00:35.720 Let's bring on Logan Mohatshami. Logan is a senior loan 0:00:35.800 --> 0:00:39.120 officer AMC Lending group based in Irvine, California. So Logan, 0:00:39.120 --> 0:00:41.400 thank you so much for joining us. So we do 0:00:41.479 --> 0:00:43.160 have the feed on the sidelines here. In the early 0:00:43.159 --> 0:00:45.880 part of twenty nine, team of the Bias continues to 0:00:46.000 --> 0:00:48.680 seem to be with an upward bias. How are the 0:00:48.760 --> 0:00:51.240 US housing market? How is the housing market really dealing 0:00:51.240 --> 0:00:56.120 with this rate environment? Well, in this second cycle, whenever 0:00:56.200 --> 0:00:58.440 mortgage rates get to about four and a half percent 0:00:58.600 --> 0:01:01.080 or higher, we see a slow down in the housing market, 0:01:01.440 --> 0:01:05.760 mostly in the hot coastal areas. But again for this year, 0:01:05.840 --> 0:01:08.800 the trend looks like existing home sales are going to 0:01:08.880 --> 0:01:13.360 be lower again and new home sales is really struggling 0:01:13.440 --> 0:01:16.360 right now. And I don't think the lower interest rates 0:01:16.440 --> 0:01:18.679 on the thirty year fix that we've gotten from last 0:01:18.720 --> 0:01:22.399 November to now is still good enough to drive sales 0:01:22.480 --> 0:01:25.440 for growth. So logan, where are we in terms of 0:01:25.480 --> 0:01:29.240 the average mortgage rate right now? Right now you're looking 0:01:29.280 --> 0:01:31.880 still around four and a half percent, four point six 0:01:31.920 --> 0:01:35.800 to five diff You know, it's nothing. The mortgage rate 0:01:35.959 --> 0:01:41.160 impacts the marginal home buyer, the total principal interest, tax, inflation, 0:01:41.280 --> 0:01:44.039 all those higher home prices, higher mortgage rights. And that's 0:01:44.080 --> 0:01:46.479 one thing that I think we forgot about housing. Last year. 0:01:46.840 --> 0:01:49.520 Nominal home prices were at all time highs last year, 0:01:49.720 --> 0:01:52.680 mortgage rates were higher in demand. We lost just roughly 0:01:52.720 --> 0:01:55.920 only a hundred and seventy thousand existing home sales from 0:01:55.920 --> 0:01:58.200 the previous year. So how is it actually held up 0:01:58.240 --> 0:02:02.160 considering all those variables actors? Okay, so just looking forward, 0:02:02.200 --> 0:02:04.800 if you are expecting a slowdown, if you don't think 0:02:04.840 --> 0:02:08.040 that there's enough strength to sort of sustain the momentum 0:02:08.120 --> 0:02:11.480 in the markets where in the US to expect the 0:02:11.520 --> 0:02:15.040 most pronounced bouts of a slowdown and and potentially decline 0:02:15.040 --> 0:02:20.720 in home values New York, Seattle, California. And you can 0:02:20.840 --> 0:02:22.959 see that some of the homes that were bought let's 0:02:22.960 --> 0:02:25.680 say last March, April and May that might have been 0:02:25.680 --> 0:02:28.080 a part of a bidding process. It looks like to 0:02:28.120 --> 0:02:30.160 me that those homes on a year over year basis 0:02:30.160 --> 0:02:34.079 could be down. Uh, the Midwest, the South, everywhere else 0:02:34.120 --> 0:02:36.200 should be okay. But if we look at the purchase 0:02:36.240 --> 0:02:39.880 application data right now, last year, we were positive almost 0:02:39.880 --> 0:02:42.400 every single week except for six we only had two 0:02:42.400 --> 0:02:46.040 real negative prints. Right now, we've already had two negative 0:02:46.040 --> 0:02:48.040 prints for the year. It's not even Valentine's Day yet, 0:02:48.480 --> 0:02:51.760 So that data line has already shown you today that 0:02:51.840 --> 0:02:53.680 there's a little bit of softness. Now. It isn't going 0:02:53.720 --> 0:02:56.320 to be a big decline in existing home sales. That 0:02:56.520 --> 0:02:59.800 I haven't forecasted growth in existing home sales since I'm 0:02:59.840 --> 0:03:02.800 expecting another year of slightly down sales, a little bit 0:03:03.120 --> 0:03:06.840 increase in inventory, but nothing too big on both fronts. 