WEBVTT - DoubleLine CEO Jeffrey Gundlach Talks US Treasuries 0:00:02.360 --> 0:00:06.960 Bloomberg Audio Studios, podcasts, radio news, and. 0:00:06.880 --> 0:00:08.600 I want to start there give considering the fact that 0:00:08.600 --> 0:00:10.280 you've talked about how the US is going to go 0:00:10.320 --> 0:00:14.120 bankrupt and how it's on our unsustainable fiscal path, are 0:00:14.160 --> 0:00:16.479 we seeing that priced in or is there still a 0:00:16.480 --> 0:00:17.279 reconing to come. 0:00:17.800 --> 0:00:22.560 Well, it's certainly behaving differently than it was for the 0:00:22.680 --> 0:00:24.080 last four decades. 0:00:24.880 --> 0:00:26.480 I mean, what we've seen is. 0:00:28.600 --> 0:00:33.199 In the last of fifteen years, there's been a number 0:00:33.280 --> 0:00:36.320 of corrections on the s and P five hundred, and 0:00:36.400 --> 0:00:38.600 in every single one of them, when the SMP goes 0:00:38.600 --> 0:00:42.080 down more than ten percent, the dollar indexed the trade 0:00:42.080 --> 0:00:47.280 weighted dollar index goes up. This time, the dollar went 0:00:47.320 --> 0:00:50.560 down when the SMP five hundred went down almost twenty percent. 0:00:51.159 --> 0:00:53.479 That's strange. Things are behaving differently. 0:00:53.760 --> 0:00:57.520 Usually, when the Fed starts cutting interest rates, rates. 0:00:57.240 --> 0:00:58.680 Across the yel curve go down. 0:00:59.360 --> 0:01:02.840 The ten year t y almost always goes up immediately 0:01:02.840 --> 0:01:07.280 following the first Fed rate cut, and then it keeps 0:01:07.360 --> 0:01:11.200 rallying for a while. This time, the tenure yield went up, 0:01:12.000 --> 0:01:15.679 and the yield curve is steepening. So I think what 0:01:15.760 --> 0:01:20.920 we have is recognition that the interest expense for the 0:01:20.959 --> 0:01:25.160 United States is untenable if we continue running a two 0:01:25.160 --> 0:01:28.200 point one trillion dollar budget deficit and we continue to 0:01:28.240 --> 0:01:31.959 have sticky interest rates. One thing that people fail to 0:01:32.000 --> 0:01:37.119 appreciate is how much the average treasury payment has gone up. 0:01:37.160 --> 0:01:41.880 The average yield, the average coupon on treasuries was below 0:01:41.920 --> 0:01:45.280 two percent. The entire treasury market, all thirty odd billion 0:01:45.319 --> 0:01:46.840 of it, you a resolved together. 0:01:46.920 --> 0:01:47.720 Some of them are old. 0:01:47.760 --> 0:01:49.960 You know, they were issued with higher interest rates, but 0:01:50.000 --> 0:01:53.080 it was below two percent. Now it's pushing four percent. 0:01:53.840 --> 0:01:56.960 And as long as bonds are maturing, and there's trillions 0:01:56.960 --> 0:01:59.280 and trillions of dollars of the maturing, a lot of 0:01:59.320 --> 0:02:06.080 them were issued back in you know, two thousand and nine, eighties, 0:02:06.240 --> 0:02:08.480 other time periods. Even if you just issued them in 0:02:08.520 --> 0:02:10.840 twenty nineteen. Some of these are starting to come doe. 0:02:11.200 --> 0:02:13.400 And they were issued with coupons of a quarter of 0:02:13.440 --> 0:02:16.080 a percent, and now it's four and a quarter of percent, 0:02:16.120 --> 0:02:20.560 so it's four hundred basis points higher. So this problem 0:02:20.600 --> 0:02:26.080 continues to build, and there's an awareness now that the 0:02:26.160 --> 0:02:28.880 long term treasury bond is not a legitimate flight to 0:02:28.960 --> 0:02:34.640 quality asset. It's not responding to lower interest rates. It's 0:02:34.680 --> 0:02:37.600 not really responding to an inflation rate which is now 0:02:37.919 --> 0:02:40.440 two and a half percent. Probably going to go higher 0:02:40.480 --> 0:02:43.040 on the inflation rate because the ones that are rolling 0:02:43.040 --> 0:02:45.920 off from a year ago, I mean the cumulative I 0:02:45.919 --> 0:02:49.120 think headline CPI that came out today it was a 0:02:49.160 --> 0:02:51.480 point one to eight, but the one that was rolling 0:02:51.520 --> 0:02:54.440 off I think was zero point one. And if you 0:02:54.480 --> 0:02:57.720 do the next two months, those three months together that quarter, 0:02:58.480 --> 0:03:00.519 the cumulative rise from a year ago is point one. 0:03:01.200 --> 0:03:05.200 So we're likely seeing the low point in near term inflation. 