WEBVTT - JPM's Kelly: Expect Another Wave Down In Stock Market 0:00:02.640 --> 0:00:05.560 Welcome to the Bloomberg PENL podcast on Paul Swinging. Along 0:00:05.600 --> 0:00:08.080 with my co host Lisa Brahmas. Each day we bring 0:00:08.119 --> 0:00:10.680 you the most noteworthy and useful interviews for you and 0:00:10.760 --> 0:00:13.280 your money. Whether at the grocery store or the trading floor. 0:00:13.400 --> 0:00:16.599 Find a Bloomberg Penl podcast on Apple podcast or wherever 0:00:16.640 --> 0:00:20.400 you listen to podcasts, as well as at Bloomberg dot com. Paul, 0:00:20.520 --> 0:00:22.560 one thing that struck me again and again over the 0:00:22.560 --> 0:00:24.880 past few weeks is that the range of outcomes has 0:00:24.920 --> 0:00:28.440 never been wider. As everyone tries to be an armchair epidemiologist, 0:00:28.480 --> 0:00:31.000 and the epidemiologists themselves throughout their arms and say we 0:00:31.080 --> 0:00:34.440 have no idea and to get a sense though of 0:00:34.600 --> 0:00:38.800 what may be expected in markets based on different outcomes. 0:00:38.960 --> 0:00:42.120 That seems to be the increasing focus. Joining us right now, 0:00:42.200 --> 0:00:45.800 David Kelly, chief Global strategist at JP Morgan Asset Management, 0:00:45.800 --> 0:00:49.080 which has two trillion dollars of assets under management. David, 0:00:49.120 --> 0:00:50.959 thank you so much for being with us. I want 0:00:51.000 --> 0:00:54.640 to start there, the wide range of outcomes. Can you 0:00:54.640 --> 0:00:57.160 give us your your sort of optimistic case and your 0:00:57.200 --> 0:01:00.560 pessimistic case based on what we're seeing right now in 0:01:00.600 --> 0:01:03.360 the data. Yeah. Well, I think the first thing is 0:01:03.400 --> 0:01:06.920 to recognize that in the baseline UM, this disease is 0:01:06.959 --> 0:01:10.560 not going away. We have succeeded in stabilizing it. We 0:01:10.600 --> 0:01:13.039 have flattened the curve, but it's really just a plateau 0:01:13.160 --> 0:01:16.800 more than a curve. And so running it about you know, 0:01:16.840 --> 0:01:22.480 twenty five cases a day, running at between two thousand 0:01:22.520 --> 0:01:25.759 more fatalities a day, and it'll probably keep doing that. 0:01:26.319 --> 0:01:29.520 Under a base case. Now, a good outcome would be 0:01:30.200 --> 0:01:34.560 a better treatment UM. We have seen some treatment options 0:01:34.560 --> 0:01:38.679 one or two UM companies are certainly one approved for emergencies, 0:01:38.680 --> 0:01:40.720 but there are other treatments out there, and doctors are 0:01:40.720 --> 0:01:43.240 getting better in terms of protocols. If you can push 0:01:43.280 --> 0:01:45.920 that mortality rate down, then maybe people feel a little 0:01:45.920 --> 0:01:48.560 bit more comfortable about getting back to normal, and I 0:01:48.560 --> 0:01:52.560 think you may see that UM later on this year. UM. 0:01:52.680 --> 0:01:54.960 On the other hand, you know, a more negative outcome 0:01:55.080 --> 0:01:57.320 is one in which mortality is just refused to go 0:01:57.400 --> 0:02:00.840 down significantly and the vaccines to eight So you've gotta 0:02:00.920 --> 0:02:03.160 you know, we're talking about maybe they'll get a vaccine 0:02:03.160 --> 0:02:04.320 by the end of the year, maybe it will be 0:02:04.320 --> 0:02:06.240 distributed by the first quarter, but that's a lot. There's 0:02:06.240 --> 0:02:07.560 a lot of if a lot of things have to 0:02:07.560 --> 0:02:09.840 go right there, and if we don't have a vaccine 0:02:09.919 --> 0:02:14.480 until late one, and we can't and don't push down mortalities, 0:02:14.639 --> 0:02:16.720 then it's very hard for everybody to get back to normal. 