0:03:07.360 --> 0:03:10.799 What could cause the US housing market they decline significantly 0:03:10.840 --> 0:03:13.600 more than you're anticipating, and maybe the market markets anticipating 0:03:13.720 --> 0:03:17.200 is it's simply the interest rate environment. If mortgage rates 0:03:17.240 --> 0:03:20.720 ever got about five point eight seven, I think that 0:03:20.919 --> 0:03:24.280 could create a noticeable decline in sales and a noticeable 0:03:24.360 --> 0:03:26.920 increase in inventory. This is for existing home sales. New 0:03:26.919 --> 0:03:30.680 home sales is always expensive there they have more issues 0:03:30.720 --> 0:03:34.480 than the existing homesale market. But because demographics are about 0:03:34.520 --> 0:03:37.320 to get bigger and better for the housing market, I 0:03:37.680 --> 0:03:41.960 don't see a major decline in sales anytime soon. But 0:03:42.040 --> 0:03:45.480 if mortgage rates did get up to five and that 0:03:45.560 --> 0:03:48.920 basically takes us to the low levels of their previous cycle, 0:03:49.520 --> 0:03:51.640 with real home prices where they are right now, you 0:03:51.720 --> 0:03:55.560 can see a noticeable decline. But for now it's just 0:03:55.640 --> 0:03:59.280 going to be a slight decline for nineteen nothing too 0:03:59.440 --> 0:04:03.000 draft that similar to what we saw in so look 0:04:03.040 --> 0:04:06.200 and talk. You mentioned the demographics here and this goes 0:04:06.400 --> 0:04:08.120 This might go to a longer term call on the 0:04:08.200 --> 0:04:11.080 housing markets. Gives a sense of how the demographics are 0:04:11.080 --> 0:04:14.040 playing into it. Are millennials buying houses that type of thing. 0:04:14.720 --> 0:04:17.480 Millennials are the biggest home buyers in the world right now. 0:04:17.680 --> 0:04:19.920 I think that we don't ever focused on that. I 0:04:20.000 --> 0:04:23.480 think housing demand problem or in some cases some people 0:04:23.520 --> 0:04:26.320 think the manage should be stronger. Is the move up 0:04:26.360 --> 0:04:29.640 buyer is not there? People are staying in their homes longer. 0:04:30.160 --> 0:04:32.400 We might have gone from a five to seven time 0:04:32.800 --> 0:04:34.840 the year time horizon for people staying their homes to 0:04:34.920 --> 0:04:38.040 a twelve or twenty two year That will impact sales. 0:04:38.560 --> 0:04:41.279 But the biggest demographic patch we have in America right 0:04:41.320 --> 0:04:44.000 now are ages thirty one the median first time home 0:04:44.080 --> 0:04:47.480 buyers two. So I look at them as replacement buyers. 0:04:47.560 --> 0:04:49.560 I know a lot of people are, you know, banking 0:04:49.640 --> 0:04:52.120 on this demographic boom for housing. I kind of have 0:04:52.200 --> 0:04:54.920 a different take on it. You have replacement buyers to 0:04:55.000 --> 0:04:57.479 come in. If you get a little bit more action 0:04:57.520 --> 0:05:00.000 than move up buyers, then you could get a little 0:05:00.040 --> 0:05:02.320 bit more existing home sales. But you know, five point 0:05:02.440 --> 0:05:05.920 five million existing home sales might be the for this cycle, 0:05:06.279 --> 0:05:08.320 and that's not a bad thing. I think some people 0:05:08.440 --> 0:05:12.200 just have um too much aggressive high forecasts for existing 0:05:12.240 --> 0:05:15.279 home sales and they think this is bad or something's off. 0:05:15.320 --> 0:05:17.200 It's just this is this is how the housing market 0:05:17.279 --> 0:05:20.080 is going to be for maybe another ten years. Okay, 0:05:20.279 --> 0:05:22.520 so I guess I'm trying to figure out logan. If 0:05:22.520 --> 0:05:25.960 you're expecting the coastal cities to see uh decline in 0:05:26.120 --> 0:05:30.839 home values, how deep will it be? Given your forecast 0:05:30.960 --> 0:05:34.719 for mortgage rates will be mortgage rates should go even 0:05:34.839 --> 0:05:36.760 