0:03:05.760 --> 0:03:08.919 So yeah, I think there's the reckoning is coming, is 0:03:08.960 --> 0:03:13.200 that we have to somehow figure out how we're going 0:03:13.240 --> 0:03:15.520 to deal with thirty seven trillion dollars. I mean, we're 0:03:15.520 --> 0:03:18.119 actually going to hit the thirty seven trillion number for real. 0:03:18.160 --> 0:03:22.320 It's still thirty six point nine to five trillion, but 0:03:22.400 --> 0:03:23.640 it's going up quickly. 0:03:23.680 --> 0:03:24.960 So yeah, there's going. 0:03:24.800 --> 0:03:27.880 To have to be some pretty creative thinking, and the 0:03:27.919 --> 0:03:33.800 market's starting to believe that. So the private previous group 0:03:33.919 --> 0:03:37.480 talked about the capital flows, and one of the reasons 0:03:37.480 --> 0:03:42.360 that the US is underperforming at this point is so 0:03:42.560 --> 0:03:46.560 much money came into the United States since say twenty 0:03:46.680 --> 0:03:51.920 fifteen or so or twenty oh five, and it's there 0:03:52.000 --> 0:03:55.560 was a net investment position. Foreigners were investing more in 0:03:55.600 --> 0:03:57.720 the US than the US was investing outside the country. 0:03:57.880 --> 0:04:00.560 To the tune of three trillion dollars. That was about 0:04:00.640 --> 0:04:04.840 fifteen seventeen years ago. It's now over twenty five trillion 0:04:04.920 --> 0:04:08.880 dollars is the net investment position, and the dollar is falling. 0:04:09.640 --> 0:04:14.560 So it's not inconceivable that some of that twenty five 0:04:14.720 --> 0:04:17.160 trillion dollars that came in over just a couple of 0:04:17.160 --> 0:04:17.679 not even. 0:04:17.520 --> 0:04:19.880 Two decades could go out. 0:04:20.080 --> 0:04:23.960 And so this is a moment where finally you had 0:04:23.960 --> 0:04:27.280 the setup where non US investment, even if you're a 0:04:27.320 --> 0:04:30.680 dollar based investor, you should be thinking about increasing your 0:04:30.720 --> 0:04:33.480 allocations to non dollar investments. 0:04:33.680 --> 0:04:36.919 And it's already working. It's already working. So there's so 0:04:37.000 --> 0:04:37.920 much to unpack there. 0:04:38.279 --> 0:04:40.839 I want to talk about the idea that there could 0:04:40.920 --> 0:04:43.039 be this twenty five trillion or some of it that 0:04:43.200 --> 0:04:46.240 was wait, exactly whatever it is, three trillion. You get 0:04:46.240 --> 0:04:49.960 trillions of dollars moving out of US assets. How high 0:04:50.279 --> 0:04:52.599 or what kind of behavior do you have to see 0:04:52.839 --> 0:04:54.520 in a thirty year bond. 0:04:54.240 --> 0:04:55.000 To like it? Again? 0:04:55.080 --> 0:04:56.640 Given the fact, even very vocal. 0:04:56.480 --> 0:04:58.680 I've I've been fit sure about this for a long time, 0:04:59.000 --> 0:05:03.440 and I've come to the idea that as the FED 0:05:03.560 --> 0:05:07.760 eases and when the economy really does weaken more than 0:05:07.920 --> 0:05:11.640 the treasure will continue to go up at the long end. 0:05:12.160 --> 0:05:15.719 And so for now we're very uninvolved in the long 0:05:15.800 --> 0:05:19.480 term treasury bond. But there will come a moment where 0:05:19.480 --> 0:05:22.680 you have to pivot because there's going to be a response, 0:05:23.320 --> 0:05:26.800 and I've got many ideas of what that response might be, 0:05:26.880 --> 0:05:30.760 but one of the leading candidates would be quantitative easy. 0:05:30.839 --> 0:05:32.599 