0:02:16.960 --> 0:02:18.600 And so this could be, you know, this could be 0:02:18.600 --> 0:02:22.200 a U shape procession rather than a V shape procession. So, David, 0:02:22.480 --> 0:02:25.720 in your scenarios, I mean, were you factor in the 0:02:25.800 --> 0:02:28.480 fact that there might be a second wave, a third wave, 0:02:28.560 --> 0:02:30.240 that we're hearing it from a lot of scientists that 0:02:30.240 --> 0:02:34.600 that is not only possible but probably likely. Well's the 0:02:34.600 --> 0:02:37.600 problem is the first wave has to crest. I'm I'm 0:02:37.639 --> 0:02:40.280 actually a little bit mystified by all this talk about 0:02:40.280 --> 0:02:42.799 a second wave. I've seen no I've seen evidence in 0:02:42.840 --> 0:02:46.960 New York City, yes, that that after a horrific two months, 0:02:47.240 --> 0:02:50.760 the number of fatality has gone down, But it looks 0:02:50.760 --> 0:02:52.400 to me like the number of new cases has not 0:02:52.400 --> 0:02:56.240 already gone down by much nationally um And we're relaxing, 0:02:56.440 --> 0:03:00.360 we're relaxing social distancing, and if that happens, I suspect 0:03:00.400 --> 0:03:02.160 that the case load really won't come down that much. 0:03:02.160 --> 0:03:03.480 So it's not so much about a second wave. You 0:03:03.560 --> 0:03:05.240 just never go rid to the first one. I mean 0:03:05.240 --> 0:03:07.000 if if the first if you say that, you know, 0:03:07.120 --> 0:03:09.520 people say that the first wave is done, but we're 0:03:09.520 --> 0:03:13.200 still running at over a thousand people dying every day, 0:03:13.320 --> 0:03:17.120 then that's you know, three d sixty thousand people a year. UM, 0:03:17.160 --> 0:03:20.320 it's you know, and and that's you know, if it's 0:03:20.320 --> 0:03:22.400 a thousand people a day. So UM, I do think 0:03:22.440 --> 0:03:24.560 there could be I think we could continue to see, 0:03:25.160 --> 0:03:28.079 um a heavy case load because we think that only 0:03:28.080 --> 0:03:31.240 about two percent of the American population right now is infected. UM. 0:03:31.280 --> 0:03:33.200 That means a vast majority of people have not been 0:03:33.240 --> 0:03:36.480 infected and are vulnerable to infection. So you know, to me, 0:03:36.520 --> 0:03:37.840 it's not a matter of a second wave, it's a 0:03:37.840 --> 0:03:39.440 matter of can we get the first wave to actually 0:03:39.480 --> 0:03:41.840 question and come down. And this is the question that 0:03:41.920 --> 0:03:45.400 epidemiologists and and and scientists of all types are trying 0:03:45.440 --> 0:03:48.440 to figure out, and they themselves can't really understand necessarily 0:03:48.480 --> 0:03:52.280 the path here From an investment strategy perspective, how are 0:03:52.320 --> 0:03:56.600 you advising clients at a time of such huge differentials 0:03:56.640 --> 0:04:00.360 wirth respect to the virology here? Well, I think the 0:04:00.400 --> 0:04:02.400 first thing to recognize that the markets come back a 0:04:02.440 --> 0:04:05.160 long way. I mean we were down thirty four peter 0:04:05.200 --> 0:04:08.119 the trough, and given the size of the recession, that's 0:04:08.160 --> 0:04:11.880 you know, that's not an unreasonable market reaction. But we're 0:04:11.920 --> 0:04:15.040 not only down about so I think that there is 0:04:15.160 --> 0:04:17.520 we are vulnerable to some correction here. I think in 0:04:17.560 --> 0:04:20.000 the long run, we will get a vaccine, we will 0:04:20.000 --> 0:04:21.680 get out of this. And I do think that in 0:04:21.720 --> 0:04:24.520 the long run US stalks may do okay. But I 0:04:24.520 --> 0:04:29.360 think there's people need to be prepared for a second correction, 0:04:29.760 --> 0:04:32.880 a second wave down in the market, as people's more 0:04:32.920 --> 0:04:37.080 optimistic views on this virus sort of petering out go away. 0:04:37.120 --> 0:04:39.360 So I think that's the first thing. And beyond that, 0:04:39.400 --> 0:04:41.279 I think you've got to figure out what's going to 0:04:41.320 --> 0:04:44.240 weather this recession well and what's going to thrive in 0:04:44.279 --> 0:04:46.760 the rebound um. And then the last thing I'd say 0:04:46.880 --> 0:04:49.880 is international stocks are still getting cheaper and cheaper relsive 0:04:49.880 --> 0:04:51.720 to US stocks, and the one region of the world 0:04:51.760 --> 0:04:54.640 that has done well and getting past this is East Asia, 0:04:55.040 --> 0:04:57.040 and I do think that people ought to take advantage 0:04:57.040 --> 0:04:59.280 of that and make sure they've