lower than what they are right now. I think I 0:05:36.839 --> 0:05:39.719 was one of the few people for nineteen that's forecast 0:05:39.800 --> 0:05:42.920 at lower mortgage rates. So even if mortgage rates fall, 0:05:43.160 --> 0:05:45.720 it doesn't change my forecast any And this is similar 0:05:45.720 --> 0:05:48.360 to what happened in as well. Mortgage rates were training 0:05:48.440 --> 0:05:51.279 lower the entire year and sales were down, but still 0:05:51.560 --> 0:05:55.480 sales are are holding up as well. But for California, 0:05:55.520 --> 0:05:59.640 New York, in Seattle, UM, even though inventory monthly supply 0:05:59.760 --> 0:06:03.000 isn't high, pricing will be an issue. So to me, 0:06:03.240 --> 0:06:06.039 we have to see how do sellers react if they 0:06:06.080 --> 0:06:07.800 don't get the price they want. You know, a few 0:06:07.880 --> 0:06:10.159 years ago they just wouldn't sell their homes because they 0:06:10.240 --> 0:06:13.040 needed a certain price level. To make sense, because we 0:06:13.320 --> 0:06:16.280 just started the increase of home prices. Now that's four 0:06:16.400 --> 0:06:18.960 years ago. We've got about near twenty trillion dollars of 0:06:19.040 --> 0:06:21.440 equity out there. We have a fifteen trillion dollars of 0:06:21.480 --> 0:06:25.120 net equity for these home home owners, they might be 0:06:25.240 --> 0:06:27.640 willing to take a little bit lower prices just to 0:06:27.720 --> 0:06:30.240 move the move their homes, so that to me can 0:06:30.360 --> 0:06:34.560 create year over year declines in some areas of California, Seattle, 0:06:34.760 --> 0:06:38.160 even Las Vegas, even in New York because now they 0:06:38.240 --> 0:06:39.599 feel a little bit better, they have a little bit 0:06:39.640 --> 0:06:42.320 more equity, so they have to cut their prices. They 0:06:42.400 --> 0:06:45.640 will where four years ago that wasn't the case. So logan, 0:06:45.720 --> 0:06:47.680 how about on the new home supply are the Toll 0:06:47.760 --> 0:06:49.840 Brothers of the world. Are they still buying homes or 0:06:49.960 --> 0:06:52.920 are they pulled back? New home sales is much different. 0:06:53.200 --> 0:06:57.600 Sales have not gone anywhere for a while now. But um, 0:06:58.080 --> 0:07:00.560 that big spike we saw a new homes there last 0:07:00.640 --> 0:07:02.840 month or for the month of November kind of discount 0:07:02.920 --> 0:07:07.160 that that marketplace is struggling and until we see the 0:07:07.400 --> 0:07:11.520 stod new home sales trends come back again. Uh, don't 0:07:11.560 --> 0:07:14.720 look for housing starts to really grow aggressively. And you 0:07:14.800 --> 0:07:18.440 know told Brothers, in these these companies, they sell to 0:07:18.520 --> 0:07:21.520 a very small market base, so you will find wealthy 0:07:21.600 --> 0:07:24.480 buyers for those products just in the rate of growth 0:07:24.560 --> 0:07:25.880 of them is just not going to be the same, 0:07:25.960 --> 0:07:27.640 and this might be the case for a very long 0:07:27.760 --> 0:07:31.040 time if interest rates don't go lower. Every single housing 0:07:31.120 --> 0:07:33.720 cyclists have two percent lower interest rates to help boost 0:07:33.760 --> 0:07:35.800 them at For that to happen, we need about a 0:07:35.800 --> 0:07:37.560 one in a quarter and two and a quarter thirty 0:07:37.640 --> 0:07:40.040 year six. That means a ten year yield have to 0:07:40.080 --> 0:07:43.120 go negative. I don't think that's going to happen. Longer term. 0:07:43.200 --> 0:07:46.679 The builders have to build cheaper homes or smaller homes 0:07:47.080 --> 0:07:51.080 to grow that base. Especially as told brothers, Yeah, Logan 0:07:51.160 --> 0:07:53.040 Mota Shami, thank you so much for being with us. 0:07:53.440 --> 0:07:56.200 Love the perspective. Logan Motor Shami, a senior loan officer 0:07:56.360 --> 0:08:01.000 for AMC Lending Group, talking about what he's expecting on 0:08:01.080 --> 0:08:03.120 the