So you get to a point where the rate is 0:05:32.640 --> 0:05:36.640 so uncomfortably high, what is that number, I'm going to 0:05:36.640 --> 0:05:40.920 guess six percent, where they say this is going to 0:05:41.080 --> 0:05:43.599 be something that we're going to be running a five 0:05:43.680 --> 0:05:46.920 trillion dollar budget deficit with all this bond issuance when 0:05:46.920 --> 0:05:50.680 we go into a recession, and so they'll pivot. I 0:05:50.760 --> 0:05:55.120 believe this is a sensible idea. There's other ideas too, 0:05:55.200 --> 0:05:59.479 but the leading candidate is they will announce quantitative easing 0:06:00.080 --> 0:06:03.520 on buying long term treasuries, and when they do, you 0:06:03.560 --> 0:06:06.800 have to you have to very quickly, and hopefully you 0:06:06.839 --> 0:06:10.760 do it the day before they announced it. But we 0:06:10.800 --> 0:06:13.479 don't have access to the day before stuff. That's that's 0:06:13.480 --> 0:06:19.560 for the primary broker dealers. But you would need to 0:06:19.600 --> 0:06:23.559 buy long term treasuries as much as you possibly could, 0:06:24.040 --> 0:06:26.479 because when that gets denounced, it will be just like 0:06:26.480 --> 0:06:30.320 when they announced buying corporate bonds in COVID, where all 0:06:30.360 --> 0:06:32.919 of a sudden the corporate bond market went from down 0:06:33.600 --> 0:06:36.440 twenty points to right back to where it started in 0:06:36.520 --> 0:06:38.040 just a matter of a few days. 0:06:38.520 --> 0:06:39.160 You could get a. 0:06:39.080 --> 0:06:41.640 Twenty point rally on the long bond if they announced 0:06:41.640 --> 0:06:43.279 that they're buying long band could that would be one 0:06:43.320 --> 0:06:44.400 hundred basis point drop. 0:06:44.680 --> 0:06:46.800 You said that if the Fed were to cut rates 0:06:47.120 --> 0:06:50.160 that might cause a selloff in thirty year treasuries. 0:06:50.320 --> 0:06:51.279 It's already happening. 0:06:51.320 --> 0:06:55.359 They started cutting rates September of twenty twenty three, and 0:06:55.400 --> 0:06:58.839 the long bond has gone up in yield significantly since 0:06:58.880 --> 0:07:00.159 then one hundred basis point Do. 0:07:00.200 --> 0:07:01.160 You think that will happen again? 0:07:01.240 --> 0:07:01.719 Well? Why not? 0:07:02.279 --> 0:07:08.200 I mean, it's a paradigm shift. We have a tremendous 0:07:08.240 --> 0:07:11.840 paradigm shift that's going on where money is not coming 0:07:11.880 --> 0:07:15.120 into the United States, where the long line is not 0:07:15.360 --> 0:07:18.640 a flight to quality asset. Gold suddenly is the flight 0:07:18.680 --> 0:07:23.040 to quality asset. People I think Costco is selling gold 0:07:23.120 --> 0:07:25.680 retail and they can't keep it in stock, you know. 0:07:25.800 --> 0:07:29.000 And gold has gone from it was living at eighteen 0:07:29.040 --> 0:07:32.280 hundred dollars an ounce not very long ago, and once 0:07:32.320 --> 0:07:34.800 it broke above two thousand, it was just straight up. 0:07:35.120 --> 0:07:36.480 And now it was basically a. 0:07:36.440 --> 0:07:40.280 Third of ten thousand, thousand, three hundred thirty three and 0:07:40.320 --> 0:07:40.920 thirty three cents. 0:07:40.920 --> 0:07:42.480 It was actually what I looked at yesterday. 0:07:42.960 --> 0:07:47.080 So it's I think gold is a real asset class. 0:07:47.120 --> 0:07:52.560 It's no longer for lunatic survivalists and wild speculators. It's 0:07:52.640 --> 0:07:55.720 viewed as an asset class. And central banks have been 0:07:55.760 --> 0:07:58.920 accumulating gold. Gold was so was stuck in the mud 0:07:59.320 --> 0:08:02.920 because for a decade or more central banks were selling 0:08:02.920 --> 0:08:03.280 it down. 0:08:03.480 --> 0:08:06.200 They've bought it all back, so you buy gold. 0:08:06.560 --> 0:08:09.240 I've owned gold since it was three hundred dollars, and 0:08:09.280 --> 0:08:11.480 I also owned some gold miners personally. 