got enough allocation to 0:04:59.360 --> 0:05:03.600 countries like um, you know, Korea, Taiwan, Australia and and 0:05:03.760 --> 0:05:07.839 so forth in this in this pandemic, David, are you 0:05:07.839 --> 0:05:10.720 one of those folks that are concerned that this the 0:05:11.040 --> 0:05:15.200 financial marks, particularly the risk on markets, are being artificially 0:05:15.279 --> 0:05:18.560 supported by what has been a very very aggressive federal 0:05:18.640 --> 0:05:23.320 reserve and central banks globally. Uh. Well, I think that 0:05:23.360 --> 0:05:25.960 has been a problem for a long time. I can't 0:05:25.960 --> 0:05:28.080 full the central banks right now. There is nothing else 0:05:28.120 --> 0:05:30.400 to do but to throw money at this problem and 0:05:30.480 --> 0:05:33.719 to try and maintain liquidity. So I have no problem 0:05:33.720 --> 0:05:36.880 with the policy right now. I do think there's is 0:05:36.960 --> 0:05:40.880 requires a level of real discipline when the economy does 0:05:40.960 --> 0:05:44.599 come back to remove that support, even if it hurts 0:05:44.600 --> 0:05:46.919 the economy a bit, because there is a danger at 0:05:46.920 --> 0:05:48.960 the end of all this, at all this liquidity, if 0:05:48.960 --> 0:05:51.159 we don't mop it up again, Um, you could cause 0:05:51.200 --> 0:05:53.320 inflation and higher interest rates down the road and we 0:05:53.320 --> 0:05:56.320 want to avoid that. But for the moment, yes, I 0:05:56.360 --> 0:05:58.120 do think the market has been supported by that. But 0:05:58.200 --> 0:06:01.120 I wouldn't say that that that makes a wrong policy. 0:06:01.400 --> 0:06:03.360 Just real quick here, David, I'm wondering, is there any 0:06:03.400 --> 0:06:06.479 as a class you really like right now? Well? I 0:06:06.520 --> 0:06:09.280 do like, um, emerging market equities for for the long 0:06:09.320 --> 0:06:11.159 one I think that's important, and then the other thing 0:06:11.240 --> 0:06:16.760 is um Just to look at those companies, things like technology, um, utilities, healthcare, 0:06:17.000 --> 0:06:21.159 those sectors that can weather a long pandemic recession, I 0:06:21.160 --> 0:06:24.400 think they're probably underappreciated relative to some of those more 0:06:24.440 --> 0:06:28.400 cyclical bounce back sectors which may be still doing too well. 0:06:28.880 --> 0:06:30.719 Given that, I do think this is going to be 0:06:31.040 --> 0:06:33.760 most likely a U shape rather than a V shaped procession. 0:06:34.680 --> 0:06:39.039 Dr David Kelly, chief Global Strategist for JP Morgan Asset Management, 0:06:39.040 --> 0:06:40.800 thank you so much for joining us and giving us 0:06:40.839 --> 0:06:47.200 your global perspective. Time to check in with Bloomberg Opinion 0:06:47.200 --> 0:06:50.839 that we're joined by Shinali Bask. She sat down earlier 0:06:50.880 --> 0:06:54.200 today with Bloomberg Opinion columnist Peter Orzak, who's head of 0:06:54.240 --> 0:06:59.000 Lozard's financial advisory practice and a former Obama administration budget chief, 0:06:59.000 --> 0:07:02.800 to talk about the potential for a cascade of bankruptcies 0:07:02.960 --> 0:07:06.479 resulting from the pandemic. Let's listen in Well, look, if 0:07:06.680 --> 0:07:10.440 if unemployment remains elevated for an extended period of time, 0:07:10.560 --> 0:07:14.720 and especially if there is not additional rounds of government stimulus, 0:07:15.160 --> 0:07:19.200 we're going we're at some significant risk of cascading bankruptcies 0:07:19.200 --> 0:07:22.400 where the bankruptcy where bankruptcy at at one firm then 0:07:22.440 --> 0:07:25.880 infects another firm, uh, and then that infects a third firm, 0:07:25.880 --> 0:07:27.840 and so on and so forth, and that can do 0:07:27.880 --> 0:07:32.440 a lot of damage to the economies. That was Peter 0:07:32.600 --> 0:07:35.520 or Zak, head of Blizard's financial advisory practice. Shanelli Bosta, 0:07:35.520 --> 0:07:38.760 Bloomberg Wall Street correspondent joins us. Now, So, Shnally, I mean, 0:07:38.800 --> 0:07:41.080 there is really a risk here. We're starting to see 0:07:41.120 --> 0:07:44.440 more