coastal cities in particular with a slow down of 0:08:03.120 --> 0:08:07.800 potential declines in home values. Interesting. Paul I thought also 0:08:07.920 --> 0:08:10.960 that he sees mortgage rates going lower from here, not 0:08:11.240 --> 0:08:14.040 higher from here, but that may not be enough to 0:08:14.240 --> 0:08:16.600 really juice the market in a way that the coastal 0:08:16.640 --> 0:08:19.000 cities need kind of compelling to especially at a time 0:08:19.040 --> 0:08:36.880 when people are still calling for higher rates. It hasn't 0:08:36.920 --> 0:08:41.120 been a particularly exciting year in uh. Frankly, broadly in 0:08:41.160 --> 0:08:42.679 markets at a day to day level, But if you 0:08:42.720 --> 0:08:45.800 look at returns, holy cow, credit has crushed it. How 0:08:45.880 --> 0:08:49.040 your bonds have returned nearly five percent so far. You're 0:08:49.080 --> 0:08:52.800 to date being led by the riskiest of risky bonds. 0:08:53.160 --> 0:08:55.559 Joining us here to figure out how much longer this 0:08:55.720 --> 0:08:58.400 rally can continue. Peter Sheer, head of macro Strategy to 0:08:58.480 --> 0:09:02.160 Academy herdis based in Connecticut, but joining us here today 0:09:02.240 --> 0:09:05.520 in our Bloomberg Interactive broker's studios. So, Peter, are we 0:09:05.760 --> 0:09:08.120 sort of at the precipice of another sell off? Or 0:09:08.200 --> 0:09:10.960 could we see those ten percent returns eleven percent returns 0:09:10.960 --> 0:09:12.920 at some Wall Street analysts are calling for this year? 0:09:13.040 --> 0:09:15.240 You know, I think we could. I'm saying that bonds 0:09:15.280 --> 0:09:17.200 have wound up. We were talking about following angels. They 0:09:17.200 --> 0:09:19.199 didn't go to hell, they wound up in purgatory. So 0:09:19.240 --> 0:09:21.000 I think we're stuck. Now some of the big total 0:09:21.040 --> 0:09:22.640 returns gone, and now you're gonna have to live off 0:09:22.679 --> 0:09:24.920 of coupon return and kind of roll and carry. So 0:09:24.960 --> 0:09:26.880 it's gonna be a little bit boring. What does that 0:09:26.960 --> 0:09:29.839 mean in terms of total return over So you know, 0:09:30.360 --> 0:09:32.240 in high yield you could add another five to seven 0:09:32.280 --> 0:09:34.840 percent that way, Okay, so you could get to ten 0:09:34.920 --> 0:09:39.240 to twelve percent returns and on you know, triple B bonds, 0:09:39.400 --> 0:09:40.839 you're gonna be lower, but I think it'll still be 0:09:40.880 --> 0:09:43.480 a very nice positive return. We're not done yet, so 0:09:43.520 --> 0:09:46.080 I think you're supposed to keep in credit right now. So, Peter, 0:09:46.160 --> 0:09:47.960 given the rally that we've had in the credit markets 0:09:48.040 --> 0:09:50.760 this year, where are you're in terms of the risk profile. 0:09:50.800 --> 0:09:52.600 Are you still out there looking for risk or are 0:09:52.600 --> 0:09:55.160 you using the rally to kind of improve the credit 0:09:55.240 --> 0:09:57.120 quality of your portfolio. So we went kind of from 0:09:57.240 --> 0:09:59.320 raging bull and kind of didn't matter to we're being 0:09:59.320 --> 0:10:02.120 a little bit more elective. What I find interesting right 0:10:02.160 --> 0:10:03.720 now in the market is I actually like the triple 0:10:03.800 --> 0:10:06.200 B sector, so the lowest end of investment grade, because 0:10:06.200 --> 0:10:09.320 I still think that's the part that was least you know, loved, 0:10:09.360 --> 0:10:11.520 so there's still more room to buy it. I don't 0:10:11.559 --> 0:10:13.800 actually like single B, so the stuff above triple B, 0:10:14.000 --> 0:10:15.760 because I don't think they got the messages that take 0:10:15.920 --> 0:10:18.920 credit is bad. So the single as are the companies 0:10:18.960 --> 0:10:20.360 that are going to do the M and A activity, 0:10:20.440 --> 0:10:23.360 that are gonna still do stock buybacks. And then weirdly. 