0:08:12.040 --> 0:08:14.040 But they bought it all back. It's amazing. 0:08:14.080 --> 0:08:17.920 They sold it at like three hundred, four hundred dollars 0:08:17.960 --> 0:08:20.840 and they're buying it back at three thousand dollars. See, 0:08:21.080 --> 0:08:23.600 central banks are not very good long term investors. 0:08:24.480 --> 0:08:26.240 Well maybe they could use advice from you. One thing 0:08:26.280 --> 0:08:28.320 that we've been hearing about in a number of the 0:08:28.320 --> 0:08:30.880 panels this morning has been about the corporate debt market. 0:08:31.600 --> 0:08:35.000 And one thing that I've gathered from talking with people 0:08:35.040 --> 0:08:38.000 at Double Line and reading your outlooks is that you've 0:08:38.000 --> 0:08:40.120 reduced your allocation to below. 0:08:39.920 --> 0:08:44.240 Investment grade credit systematically over a two year period. 0:08:44.080 --> 0:08:46.680 To the lowest level I believe since the inception of 0:08:46.720 --> 0:08:47.360 Double Line. 0:08:47.360 --> 0:08:47.720 That's right. 0:08:47.760 --> 0:08:52.240 We have higher quality portfolios today relative to strategy style 0:08:53.440 --> 0:08:56.760 at any time we run closed down funds that are leveraged. 0:08:57.480 --> 0:08:59.720 We have the lowest leverage of all time. 0:09:00.080 --> 0:09:00.480 We had. 0:09:00.559 --> 0:09:04.680 We had forty five percent leverage us versus net assets, 0:09:05.040 --> 0:09:07.760 and one of our funds were at seven and we're 0:09:07.800 --> 0:09:12.160 just we're there because we want to be a liquidity provider. 0:09:12.640 --> 0:09:15.440 When you get paid to be a liquidity provider and 0:09:15.480 --> 0:09:21.120 you're not. Now, the spreads are very uninteresting in the 0:09:21.320 --> 0:09:23.880 in the credit market, just as the valuation of the 0:09:23.920 --> 0:09:26.479 S and P five hundred is incredibly uninteresting. 0:09:26.880 --> 0:09:30.199 You know, when we had the big sell off in April. 0:09:29.920 --> 0:09:32.040 If we were like, yeah, we were kind of asleep 0:09:32.040 --> 0:09:32.679 at the switch. 0:09:32.760 --> 0:09:34.280 The market was really overvalued. 0:09:34.600 --> 0:09:36.680 We really shouldn't have We really should have been thinking 0:09:36.960 --> 0:09:41.160 more cautiously. Well, it's more overvalue today because the S 0:09:41.200 --> 0:09:43.240 and P five hundred is down one or two percent 0:09:43.760 --> 0:09:47.040 and earnings estimates have been cut significantly. 0:09:47.480 --> 0:09:48.280 So if you look at the. 0:09:48.280 --> 0:09:51.480 Forward pe, it's higher now than it was at the 0:09:51.480 --> 0:09:55.040 all time high back in February or early March. 0:09:55.360 --> 0:09:57.760 So what are you sort of anticipating? 0:09:58.040 --> 0:10:02.440 What kind of anticipat a great buying opportunity? I don't 0:10:02.440 --> 0:10:05.480 know when it's going to happen, but it's getting close. 0:10:06.160 --> 0:10:11.520 I feel that the environment feels a lot like nineteen 0:10:11.600 --> 0:10:17.000 ninety nine relative to AI. Is just mapover dot com 0:10:17.360 --> 0:10:20.680 for AI. I also think it feels a lot like 0:10:21.480 --> 0:10:24.640 two thousand and six, two thousand and seven. You know, 0:10:25.000 --> 0:10:27.880 it's funny. One of the hardest things to do in 0:10:27.920 --> 0:10:31.719 the investment business is to learn and fully appreciate how 0:10:31.800 --> 0:10:35.680 long everything takes to happen. It takes forever for the 0:10:35.720 --> 0:10:38.280 problems to actually show up, it takes forever to the 0:10:38.320 --> 0:10:46.719 defaults to finally arrive. But people anticipate changes with great enthusiasm, 0:10:47.200 --> 0:10:51.679 so AI, of course, was embraced with great enthusiasm. Electricity 0:10:52.320 --> 0:10:55.720 was all the rage back in nineteen hundred because people 0:10:55.760 --> 0:10:58.760 realized that electricity could change the world, and I think 0:10:58.800 --> 0:11:01.559 we can all agree electricity change the world in ways 0:11:01.559 --> 0:11:03.680 they're bigger than AI will change the world. 