and more stories crossing the tape here. So as 0:07:44.440 --> 0:07:47.760 you talked to your contacts, including Mr or Zach, I mean, 0:07:47.760 --> 0:07:49.480 I guess they're just kind of preparing for what is 0:07:49.600 --> 0:07:53.760 probably a lot more to come, that's for sure. And 0:07:53.800 --> 0:07:56.560 what Peter had said this morning was that he could 0:07:56.560 --> 0:08:00.400 see a potential cascade of bankruptcies where issues with one 0:08:00.440 --> 0:08:02.840 company can really lead to an issue with another company 0:08:02.920 --> 0:08:07.160 to another company. He's also has written earlier this year 0:08:07.440 --> 0:08:12.880 that supply chains are being very heavily impacted by this coronavirus, 0:08:12.920 --> 0:08:16.800 which could lead to a big consolidation of the supply chains. 0:08:16.920 --> 0:08:19.520 And I see a lot of banks right now dealing 0:08:19.520 --> 0:08:23.480 with supply chain financing and issues that are interconnected with 0:08:23.560 --> 0:08:27.480 these firms, and so these are not just standalone issues, 0:08:27.520 --> 0:08:30.840 is what I'm saying. And this idea of cascading bankruptcy 0:08:30.920 --> 0:08:33.280 is quite scary. Well, and I want to go a 0:08:33.320 --> 0:08:37.120 little bit further, just in terms of what we've already seen. Hurts, 0:08:37.120 --> 0:08:40.120 for example, is teetering on the brink of bankruptcy. Got 0:08:40.120 --> 0:08:41.959 to stay from some of its creditors, but there's a 0:08:42.000 --> 0:08:44.720 concern that, for example, it will have to liquidate some 0:08:44.800 --> 0:08:48.720 of its inventories of cars in order to make good 0:08:48.800 --> 0:08:51.880 on its debt. That's leading to concerns about the valuations 0:08:51.920 --> 0:08:54.600 of cars which goes to dealers. I mean, has anyone 0:08:54.679 --> 0:08:59.400 talked about the uh, the sort of interconnected nature in 0:08:59.520 --> 0:09:04.520 terms of tipping point into some sort of critical moment? 0:09:04.679 --> 0:09:07.400 Is anyone talking about what that would look like? So 0:09:07.480 --> 0:09:09.440 the thing that's hard about this critical moment, and at 0:09:09.520 --> 0:09:11.440 least I'm really glad you brought up the value of 0:09:11.559 --> 0:09:13.880 cars and the value of homes and the value of 0:09:13.880 --> 0:09:16.080 all the things that are underlying in the economy that 0:09:16.160 --> 0:09:19.360 nobody wants to talk about yet. And the thing is 0:09:19.440 --> 0:09:22.160 a lot of people don't expect that the economy will 0:09:22.200 --> 0:09:24.920 reopen and full. They think it will take a long time, 0:09:24.960 --> 0:09:27.240 and somebody like or Zach actually thinks that there will 0:09:27.280 --> 0:09:32.199 be intermittent closures continuing from now and therefore much more 0:09:32.240 --> 0:09:36.800 stimulus needed in further rounds. So that idea of value 0:09:36.920 --> 0:09:40.679 of the things underlying our economy nobody knows. But people 0:09:40.720 --> 0:09:43.480 are a little too exhausted with the current crisis to 0:09:43.559 --> 0:09:47.000 deal with what that might look like. So it's interesting, 0:09:47.080 --> 0:09:51.320 shal Is. We talked to Peter Orzag from lazardes are 0:09:51.320 --> 0:09:53.920 they talking about ramping up some of their staffing and 0:09:54.000 --> 0:09:58.160 some of the restructuring departments h advisory departments. Well, it's 0:09:58.160 --> 0:10:00.840 funny that you mentioned advisory because Lazard is also one 0:10:00.840 --> 0:10:03.240 of the biggest merger advisors in the world, and mergers 0:10:03.240 --> 0:10:06.960 are virtually nil. There's not a lot able to happen 0:10:07.080 --> 0:10:10.720 right now. Uh, the idea of hiring bankers for Lazard 0:10:10.840 --> 0:10:13.000 and a lot of its peers is a really tough one. 0:10:13.080 --> 0:10:16.360 But restructuring really is a place that's propped up right 0:10:16.360 --> 0:10:19.760 now and a place that they are seeing activity, but 0:10:19.840 --> 0:10:22.920 it's not enough activity to really offset the places that 0:10:23.000 --> 0:10:25.520 even a place like Lazard is losing revenue, which is 0:10:25.559 --> 0:10:28.959 those large scale deals. One thing that Peter Orzag was 0:10:29.000 --> 0:10:32.319 talking about was additional stimulus, and I'm wondering where and 0:10:32.360 --> 0:10:34.480 how they would like to see this deployed, given the 0:10:34.520 --> 0:10:36.720 fact that we've already seen a tremendous amount poured in 0:10:36.800 --> 0:10:40.040 through the p p P through checks given to people 0:10:40.040 --> 0:10:43.120 around the country. So speaking of checks, there's some really 0:10:43.200 --> 0:10:45.959 great graphics that we've had come out through Bloomberg News 0:10:46.040 --> 0:10:48.280 to show exactly where all of the money is going 0:10:48.840 --> 0:10:52.199 for the next wave of stimulus. Or Zach in particular 0:10:52.320 --> 0:10:54.960 had mentioned that state and local governments are going to 0:10:55.000 --> 0:10:57.320 be a really important place to direct a lot of 0:10:57.360 --> 0:11:00.199 this aid. That has been a point of content Chin 0:11:00.400 --> 0:11:03.400 as we know, we all remember what Mitch mccollin all said, 0:11:03.440 --> 0:11:07.720 even if the prospect of the difference local government's going bankrupt, 0:11:07.760 --> 0:11:10.440 that's something a lot of these restructuring artists really deal 0:11:10.520 --> 0:11:14.160 with as well. But paychecks into the hands of people 0:11:14.200 --> 0:11:17.040 faster seems to be the consensus, because if you don't 0:11:17.040 --> 0:11:19.200 have people spending in the economy, then you don't have 0:11:19.240 --> 0:11:22.800 an economy. Remember yesterday, Lisa, we had Jim Millstein tell 0:11:22.880 --> 0:11:26.040 us that he was worried that people will turn around 0:11:26.080 --> 0:11:29.640 and realize the investor class was saved first by all 0:11:29.679 --> 0:11:33.360 of the federal reserves actions to save credit markets and 0:11:33.400 --> 0:11:37.079 that the investor class later may have to pay for it. 0:11:38.520 --> 0:11:41.240 Thank you so much. We really appreciate you taking the type, 0:11:41.240 --> 0:11:47.240 she Dolly Blassa as a Bloomberg Wall Street correspondent. This 0:11:47.360 --> 0:11:51.360 has been one theme of really steady yields. You see 0:11:51.360 --> 0:11:54.040 this both on the treasury side as well as the 0:11:54.080 --> 0:11:57.920 corporate debt side. Is a growing number of investors factor 0:11:58.000 --> 0:12:01.839 in Fed stimulus, uh and and and bond purchases. Weighing 0:12:01.880 --> 0:12:04.080 in on that as somebody who has an intimate knowledge 0:12:04.600 --> 0:12:07.400 of the Federal Reserve, and that would be Eric Stein, 0:12:07.480 --> 0:12:09.520 and I'm really glad that we have him co director 0:12:09.520 --> 0:12:12.400 of Global Income at Eaton Advance Management, because I want 0:12:12.440 --> 0:12:15.800 to put into perspective the financing plans that the U. S. 0:12:15.840 --> 0:12:19.680 Treasury Department has, Eric Stein, we are experiencing a three 0:12:19.880 --> 0:12:23.400 trillion dollar expected issue ins in the second quarter by 0:12:23.520 --> 0:12:27.760 the US Treasury Department. How much will this cause yields 0:12:27.800 --> 0:12:30.040 to go up? Given the dynamic that we're seeing in 0:12:30.040 --> 0:12:33.480 markets right now? First, a lot of you know, first off, 0:12:33.480 --> 0:12:36.120 thanks certainly for having me on. You know, three trillion, 0:12:36.360 --> 0:12:38.240 it is a huge number and only sounds huge. It 0:12:38.360 --> 0:12:41.880 is huge, But um, you know, the FED has basically 0:12:41.920 --> 0:12:45.840 to me kind of underwritten market functioning in the US 0:12:45.880 --> 0:12:48.679 treasury market and also underwritten a lot of supply. And 0:12:48.720 --> 0:12:51.240 so given that the FEDS you know, has rates now 0:12:51.360 --> 0:12:54.720 effectively a zero just a touch above zero, a lot 0:12:54.760 --> 0:12:58.160 of programs you're mentioning some in the credit market, quantitative easing, 0:12:58.200 --> 0:13:03.079 so buying treasuries, and that helps absorb that supply. In addition, 0:13:03.240 --> 0:13:05.760 and despite the fact we've seen you know, markets rally 0:13:05.800 --> 0:13:08.320 really over the past you know, five six weeks or so, 0:13:08.840 --> 0:13:10.520 there still has a lot of uncertainty out there of 0:13:10.559 --> 0:13:12.720 the world and fear and whatnot. And that also helps 0:13:12.760 --> 0:13:15.200 to keep keep treasury yields low. So it's not only 0:13:15.280 --> 0:13:17.679 the FED, but the FED certainly has a very big 0:13:17.760 --> 0:13:20.760 part in in you know, the stability as you mentioned before, 0:13:20.840 --> 0:13:23.559 of US treasury yields. So Eric, you mentioned, you know, 0:13:23.600 --> 0:13:26.600 we're kind of at that zero bound with interest rates. 