0:10:23.480 --> 0:10:26.079 I also don't like the double B sector, which is 0:10:26.120 --> 0:10:28.400 the high end of high yield, partly because all this 0:10:28.520 --> 0:10:31.280 money's flown in so it's gone into the quote unquote 0:10:31.360 --> 0:10:33.439 safe part of high yield, which is double bees. So 0:10:33.520 --> 0:10:34.920 I think you want to be a little bit cautious 0:10:34.960 --> 0:10:37.120 on high yield, kind of skew yourself a little bit 0:10:37.120 --> 0:10:39.400 more to triple B and fund managers to do that 0:10:39.679 --> 0:10:42.200 and even start looking at leverage loans again. All right, 0:10:42.400 --> 0:10:45.640 so a mild bull, not a raging bull, but a 0:10:45.720 --> 0:10:49.800 tempered bowl. Peter Cheer with the expectation that HIO bonds 0:10:49.840 --> 0:10:53.000 could still return tended towelve first sent so far this year, 0:10:53.240 --> 0:10:55.160 the question is how long can it last? You know? 0:10:55.200 --> 0:10:57.560 And people talk about or the ninth inning. This has 0:10:57.600 --> 0:10:59.960 been a credit cycle that we're probably in the twenty 0:11:00.120 --> 0:11:03.280 third inning, um. But I have to wonder, do you 0:11:03.360 --> 0:11:09.560 even see more investors getting into credit via credit default swaps, 0:11:09.720 --> 0:11:12.400 via e T s, via instruments that they can get 0:11:12.480 --> 0:11:15.760 out of very quickly. I think there's definitely more trading mentality. 0:11:15.840 --> 0:11:18.280 People want to look for what's the right hedge, how 0:11:18.320 --> 0:11:19.920 do we get out if we need to? And I 0:11:19.960 --> 0:11:21.560 think this isn't going to be driven as much by 0:11:21.600 --> 0:11:23.760 demand but by lack of supply. I think we're going 0:11:23.800 --> 0:11:26.040 to see less than a trillion dollars of I G credit, 0:11:26.160 --> 0:11:27.839 which sounds like a lot, but that would be the 0:11:27.960 --> 0:11:30.960 least since two thousand and eleven. You have about seven 0:11:31.320 --> 0:11:33.800 billion of I debt that matures this year. You're seeing 0:11:33.840 --> 0:11:36.680 tender offers in very large size by companies like Verizon 0:11:37.000 --> 0:11:38.959 and Budweiser. So I think this is going to be 0:11:39.040 --> 0:11:42.200 a limited supply and people are companies are reacting. They're saying, WHOA, 0:11:42.480 --> 0:11:44.240 this was bad. The companies with a lot of debt 0:11:44.320 --> 0:11:47.000 got punished. Their stock price was really far down, whether 0:11:47.040 --> 0:11:49.920 your Budweiser, g E, Newal, rubber made. So you're starting 0:11:49.960 --> 0:11:52.040 to see companies change that narrative. So I think you're 0:11:52.080 --> 0:11:54.559 gonna see less and less debt available to buy, and 0:11:54.640 --> 0:11:56.640 that's where you'll get the squeeze, not because there's so 0:11:56.760 --> 0:11:59.920 much more new demand. So, Peter, you mentioned you're assuming 0:12:00.120 --> 0:12:02.080 some risk still in the high yield sector. What are 0:12:02.080 --> 0:12:04.040 some of the sectors that you think are still attractive 0:12:04.080 --> 0:12:07.439 to you right here even after the rally. So we 0:12:07.720 --> 0:12:09.960 like anything kind of to do with liquid, natural gas. 0:12:10.160 --> 0:12:12.360 We do believe that everything we're hearing out of d 0:12:12.440 --> 0:12:14.400 C is a trade deal is still likely to come, 0:12:14.640 --> 0:12:17.559 and it's gonna be very heavy on Chinese buying. Liquid 0:12:17.640 --> 0:12:19.400 natural gas is one of the products that will agree to. 0:12:19.760 --> 0:12:21.800 There's a lot of build up that's still necessary. So 0:12:21.880 --> 0:12:25.360 we see that area is something that is underappreciated. Some 0:12:25.600 --> 0:12:27.839 of the price, you know, some of the potential for 0:12:27.920 --> 0:12:30.160 deals priced in. I think people are gonna be surprised 0:12:30.200 --> 0:12:31.599 just how power for the deal is. So we like 0:12:31.800 --> 0:12:34.439 that sector. Autos at the other