0:11:03.679 --> 0:11:07.760 In my opinion, electricity is like amazing. But there was 0:11:07.800 --> 0:11:08.719 a huge boom in. 0:11:08.679 --> 0:11:12.160 Electricity stocks in the first decade of the twentieth century. 0:11:12.720 --> 0:11:18.360 But electricity stocks boomed so much that their relative performance 0:11:19.120 --> 0:11:24.040 peaked versus the stock market excluding electricity stocks in nineteen eleven. 0:11:24.760 --> 0:11:27.320 If you own electricity stocks, you've been underperforming the non 0:11:27.320 --> 0:11:32.160 electricity stocks since nineteen eleven. That's a long time, and 0:11:33.040 --> 0:11:35.960 that's what happens. That happened with the dot coms too. 0:11:35.960 --> 0:11:38.480 That was the nineteen ninety nine thing. Sure, it turned 0:11:38.480 --> 0:11:41.280 out that some of those stocks were great investments, but 0:11:42.679 --> 0:11:47.120 that enthusiasm becomes very excessive. They see the possibilities, but 0:11:47.200 --> 0:11:49.720 it takes long time for the possibilities to arrive. 0:11:50.280 --> 0:11:52.400 It's taking a long time for the tariffs to arrive. 0:11:53.040 --> 0:11:55.520 So do you think that the tech stocks that have 0:11:55.559 --> 0:11:58.200 been not performing are going to lag behind in terms 0:11:58.200 --> 0:12:01.360 of the ninety nine performance? Sort of the corollary of 0:12:01.400 --> 0:12:03.839 all of the credit investments tied to the AI build 0:12:03.840 --> 0:12:04.520 out also. 0:12:04.600 --> 0:12:08.400 Momentum trade and momentum trades always overshoot on the upside, 0:12:08.760 --> 0:12:12.400 and then once the momentum is broken, the late comers 0:12:12.559 --> 0:12:15.560 to decide that their first loss is their best loss. 0:12:15.559 --> 0:12:17.320 And it turns into a seller's market. 0:12:17.559 --> 0:12:19.560 You talk about two thousand and six, two thousand and seven, 0:12:19.679 --> 0:12:23.199 that's a credit event. And when we took that poll 0:12:23.320 --> 0:12:27.280 that my colleague Danny was pointing to, private credit seemed 0:12:27.320 --> 0:12:29.240 to be the spot where people expect a faults to 0:12:29.280 --> 0:12:30.000 really pick up. 0:12:30.280 --> 0:12:31.320 Yeah, do you agree? 0:12:31.360 --> 0:12:33.720 Do you think that that's sort of the epicenter some risk? 0:12:33.880 --> 0:12:39.480 Sure, it's private credit is analogous to private credit today, 0:12:39.520 --> 0:12:44.120 is analogous to the CDO market in the mid part 0:12:44.800 --> 0:12:49.439 of the OS, where there's just tremendous issuance, there's a 0:12:49.760 --> 0:12:51.480 tremendous acceptance. 0:12:52.160 --> 0:12:54.959 There's all kinds of I was listening. 0:12:54.600 --> 0:12:58.480 Briefly to kind of private creditors panel here and there's 0:12:58.520 --> 0:13:02.160 a lot of there's a lot of phraseology that I 0:13:02.240 --> 0:13:04.960 heard that reminded me of CDO panels in two thousand 0:13:04.960 --> 0:13:09.760 and six, two thousand and seven. Just complexity, ill liquidity, 0:13:11.120 --> 0:13:17.120 I don't know, very large, you know, tensions between investor classes, 0:13:18.760 --> 0:13:24.280 these things. Private credit is extremely heavily invested in, you know, 0:13:24.360 --> 0:13:25.960 Harvard University. 0:13:25.440 --> 0:13:27.840 Who has a fifty three billion dollar endowment. 