0:13:26.600 --> 0:13:28.880 I'm looking at the ten year here trading at zero 0:13:28.880 --> 0:13:31.640 points six six. So looking at something like the tenure, 0:13:32.120 --> 0:13:34.600 do you think the FED has any appetite for that 0:13:34.800 --> 0:13:39.200 part of the curve to be at or below zero? Uh? No, 0:13:39.440 --> 0:13:41.920 So it's it's interesting. It's a great question. You know 0:13:41.960 --> 0:13:44.840 that that would be a negative or really inverted yield curve. So, 0:13:45.040 --> 0:13:47.120 you know, it's a big debate that I have my 0:13:47.200 --> 0:13:49.679 colleagues that eat advance management. Does the shape of the 0:13:49.760 --> 0:13:53.040 yield curve matter? Personally, I'm squarely in the camp that 0:13:53.040 --> 0:13:57.160 that yield curve shape does matter. It's a market signal. Yes, 0:13:57.200 --> 0:13:59.760 it can be manipulated by the Fed or others, but 0:13:59.800 --> 0:14:01.880 it is a market signal. And so I think having 0:14:02.200 --> 0:14:05.280 an inverted yield curve, which if short end rates were 0:14:05.280 --> 0:14:08.360 a touch above zero in the tenure was negative, there'll 0:14:08.400 --> 0:14:10.560 be issues with the banking sector. I think there's issues 0:14:10.559 --> 0:14:13.079 from a market confidence perspective and whatnot. So I think 0:14:13.080 --> 0:14:16.000 the FED likes very low treasury yields, but they also 0:14:16.080 --> 0:14:19.600 like a positively sloped yield curve. How concerned are you 0:14:19.640 --> 0:14:22.120 about a lack of liquidity and the treasury market. I'm 0:14:22.120 --> 0:14:25.160 hearing that it's actually starting to worsen a little bit 0:14:25.200 --> 0:14:28.840 as a federal reserve has net purchases that exceed issue. 0:14:28.880 --> 0:14:31.400 It's so far, Uh, you know, how big of an 0:14:31.440 --> 0:14:34.120 issue is that? So, I mean it depends to be 0:14:34.200 --> 0:14:36.360 what type of of you know, less liquidity are you 0:14:36.360 --> 0:14:38.240 see you know you've heard about for years, let's say 0:14:38.240 --> 0:14:40.880 in Japan and the JGB market, where there's certain jgbs 0:14:40.960 --> 0:14:43.240 that don't trade in a particular day because the b 0:14:43.360 --> 0:14:45.920 O J owned such a large portion of those. I 0:14:45.920 --> 0:14:47.640 don't I don't think we're not seeing that in the 0:14:47.760 --> 0:14:50.520 US with the treasury market and the Fed. Uh and 0:14:50.520 --> 0:14:52.160 then you know, to me, we're certainly not back to 0:14:52.200 --> 0:14:54.840 what we were in mid March when uh, you know, 0:14:54.880 --> 0:14:57.560 the treasury market, the on the run off, the run spreads, 0:14:57.560 --> 0:15:00.280 and the treasury repall market really you know, on the 0:15:00.320 --> 0:15:02.640 backbone of the fixed income market. But I think the 0:15:02.640 --> 0:15:06.120 backbone of global financial markets is the U S Treasury 0:15:06.160 --> 0:15:09.360 and the treasury repo market that effectively wasn't functioning in 0:15:09.400 --> 0:15:11.960 mid March. It's a lot better today. So certainly, if 0:15:12.000 --> 0:15:15.240 you're active in one particular security and you're trying to 0:15:15.280 --> 0:15:18.720 trade that, you know, um, having the FED purchase more 0:15:18.760 --> 0:15:20.920 than than the issue and supply can cause some issues. 