end, is one we're 0:12:34.440 --> 0:12:37.199 still watching very closely. What we're trying to figure out 0:12:37.360 --> 0:12:40.839 is how effective they've been by the tariffs and trade 0:12:40.880 --> 0:12:43.280 war and how much is just saturation in terms of 0:12:43.280 --> 0:12:45.560 automobiles and what higher rates are doing to the consumers 0:12:45.600 --> 0:12:49.640 domestically and more of a saturation overseas. So autos are 0:12:49.720 --> 0:12:51.520 kind of there that we're taking a closer look at 0:12:52.040 --> 0:12:55.160 what would have to happen to make you, uh, not 0:12:55.280 --> 0:12:58.680 fulish anymore in credit. So I think one no sign 0:12:58.720 --> 0:12:59.840 of a trade deal. I think if we're not going 0:12:59.920 --> 0:13:02.280 to get a trade deal, we're gonna have serious economic problems. 0:13:02.360 --> 0:13:04.959 The slowdown we're already seeing in China and Europe is 0:13:05.000 --> 0:13:07.040 going to get worse there and spread to hear So 0:13:07.160 --> 0:13:09.400 that would be one thing. The other is if companies 0:13:09.480 --> 0:13:11.439 quickly kind of forget about how bad it was in 0:13:11.480 --> 0:13:14.920 November di sever and start releveraging themselves. Right. Big part 0:13:14.960 --> 0:13:16.439 of this is you know, you're kind of looking management 0:13:16.480 --> 0:13:18.720 in the eyes and saying are you going to behave? 0:13:18.960 --> 0:13:21.000 And to the extent that you believe management's gonna behave, 0:13:21.320 --> 0:13:23.319 you want a long credit. If they start going back 0:13:23.360 --> 0:13:25.480 to the bad ways, you want to pull back. But 0:13:25.600 --> 0:13:28.960 to that point, Goldman Sacks put out a report overnight 0:13:29.120 --> 0:13:32.319 where they basically said, we're no longer recommending that you 0:13:32.440 --> 0:13:35.040 invest in the shares of companies that are responsible and 0:13:35.080 --> 0:13:38.400 that are deleveraging. Go ahead and go towards those that 0:13:38.600 --> 0:13:40.840 have much worse balance sheets because the FED is going 0:13:40.920 --> 0:13:43.080 to have your back. I think there may be premature 0:13:43.120 --> 0:13:45.040 on that. I want the ones that have worst balance 0:13:45.080 --> 0:13:47.360 sheets that are still deleveraging. I don't want to touch 0:13:47.400 --> 0:13:49.520 again some of those high qualities single A companies that 0:13:49.679 --> 0:13:52.480 might decide to leverage themselves or do something that as punitive. 0:13:52.559 --> 0:13:54.240 But I think they're a bit early on that. I 0:13:54.280 --> 0:13:56.640 still want companies that are doing the right thing, because 0:13:56.640 --> 0:13:58.880 I think the markets are going to be fickle and 0:13:58.880 --> 0:14:00.480 if you do the wrong thing, you'll see big sell 0:14:00.520 --> 0:14:02.679 offs and stocks. Again, are there any sectors that you 0:14:02.720 --> 0:14:05.240 see a preponderance of companies doing the wrong thing that 0:14:05.240 --> 0:14:08.160 we should stay away from. No, I think that was 0:14:08.240 --> 0:14:12.400 probably true September on October. Right now, most companies seem 0:14:12.440 --> 0:14:15.680 to be doing the right thing, which is encouraging. Alright. 0:14:15.800 --> 0:14:19.120 So going forward, you like credit, when do you see 0:14:19.160 --> 0:14:21.440 this turning? I mean, how how long do people have 0:14:21.760 --> 0:14:24.680 before you start to see the risks building up again? 0:14:26.040 --> 0:14:28.720 I think at least six months, maybe a year, maybe longer. 0:14:28.960 --> 0:14:30.840 Do you think that there will be another credit crisis? 