April 30, 2025 • 44 mins
Watch Tom and Paul LIVE every day on YouTube: http://bit.ly/3vTiACF.
Bloomberg Surveillance hosted by Tom Keene & Paul SweeneyApril 30th, 2025
Featuring:
1) Amanda Lynam, Head of Macro Credit Research at Blackrock, joins for an extended discussion on her weekly global credit report and discusses corporate credit spreads and signals from the bond market. Uncertainty continues to be the main theme across the investing world. Veteran emerging-markets investor Mark Mobius said he’s keeping 95% of his funds’ holdings in cash as he waits out the trade-related uncertainty. Hedge funds are reluctant to make major bets amid the turmoil, with the only significant shift in positioning in April being increased bets against US stocks, Bloomberg reported.
2) Jim Caron, CIO of Cross Asset Solutions at Morgan Stanley Investment Management, talks about whether the dollar and US treasuries are still safe havens and how he tries to contextualize that discussion. In a broader look at the economy, real GDP likely slowed to a standstill in the first quarter as President Trump’s policy shifts disrupted activity, according to Bloomberg economists.
3) George Goncalves, Head of US Macro Strategy at MUFG Securities Americas, joins to discuss economic fundamentals and incoming eco data and how that, possibly more than policy, will shape markets in the coming months. Stock drifted in early trading as investors await a busy day of earnings and macro data on the final session of an exhausting month. Mag 7 results, GDP and inflation numbers are potential catalysts for market direction.
4) Sinjin Bowron, High Yield Bond and Senior Bank Loan Portfolio Manager at Beach Point Capital, discusses leveraged credit markets, opportunities and challenges amid widening uncertainty, and other signals from the bond market. US Treasuries held recent gains as traders awaited data on inflation and economic growth, as well as the debt management team's plans for sales in the $29 trillion market.
5) Callie Cox, Chief Market Strategist at Ritholtz Wealth Management, brings us into the market open and talks about allocating and staying the course in a slowing economy. Economic data due this week includes inflation and gross-domestic-product data, which will provide a snapshot of US economic activity before President Trump's trade policy shifts.
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:02):
Bloomberg Audio Studios, podcasts, radio news. This is the Bloomberg
Surveillance Podcast. Catch us live weekdays at seven am Eastern
on Apple CarPlay or Android Auto with the Bloomberg Business App.
Listen on demand wherever you get your podcasts, or watch
(00:25):
us live on YouTube.
Speaker 2 (00:27):
It starts trying today with Amanda Lineum. She's at Black Rock.
As you look at the fixed income space, let's just
go there with the real yield. The real yield is
the inflation adjusted yield. There's different ways to measure it.
At the one I use is one point ninety two,
Well in over two percent. Why is the real yield
coming in? Is it a growth prediction?
Speaker 3 (00:46):
Good morning, Thank you for having me.
Speaker 4 (00:47):
I do think that's exactly a time a moderation and
growth outlook for the US, so that real.
Speaker 3 (00:52):
Yield is coming in, and I think that makes sense.
Speaker 4 (00:54):
When you listen to corporate earnings calls, even the ones
that have occurred over the past week, there's a significan
lack of visibility where these corporates can really see forward.
They're having a difficult time disentangling what is front loading.
Speaker 3 (01:06):
Of demand, what is real demand.
Speaker 4 (01:08):
Many of the consumer companies are expecting to be mitigating
teriffs for the next few quarters. But I think there's
a debate that is happening both internally and I would
say externally, where the market is saying, well, the hard
data hasn't yet caught down to the softer sentiment data,
so maybe it won't, maybe it won't, Maybe that moderation
won't happen.
Speaker 3 (01:25):
We think that that's actually just a matter of time.
Speaker 4 (01:28):
The hard data will actually catch down to the soft data,
but we shouldn't expect it to happen imminently.
Speaker 5 (01:33):
I got the tenure treasure. We're back down to four
point one six percent.
Speaker 2 (01:37):
Everything's coming in Holy Cow.
Speaker 5 (01:39):
I mean, what do you think we end the year here?
Speaker 4 (01:41):
Well, I think our two I would say more higher
conviction assumptions are for steeper curves and a rebuild of
term premia at the long end. And so really, when
you think about the long end, the drivers there are
budget deficits, concerned about the fiscal situation, possible increase in
inflation expectations over the long term. At the front end,
we actually think the FED has a more constrained reaction
(02:01):
function because inflation is just already above target and is
probably moving higher still, so we don't expect the FED
to be cutting preemptively. We expect that they will actually
need to see real deterioration in the labor market. Probably
not this Friday, but over time it's really going to
be that visible inflection in the hard data that will
allow the FED to cut. They may start with a
fifty basis point cut, right, that's not out of the question.
Speaker 3 (02:24):
It's not out of the question.
Speaker 4 (02:25):
But I think as it relates to the treasury market,
steeper curves a rebuilder of term premia at the long
end and actually kind of pushing back against market precing.