0:15:20.960 --> 0:15:22.800 But I think we're far away from where we were 0:15:22.800 --> 0:15:25.240 in the middle of March. So Eric, where are you 0:15:25.280 --> 0:15:28.000 and the good folks eating vance kind of doing your 0:15:28.040 --> 0:15:31.840 work right now? Where you seeing some value some opportunities. Yeah. 0:15:31.840 --> 0:15:33.880 So look, I think you know, eating vance management on 0:15:33.920 --> 0:15:36.120 the fixing some side, we're very much a you know, 0:15:36.160 --> 0:15:39.480 a credit credit shop, whether it's municipal credit, corporate credit, 0:15:39.520 --> 0:15:42.960 sovereign credit, securitized credit. And you know, on one hand, uh, 0:15:43.280 --> 0:15:45.840 you know, doing credit investing is challenging right now given 0:15:45.960 --> 0:15:48.040 you know, we don't know, you know, economy is obviously 0:15:48.080 --> 0:15:50.760 quite weak now likely should be some opening up in 0:15:50.800 --> 0:15:53.800 some recovery, but the trajectory of that is very uncertain, 0:15:54.120 --> 0:15:56.560 you know, the length of how long, whether or not 0:15:56.600 --> 0:15:58.680 we get a second wave of coronavirus and need to 0:15:58.680 --> 0:16:02.000 shut things down again. Lot of uncertainty and so um. 0:16:02.040 --> 0:16:04.000 You know, I think that makes it challenging. At the 0:16:04.040 --> 0:16:06.520 same time, you have FED you know, FED backstop and 0:16:06.840 --> 0:16:10.120 FED support, which I think is helpful to the credit markets. 0:16:10.120 --> 0:16:12.480 So I think, you know, certainly parts of the bank 0:16:12.520 --> 0:16:15.480 loan market and the high yield market that we're you know, 0:16:15.640 --> 0:16:18.560 selling off a lot of high loan somewhat in February 0:16:18.560 --> 0:16:21.200 and all those asset classes into the kind of middle 0:16:21.320 --> 0:16:23.680 or end of March. Uh, they certainly rebound a lot. 0:16:23.760 --> 0:16:26.200 But I think in the corporate credit markets, you still 0:16:26.280 --> 0:16:29.000 you see some value um, you know, still certainly there 0:16:29.000 --> 0:16:31.920 and loans high yield UM. You know, emerging markets that 0:16:31.960 --> 0:16:34.480 we focus on on the Global Income team, that that 0:16:34.560 --> 0:16:37.800 I co run um value there. But obviously emerging markets 0:16:37.800 --> 0:16:40.760 also have their own set of challenges um, you know, 0:16:40.840 --> 0:16:43.720 given given the health outcomes in some of these countries. 0:16:43.720 --> 0:16:45.720 But even I think some of the worst fears from 0:16:45.720 --> 0:16:47.800 a couple of weeks ago, even in emerging markets are 0:16:47.840 --> 0:16:50.080 a little less concerning than they were. But but they're 0:16:50.080 --> 0:16:52.800 still going to be challenges for sure. We're speaking with 0:16:52.920 --> 0:16:55.600 Eric Stein, co director of Global Income and EAT in vance, 0:16:55.680 --> 0:16:58.640 and previously you worked on the market's desk of the 0:16:58.640 --> 0:17:01.080 Federal Reserve Bank of New Orc, which was very much 0:17:01.080 --> 0:17:04.399 in focus. They are expected to start buying e t 0:17:04.600 --> 0:17:07.160 f s that own credit in the next few days 0:17:07.200 --> 0:17:10.040 and then follow that up with their program to actually 0:17:10.119 --> 0:17:13.800 buy initial issuance of corporate debt. Do you think the 0:17:13.840 --> 0:17:15.840 market has gotten ahead of itself in terms of its 0:17:15.880 --> 0:17:18.320 expectations for FED purchases given that will just be a 0:17:18.359 --> 0:17:22.080 fraction of the overall market. Look, look, I think I 0:17:22.080 --> 0:17:25.880 think the FED is is the signaling effect is quite powerful, um, 0:17:25.960 --> 0:17:28.280 and so certainly the details of the programs, you know, 0:17:28.359 --> 0:17:30.720 matter it's something that we're discussing it eat advance and 0:17:31.080 --> 0:17:33.040 constantly getting questions. You know, one of the detail is 0:17:33.040 --> 0:17:35.040 going to be out and when the fedge announced this. 0:17:35.080 --> 0:17:37.000 You have to understand that it takes the FED sometime 0:17:37.080 --> 0:17:39.000 to announce a lot of their programs just given the 0:17:39.080 --> 0:17:42.399 nature of that institution, particularly new programs. Programs they're dusting 0:17:42.440 --> 0:17:44.600 off from O eight are a little bit