0:14:30.880 --> 0:14:32.800 And if so, what would cause it. I don't think 0:14:32.800 --> 0:14:35.640 there's gonna be another credit crisis because I don't see 0:14:35.640 --> 0:14:37.960 the leverage in the system or the trading system. In 0:14:38.080 --> 0:14:41.200 the financial crisis, there was everything was kind of interconnected, 0:14:41.720 --> 0:14:43.800 you know, one thing not the other. There were products 0:14:43.840 --> 0:14:45.800 like c P d O s which were constant proportion 0:14:45.880 --> 0:14:48.200 default obligations. There were l s s s which were 0:14:48.440 --> 0:14:51.000 leverage super senior. So everything was linked and as soon 0:14:51.080 --> 0:14:53.360 as one part of the capital structure started getting in trouble. 0:14:53.800 --> 0:14:55.400 Everything had to get sold. There was a lot of 0:14:55.440 --> 0:14:57.520 mark to market risk. I do think we can get 0:14:57.560 --> 0:14:59.440 bouts like we saw in December where the e t 0:14:59.600 --> 0:15:02.120 f s and for particular drive prices lower, but they 0:15:02.160 --> 0:15:04.960 can rebound quickly. There's just not liquidity. But I don't 0:15:05.000 --> 0:15:08.600 see people being forced out of the market alright, So 0:15:08.880 --> 0:15:12.320 going forward, you don't see another credit crisis. So if 0:15:12.480 --> 0:15:14.920 people are going into credit right now, you don't. You 0:15:15.000 --> 0:15:16.800 say that people do have a trading mentality, but it 0:15:16.840 --> 0:15:18.920 sounds like perhaps they shouldn't. Perhaps it should be more 0:15:18.960 --> 0:15:20.680 buy and hold. Yeah. I think you're supposed to pick 0:15:20.680 --> 0:15:23.400 the credits you like, stick with it, and that's how 0:15:23.440 --> 0:15:25.360 you're gonna make your money. And if there is a bubble, 0:15:25.360 --> 0:15:27.240 I think the bubble is much more in terms of 0:15:27.360 --> 0:15:29.880 volatility selling. We see that in the equity markets. But 0:15:30.280 --> 0:15:32.960 you know, all these e t f s really generate 0:15:33.000 --> 0:15:35.760 a lot of options to activity around it. H y G, 0:15:35.960 --> 0:15:37.880 which is one high yield et F that's about three 0:15:37.920 --> 0:15:40.000 times the dollar price of j n K which is 0:15:40.040 --> 0:15:42.120 another one, has a lot more volume because the option 0:15:42.160 --> 0:15:44.400 activity is very big. B k l N, which was 0:15:44.440 --> 0:15:47.440 a leverage loan, had a big trouble. There was a 0:15:47.560 --> 0:15:50.960 huge put strike done one. As you near that twenty 0:15:51.000 --> 0:15:54.200 two price on b kln, the decline accelerated, it went 0:15:54.320 --> 0:15:57.320 through and bounced back. So I think the options markets 0:15:57.360 --> 0:16:00.360 are again becoming the tail wagging the dog. That's where 0:16:00.360 --> 0:16:02.640 I see the problem. So I think selling volatility is 0:16:02.800 --> 0:16:05.400 very careless, and that's what you gotta be careful. Peter Cheer, 0:16:05.480 --> 0:16:07.600 thank you so much for being with us. Always wonderful 0:16:07.640 --> 0:16:10.800 having you. Peter Cheers, head of macro Strategy for Academy 0:16:10.880 --> 0:16:13.840 Securities based in Connectic but Connecticut, but joining us here 0:16:13.880 --> 0:16:32.200 today in our eleven three oh studios. Well, we all 0:16:32.240 --> 0:16:34.520 know that the Chinese economy is slowing, but what about 0:16:34.560 --> 0:16:36.840 the health of the Chinese credit markets. We had two 0:16:37.000 --> 0:16:41.360 big borrowers just miss payment deadlines this month. So to 0:16:41.440 --> 0:16:43.240 help us dig into what is going on in China 0:16:43.240 --> 0:16:45.840 in the credit markets, let's bring in the birthday boy himself, 0:16:46.320 --> 0:16:50.080 Damien Sassaur. Damian is the chief Emerging markets credit strategist 0:16:50.080 --> 0:16:52.640 for Bloomberg Intelligence. He joins us in our Bloomberg eleven 0:16:52.680 --> 0:16:55.320 three oh studios in New York's. So Damien on behalf 0:16:55.320 --> 0:17:00.680 of Lisa. I happy birthday. Thank you, Thank you give 0:17:00.760 --> 0:17:02.800 us a sense of is this the beginning of a 0:17:03.480 --> 0:17:06.800 credit you know, real problem for the Chinese economy, do 0:17:06.840 --> 0:17:08.440 you believe? Well, I think it's an extension of what 0:17:08.480 --> 