Although I will say market pricing really isn't reflecting a
full cut until July.
Speaker 2 (02:38):
Amandoline is so intimidating folks when I have to have
a logarithmic chart up here just to come before I
go to her. So I did the Bloomberg Total Return
Corporate Index, and I think it's greatly unknown by people
that the bond hemorrhage that we had a number of
years ago, priced down, yield way up, has really been
(03:00):
a bond recovery. Here. What has led the recovery of
price up, yield down.
Speaker 3 (03:05):
And bond So two things. One that's absolutely right.
Speaker 4 (03:09):
And the higher risk free rate, the higher yield just
compounding over time and boosting those total returns has really helped.
That's been a big capture, and that staying invested, capturing yield.
Speaker 2 (03:20):
She read the yield books, sitting on the home, so.
Speaker 4 (03:23):
Staying invested, capturing that higher yield that has been compounding.
What has been really more striking to me is if
you disentangle the corporate bond market into the subsets of quality,
high yield pockets of it have outperformed investment grade on
a total return basis year to date. And then, even
more interestingly, the triple C pocket of the high yeld
market has outperformed the S and P five hundred, the
(03:44):
NASTAQ one hundred, and the rustle and so the lowest
quality portion of the high yield market, despite all of
the growth concerns you mentioned at the top, has actually
been out performing the equity market on a total return
basis year to date, which I find to be really interesting.
Speaker 5 (04:00):
So, I mean, should we still be thinking about taking
credit risk case?
Speaker 3 (04:03):
Yes, so, I say selectively is the is the key point.
Speaker 4 (04:06):
So if you are an investor that is constrained to
the investment grade market, right, you really can just buy
investment grade paper.
Speaker 3 (04:12):
We like moving down into the.
Speaker 4 (04:13):
Triple b's, that low end of the investment grade universe.
If you can more, if you're more unconstrained, you can
really go anywhere. We'd like dipping down into the high
end of high yield, that double B factor. What we
found is that you're actually not giving up that much
credit quality by dipping into the high end of high
yield versus triple be's. Those leverage metrics have actually converged.
Speaker 2 (04:31):
What's I mean, can someone actually go out and do
that or they can't?
Speaker 3 (04:35):
Yeah, they can.
Speaker 4 (04:35):
So for example, the yield on the investment grade aggregate
index is above five percent at the moment, the yield
on the high yield index in aggregate is around seven
point eight percent.
Speaker 3 (04:44):
So there's a there's still a meaningful.
Speaker 4 (04:46):
Difference that you're picking up by kind of crossing into
high yield territory. Why is that important given the volatility
in the treasury market that you mentioned. Yes, we're we're
lower on yields yere to date in the treasury market,
but it's been volatile, as you know. Picking up that
in mental spread, staying invested letting that compound will boost
total returns over time. So we like dipping in selectively
(05:06):
into the lower quality pockets of the market. We would not, however,
importantly be chasing all the way down into the tail
of the market, into that triple C pocket. You really
need to go back to basics do real credit work.
This is a really challenging environment dynamically to invest.
Speaker 5 (05:22):
Are there some industries that screen better for you guys
these days?
Speaker 4 (05:25):
There are, so we've been favoring domestic focused services sectors,
so that could include things like insurance banks. Banks are
a massive part of the investment grade.
Speaker 5 (05:33):
In deexity, and they issue like they release earnings on Tuesday,
they issue on.
Speaker 4 (05:37):
Onesday and yes, and they tend to front load our
instruments earlier in the year. Historically that's the seasonal pattern.
The new issue market is wide open and investment grade.
Speaker 3 (05:45):
I know, I know, you.
Speaker 4 (05:47):
Know you've had conversations on the deck capital market side,
So we do actually like that. I would say parts
of even telecom right, the services based domestic based, right,
they're not importing goods across international waters and dealing with
ships and trade policy. The one thing you do have
to keep in mind, however, is that all of these
sectors would be impacted by a downturn and growth.
Speaker 2 (06:05):
So a high yield ETF for retirees, they're going to
pop five six seven percent yield. Great, what's their price
risk right now? What would you say to well, yeah,
putting grammar.
Speaker 4 (06:18):
Right now, Actually, I would say the price risk in
high yield is less than the price risk and investment
grade because high yield tends to have shorter duration. So
if you do have that sell off in treasure yields
that we expect, that steeper curve, then you would have
less of a price impact and that shorter duration pocket
of the market relative to the investment grade portion. So
again that's why we like moving selectively down in quality.
Speaker 2 (06:38):
Well, one year trailing, I'm looking to just a given
ETF for the superior sharp ratio nine point one percent return.
Speaker 5 (06:47):
Yeah, and then nothing wrong with that, I'll tell you
right now. That's like doubles like my new Jersey municipal.