0:13:27.880 --> 0:13:31.320 Supposedly they had to come to the bond market twice 0:13:31.960 --> 0:13:34.839 because they couldn't have they did enough money. They have 0:13:34.920 --> 0:13:37.760 fifty three billion dollars and they can't pay They can't 0:13:37.760 --> 0:13:41.199 pay for repairs, they can't pay for operating expenses. They 0:13:41.200 --> 0:13:43.360 came to the bond market looking for a couple of 0:13:43.679 --> 0:13:45.520 two and a half billion dollars. I think they got 0:13:45.600 --> 0:13:47.960 one and a half billion dollars. And then they came 0:13:48.000 --> 0:13:50.719 back again. And I think it was last week it 0:13:50.840 --> 0:13:54.640 was announced that Harvard is thinking about selling some of their. 0:13:54.480 --> 0:13:56.600 Private equity interests at a discount. 0:13:56.640 --> 0:13:59.640 Obviously, because when you're when you're a forced seller, you're 0:13:59.640 --> 0:14:02.600 not going to your cost, and so there's a lot 0:14:02.640 --> 0:14:05.280 of over investment. When I speak to Rias, you know 0:14:05.360 --> 0:14:08.800 Peel that manage a kind of hire net worth retail 0:14:08.800 --> 0:14:13.080 money for the past three four years, the UH one 0:14:13.120 --> 0:14:17.240 of the very first questions, without exception, what about private credit? 0:14:17.520 --> 0:14:20.800 And I say, are you heavily invested in private credit? Yes? 0:14:21.200 --> 0:14:25.800 And everybody is, and I say, so, you know, what's 0:14:25.840 --> 0:14:28.680 the argument? And I was giving a speech down in 0:14:28.720 --> 0:14:32.120 Texas and the woman before me was from a fund 0:14:32.120 --> 0:14:35.640 that's very heavily involved in private credit, and she basically 0:14:35.640 --> 0:14:39.160 gave a sales pitch for private credit, and basically a 0:14:39.200 --> 0:14:42.000 three pointed sales pitch, none of which are the points 0:14:42.040 --> 0:14:46.920 really sell me. The first is that it's less volatile. 0:14:47.040 --> 0:14:49.920 It's a sharp ratio argument, so you know, and it's 0:14:49.920 --> 0:14:51.520 only we all know. It's only because they don't mark 0:14:51.560 --> 0:14:53.960 them to market. I mean, everybody knows that. So it's 0:14:53.960 --> 0:14:56.160 just like private private equity. It's S and P five 0:14:56.200 --> 0:14:58.800 hundred goes from one hundred to fifty. They mark their 0:14:58.800 --> 0:15:02.560 private equity down twenty points, and then they both recover 0:15:02.800 --> 0:15:04.360 over time, they both go up to one hundred. 0:15:04.600 --> 0:15:05.160 So look at that. 0:15:05.200 --> 0:15:07.760 They have the same return, but one had S ANDP 0:15:07.840 --> 0:15:11.560 had double the volatility. And then some that argument is 0:15:11.600 --> 0:15:16.720 not valid. It's they aren't marked to market. So you know, 0:15:16.800 --> 0:15:21.400 the next argument is somewhat valid. Historical performance. Private credit 0:15:21.520 --> 0:15:24.560 had some very good years. It was quite cheap, you know, 0:15:24.640 --> 0:15:27.280 five or seven years ago, and you use a historical 0:15:27.840 --> 0:15:32.040 argument that the performance is good, and it's true, but 0:15:32.120 --> 0:15:35.600 as we all know, as they say in the disclaimers 0:15:35.600 --> 0:15:39.400 at the commercials, you know, past performance is no guarantee 0:15:39.440 --> 0:15:43.880 of future results, and public credit I think has outperformed 0:15:43.960 --> 0:15:46.360 private credit for a few quarters. 0:15:46.040 --> 0:15:48.400 At least now, so it's already changing. 0:15:48.840 --> 0:15:51.800 So I think that there's a lot of overinvestment in 0:15:51.840 --> 0:15:55.880 private credit, and the liquidity is not very good, and 0:15:56.760 --> 0:16:01.240 I just don't think the excess reward is anything close 0:16:01.280 --> 0:16:03.360 to what it used to be. So I would view 0:16:03.400 --> 0:16:05.400 that as a place where there would be forced selling. 0:16:05.880 --> 0:16:09.640 Harvard could turn into a foreseller, and Harvard, you know, 0:16:09.720 --> 0:16:14.040 they at least used to have the best reputation. Yale 0:16:14.080 --> 0:16:17.560 had this great reputation for investing in private markets, and 0:16:18.040 --> 0:16:21.760 that lured in a lot of me too behavior because 0:16:21.800 --> 0:16:25.359 they were emulating the results of Yale. But there's once 0:16:25.440 --> 0:16:29.520 one university is in publicly acknowledging that they have liquidity problems. 