0:17:10.399 we've seen in and I mean last year was a 0:17:10.440 --> 0:17:12.399 record year in terms of the faults. We saw roughly 0:17:12.520 --> 0:17:15.040 eighteen billion U S dollars worth of the faults in 0:17:15.160 --> 0:17:18.520 China um and including um Win Time Energy, I mean 0:17:18.520 --> 0:17:20.439 when time Energy was the second biggest default. Or that's 0:17:20.480 --> 0:17:22.160 one of the two today that people are talking about 0:17:22.280 --> 0:17:24.320 right them in China. Mentioning trying to mention is a 0:17:24.359 --> 0:17:26.200 big name. They've issued a lot of bonds and a 0:17:26.280 --> 0:17:28.800 lot of dollar credit at also, So it's it's actually interesting. 0:17:28.840 --> 0:17:30.879 And what what I take out of this is very simple. 0:17:31.000 --> 0:17:33.280 You know, with Chado banking being removed from China and 0:17:33.280 --> 0:17:36.000 it becoming more difficult to access finding for Chinese corporates, 0:17:36.359 --> 0:17:40.320 what you're seeing is sort of a bifurcation. You know, 0:17:40.400 --> 0:17:42.800 there are certain companies right that the government will allow 0:17:42.880 --> 0:17:44.919 to default, such as those like win Time which are 0:17:44.920 --> 0:17:48.399 involved in coal and non clean energy, and and others 0:17:48.480 --> 0:17:50.800 that are just systemic to the to the economy and 0:17:50.800 --> 0:17:52.800 they're just gonna do everything they can to support that 0:17:52.920 --> 0:17:55.320 that that company, and so you're seeing that bifurcation play 0:17:55.359 --> 0:17:57.760 out today. One thing that I'm wondering is how much 0:17:57.800 --> 0:18:00.200 to international investors have to care? And this is it's 0:18:00.200 --> 0:18:03.800 sort of I mean a little bit. Uh. I don't know, 0:18:04.080 --> 0:18:07.960 selfish or self centered in terms of the developed market, 0:18:08.000 --> 0:18:10.400 but I'm just wondering how much of this dollar debt 0:18:10.520 --> 0:18:13.720 versus local debt. Well, I mean, let's the first question, 0:18:13.960 --> 0:18:16.000 how much should we care? We should care a lot, 0:18:16.119 --> 0:18:18.520 because as goes China, so goes a lot of the 0:18:18.600 --> 0:18:20.359 things in the world that we care most about. Right, 0:18:20.440 --> 0:18:22.600 But to your point, how much do we care about 0:18:22.720 --> 0:18:26.000 these two specific issuers? Probably not so much. Even though 0:18:26.080 --> 0:18:28.720 China mention is a pretty big issue of dollar debt, 0:18:30.040 --> 0:18:33.040 a lot of the holders people believe, and it's difficult 0:18:33.080 --> 0:18:35.000 to prove because the data is just not as transparent, 0:18:35.200 --> 0:18:38.320 are actually Chinese corporates who have had their their money 0:18:38.440 --> 0:18:41.200 offshore in dollars buying back that debt. So you don't 0:18:41.240 --> 0:18:44.760 necessarily know if it's US retail or even US institutional 0:18:44.840 --> 0:18:47.560 funds who own that debt, because it's just it's not 0:18:47.600 --> 0:18:49.520 as transparent as you what other life like. So the 0:18:49.800 --> 0:18:51.399 verdict is at as to who's getting hit with the 0:18:51.440 --> 0:18:54.560 move today. But that's kind of where we are. So, Davian, 0:18:54.600 --> 0:18:56.800 how much of the credit issues that we're seeing bubble 0:18:56.880 --> 0:18:58.520 up you mentioned team we started to see it and 0:18:58.600 --> 0:19:00.479 now we've got these two big issues. How much are 0:19:00.480 --> 0:19:03.720 a really issue or specific or are they really representative 0:19:03.760 --> 0:19:06.439 of Boyd? The economy is slowing here and we're going 0:19:06.480 --> 0:19:08.280 to see more of this. Yeah, No, I mean the 0:19:08.320 --> 0:19:11.200 economy is definitely slowing down. Um. I think really what 0:19:11.359 --> 0:19:14.040 it is more function of is not so much growth 0:19:14.119 --> 0:19:16.239 patterns or inflation or some of the you know, kind 0:19:16.280 --> 0:19:19.000