easier. But 0:17:44.600 --> 0:17:46.320 but to me, the most important thing is that the 0:17:46.359 --> 0:17:49.679 FED is shown that the programs will adapt, they will change, 0:17:50.240 --> 0:17:53.560 typically multiple times, and so you know, the Fed's goal 0:17:54.040 --> 0:17:56.280 is not to you know, get asset markets back to 0:17:56.320 --> 0:17:58.680 where they were before the coronavirus, but their goal is 0:17:58.720 --> 0:18:00.760 to keep credit flowing in the totonomy and so of 0:18:00.760 --> 0:18:02.879 the extent that you know, if markets were to reverse 0:18:02.960 --> 0:18:05.639 significantly from here, to me, the FED would would very 0:18:05.720 --> 0:18:09.960 much adjust the programs and get markets continuing to function. So, 0:18:10.200 --> 0:18:12.440 you know, while we might not see further gains when 0:18:12.440 --> 0:18:14.800 the FED actually does some of these purchases, because I 0:18:14.800 --> 0:18:17.479 would agree a fair about a large amount is already 0:18:17.600 --> 0:18:20.919 priced in UM. You know, I think sometimes investors need 0:18:21.000 --> 0:18:23.439 to separate both the signal from the actual purchases and 0:18:23.480 --> 0:18:26.000 what we've seen really in central banking and the FED. 0:18:26.000 --> 0:18:28.040 But think about the e C B um, you know, 0:18:28.119 --> 0:18:31.000 back to the last crisis. A lot of times, if 0:18:31.040 --> 0:18:34.080 anything's words can be more powerful and the actual actions, 0:18:34.119 --> 0:18:36.679 assuming that the market thinks that the central banks in 0:18:36.720 --> 0:18:40.440 this case the FED are credible with those words. Eric, 0:18:40.480 --> 0:18:42.439 earlier this morning that Lisa and I were talking about 0:18:43.000 --> 0:18:45.879 bankruptcies and the number that's starting to grow in or 0:18:45.880 --> 0:18:47.320 were going to see a you know kind of a wave, 0:18:47.440 --> 0:18:50.320 a cast heading wave of bankruptcies out there. What what's 0:18:50.359 --> 0:18:52.840 your sense of credit quality out there as you kind 0:18:52.840 --> 0:18:55.760 of look across your portfolio where some of the areas 0:18:55.760 --> 0:18:58.399 that concerned. Yeah, look, look, I certainly think, you know, 0:18:58.600 --> 0:19:01.040 bankruptcies are going to go up from from you know, 0:19:01.080 --> 0:19:03.440 there were very low levels, you know, for the most 0:19:03.480 --> 0:19:06.960 part in most corporate sectors, you know, since the financial 0:19:06.960 --> 0:19:09.200 crisis of of you know, oh seven or eight oh nine, 0:19:09.240 --> 0:19:11.399 and you know, other than some of the challenges and 0:19:11.440 --> 0:19:15.359 need let's say the energy sector in fifteen and sixteen, um, 0:19:15.400 --> 0:19:19.119 you know, and obviously idiosyncratic bankruptcies here and there. So 0:19:19.119 --> 0:19:21.080 so I think that you know, they're for sure going 0:19:21.119 --> 0:19:23.800 to go up. You know, to me, the question is 0:19:24.240 --> 0:19:27.639 how long does that last? And also does it become 0:19:27.760 --> 0:19:31.159 more socially acceptable for more and more entities to default. 0:19:31.160 --> 0:19:33.560 I think if that were the case, that would be um, 0:19:33.600 --> 0:19:36.439 you know, problematic, um, you know, for credit markets and 0:19:36.480 --> 0:19:39.160 for the economy at large. If it's just the sectors 0:19:39.200 --> 0:19:41.199 that are you know, either had their issues kind of 0:19:41.200 --> 0:19:44.200 coming in to the coronavirus shocks, such as the energy 0:19:44.240 --> 0:19:47.800 sector for sure, it's been exacerbated by the UH no 0:19:47.920 --> 0:19:51.679 one traveling UM or sectors like you know, airlines or 0:19:51.720 --> 0:19:54.360 rental cars or whatnot where it's uh you know, those 0:19:54.400 --> 0:19:58.320 are massively affected due to social distancing and quarantine that 0:19:58.400 --> 0:20:01.480 we're seeing. For sure, you know, the there's gonna be bankruptcies, 0:20:01.480 --> 0:20:04.320 there's gonna be credit events in those in those sectors. 0:20:04.359 --> 0:20:06.399 So I think we're gonna see it. And you know, 0:20:06.440 --> 0:20:08.320