0:16:29.720 --> 0:16:30.600 I've got news for you. 0:16:30.760 --> 0:16:32.920 If you have a cockroach in the kitchen, there's never 0:16:33.000 --> 0:16:35.440 one cockroach, so there's more. 0:16:35.720 --> 0:16:37.560 It's always it becomes systemic. 0:16:38.320 --> 0:16:42.360 It doesn't mean everybody's overinvested and overly locked up. But 0:16:42.800 --> 0:16:47.520 in two thousand and eight, I was raising lots of 0:16:47.560 --> 0:16:49.960 money for distressed mortgages, you know, the stuff that was 0:16:50.000 --> 0:16:53.360 defaulting like crazy. It got to such a price that 0:16:53.440 --> 0:16:58.920 it was just truly unbelievable. I mean, there were securities 0:16:58.920 --> 0:17:01.960 that were trading that life at one hundred had never 0:17:02.040 --> 0:17:04.679 really had much volatility, and they were being liquidated at 0:17:04.720 --> 0:17:05.159 prices of. 0:17:05.160 --> 0:17:08.000 Thirty cents on the dollar. And you could use. 0:17:07.840 --> 0:17:12.880 Assumptions that were just nobody believed would happen. You could say, 0:17:12.880 --> 0:17:15.119 seventy percent of these mortgages to fall and we recover 0:17:15.240 --> 0:17:18.119 thirty cents on the dollar, and it's a twenty four IRR. 0:17:18.600 --> 0:17:21.159 And I said this to the Stanford University Endowment, the 0:17:21.200 --> 0:17:23.520 head guy, and I said, I can prove to you 0:17:23.560 --> 0:17:25.160 that your worst case is going to be a twenty 0:17:25.200 --> 0:17:28.399 four IRR because I'm going to use you. Tell me 0:17:28.480 --> 0:17:35.960 what assumptions you think are absurdly punishing, and I'll use them. 0:17:36.280 --> 0:17:38.320 And you got twenty four ir at. Let me finish. 0:17:38.400 --> 0:17:43.119 And he says, I can't argue with you. You make a 0:17:43.240 --> 0:17:47.720 very compelling point, but I can't invest with you. And 0:17:47.760 --> 0:17:51.280 I said why, He said, I have no money. We're 0:17:51.320 --> 0:17:54.080 all locked up. We're getting called because everything's so cheap. 0:17:54.119 --> 0:17:57.000 Everyone's calling their money now. You know these are draw funds. 0:17:57.320 --> 0:17:59.960 Now we're calling your capital. And he said, I can't 0:18:00.080 --> 0:18:02.080 even make those capitol calls. And I said, come on, 0:18:03.160 --> 0:18:06.679 I really love Stanford Endowment. What a great name for 0:18:06.720 --> 0:18:09.400 the client list. Give me ten million dollars. 0:18:10.920 --> 0:18:14.120 I don't have ten million dollars. I have no money. 0:18:14.359 --> 0:18:21.359 These are large endowments and if they if they need money, 0:18:21.520 --> 0:18:22.719 they have to sell. 0:18:22.880 --> 0:18:26.879 You say markets. Everyone knows markets have fear and greed 0:18:27.000 --> 0:18:29.200 that drive them. And everyone knows that fear is stronger 0:18:29.200 --> 0:18:32.520 than greed when it really push comes to shove. But 0:18:32.640 --> 0:18:37.520 the actual strongest driver of investment behavior is need. 0:18:38.440 --> 0:18:40.280 Sometimes people need back. 0:18:40.359 --> 0:18:44.560 In nineteen ninety three, interest rates were perceived to be low, 0:18:44.600 --> 0:18:47.560 and I went to one of my university of endowment. 0:18:48.080 --> 0:18:50.920 It was the treasurer. It was their operating money, and he. 0:18:50.880 --> 0:18:53.560 Said, I just met with the president of the university 0:18:53.760 --> 0:18:56.119 and he says, I have to make six percent for 0:18:56.200 --> 0:18:58.320 the operating money. And he said, I told him it's 0:18:58.359 --> 0:19:03.320 impossible to get six percent without tremendous risk because treasury 0:19:03.400 --> 0:19:07.160 interest rates are at three And he said, wrong answer. 0:19:07.880 --> 0:19:10.720 You're going to get six percent. Just find out how 0:19:10.720 --> 0:19:13.320 you're going to do it. And of course, in nineteen 0:19:13.400 --> 0:19:15.679 ninety four, interest rates went way up, and everybody that 0:19:15.920 --> 0:19:20.120 had done that sort of thing like Orange County, California had. 0:19:20.359 --> 0:19:24.600 There was a very famous default of Orange County, California. 0:19:25.119 --> 0:19:31.200 And you know, so their need is very powerful. 0:19:31.240 --> 0:19:36.000 But it's bad enough when you make the determination, you say, 0:19:36.080 --> 0:19:39.359 I have this goal, the six percent goal, I need 0:19:39.400 --> 0:19:39.840 to make it. 0:19:40.000 --> 0:19:40.879 I'll give it a shot. 0:19:41.080 --> 0:19:43.760 But the other side of that is even more powerful 0:19:44.160 --> 0:19:47.240 when you're forced to sell. It doesn't matter what the 0:19:47.240 --> 0:19:50.480 price is. You don't have an option. If you have 0:19:50.600 --> 0:19:52.200 to sell to pay the bills. 0:19:52.760 --> 0:19:53.640 What are you going to do. 0:19:54.080 --> 0:19:56.399 If you're preparing for that kind of moment, are you 0:19:56.440 --> 0:19:58.359 sitting mostly in cash a little gold? 0:19:58.560 --> 0:20:01.000 No have. 0:20:02.040 --> 0:20:04.119 We manage a lot of other people's money, and a 0:20:04.119 --> 0:20:05.480 lot of it is in. 0:20:05.440 --> 0:20:06.440 The fixed income market. 0:20:06.480 --> 0:20:11.400 We're just protecting and waiting for much better opportunities. 0:20:11.600 --> 0:20:14.560 I think about it. You know, markets take the stairs up. 0:20:14.440 --> 0:20:17.720 In the elevator down, which means they go up faster 0:20:17.800 --> 0:20:19.439 than they go they go down faster than they go up. 0:20:20.119 --> 0:20:24.200 And so when it really when it really breaks, it's 0:20:24.240 --> 0:20:27.080 not down a couple of points, even what we saw 0:20:27.080 --> 0:20:29.840 in April, that's not a real break of the credit market. 0:20:29.840 --> 0:20:32.200 A real break the credit market is bonds drop thirty 0:20:32.200 --> 0:20:37.320 points and everyone thinks they're cheap, but they have to sell, 0:20:38.160 --> 0:20:40.280 so you have an opportunity at some point to buy 0:20:40.320 --> 0:20:43.040 bonds down. I don't know, let's just say it. Let's 0:20:43.040 --> 0:20:46.400 just say it's twenty five points. How your bonds yield 0:20:46.440 --> 0:20:50.520 about two and a half percent more than treasury bonds. 0:20:51.000 --> 0:20:53.600 So if it takes ten years for that twenty five 0:20:53.600 --> 0:20:55.359 point opportunity, you're going to break even. 0:20:56.160 --> 0:20:58.040 And it's not going to take ten years. It's not 0:20:58.080 --> 0:21:01.480 going to take five years. Leave. But the other the 0:21:01.520 --> 0:21:03.160 panel before me said, I think is true. 0:21:03.160 --> 0:21:06.000 I think twenty seven twenty eight are going to be 0:21:07.119 --> 0:21:10.879 are likely to be a window of tremendous opportunity because 0:21:10.880 --> 0:21:14.920 I think by then the treasury problem will be even 0:21:15.000 --> 0:21:18.080 more in focus than it is today, and I think 0:21:18.119 --> 0:21:22.439 that it'll weigh it'll weigh upon market behavior. We need 0:21:22.600 --> 0:21:26.840 we need to restructure a lot of things in our system. 0:21:26.960 --> 0:21:28.000 We need to restructure. 0:21:28.920 --> 0:21:33.040 We need to structure institutions, we need to restructure political parties, 0:21:33.080 --> 0:21:36.840 we need to restructure our finances. All these things are 0:21:36.920 --> 0:21:41.360 have been in place. It's the it's the waves of history, 0:21:41.840 --> 0:21:44.119 you know. Neil Howe calls of the fourth turning. He 0:21:44.200 --> 0:21:46.520 wrote a book called the fourth turning the mid nineties, 0:21:46.720 --> 0:21:50.280