Speaker 2 (06:53):
But that's almost as good as a triple leverage cash
fractly without the attended fees.
Speaker 5 (06:57):
Exactly a red headline crossing the term here. Ukraine ready
to sign US Resources deal as early as Wednesday, we'll
have more reports coming up.
Speaker 2 (07:07):
That's today.
Speaker 5 (07:07):
We'll see how that goes. So, Amanda, what's the blackrock
hall in this economy here? As you think about credit research?
Speaker 6 (07:15):
And are you guys thinking that this economy's got some
real head winds?
Speaker 2 (07:19):
Here?
Speaker 4 (07:20):
Two things I would say, a more challenging growth inflation mix,
unquestionably in the US, so lower growth, higher inflation. The
magnitude has yet to be determined, largely driven by what
is the off ramp for trade policy and what are
the positive offsets for example, tax cuts. We have to
consider the totality of the policy package, but absolutely expecting
more challenging growth inflation mix. I think the recovery and
(07:40):
risk assets that we've seen over the past few weeks
is more of a temporary reprieve. We don't think that
we're out of the woods quite yet. High yield spreads,
for example, have retraced over forty percent of the widening
since mid February. But we still don't really have substantial
trade deals locked in at this moment, so I think
we are expecting for periods of volatility. That will be
something important to monitor. I would say, importantly, though recession
(08:03):
is not our base case across the platform. So really
a slow down in growth is what we're expecting, not
a severe downturn.
Speaker 2 (08:10):
What does Blackrock see that people are doing with their money.
Speaker 4 (08:14):
I would say using periods of strength to reposition portfolios
in a more defensive way.
Speaker 3 (08:20):
But it's not defensive just generic up and quality.
Speaker 4 (08:22):
It's really underwriting what companies and sectors can navigate this
period of uncertainty. A lot of idiosyncratic credit work. What
are companies actually saying about the impact bracing for a
slow down in consumer spending, higher inflation again, not relying
on bonds to be the ballast in the portfolio.
Speaker 2 (08:40):
So if that's a structural low yield price up yield down,
that means new issuance takes off.
Speaker 4 (08:46):
Right, Well, I would say yields are lower on the year,
but still structurally high. I think the driver of corporate
issuance is going to be CFOs and treasures taking a
prudent approach and continuing to prefund year in advance. I
remember during the financial crisis some companies were shut out
of the market in two thousand and eight because they
waited too long to issue and they were forced to
(09:07):
repay bonds with cash on hand CP. So I do
think actually the driver of issuance is corporate behavior and
conservatisms commercial peope.
Speaker 5 (09:19):
Yeah, I got you. I remember I remem the first
days of the pandemic. The cruise lines rushed into the
parking place and were selling dea. Boy were they smart
because they knew those ships are going to be tied
up for a while. Here us about credit quality? Do
we We've never It seems like a long time since
we've had to worry about credit quality. There's so much
stimulus money into the economy. Is credit quality some of
(09:42):
you guys think about.
Speaker 4 (09:42):
Of course, I would say there is deterioration in credit quality.
It's just happening at the tails of the market amongst
the smaller issuers, so it's not impacting.
Speaker 3 (09:50):
In the index level.
Speaker 4 (09:51):
For example, there's a subset of this of the leverage
loan market where leverage is above seven times triple c's
and high yield interest coverage is already below one time,
so they actually can't cover their interest expense.
Speaker 3 (10:02):
And importantly that they're doing well.
Speaker 4 (10:04):
They're they're doing they're doing better, They're doing yes. But
I think the thing that I would be monitoring tom
given given just we're always monitoring risks.
Speaker 3 (10:13):
That's before we've had.
Speaker 4 (10:14):
Detiation in the hard data, right, do you have these
tails in the market that have that have already deteriorated,
but before we've seen.
Speaker 3 (10:20):
The deterioration in the hard changed your world.
Speaker 4 (10:24):
Significantly because it's allowed for risk transfer in markets in
a more seamless way. I would add portfolio trading and
algorithmic trading to that list as well. So actually, in
periods of disruption, the risk transfer in the corporate credit
market has become much more efficient, and we've seen that
actually investors can can move risk in ways that they
(10:45):
previously couldn't during the Financial crisis, for example.
Speaker 3 (10:47):
So that's been a positive development in our views. The
liquidity is there, you don't.
Speaker 2 (10:52):
See shadows of leverage or risk.
Speaker 4 (10:55):
Well, the ETF product is more just a repackaging of
a fixed income instrument. If you're talking about if you're
talking if you're talking about leverage in parts of the market,
for example, there are highly levered companies.
Speaker 3 (11:09):
Is that a systemic risk not an error?
Speaker 2 (11:11):
I love busting your chops. Can you come every morning
at seven o'clock? It is a wonderful wake up. I'm
gonna Lightam, Thank you so much for Blackrock. Just absolutely hyperkinetic.
Unfixed income a huge value.
Speaker 1 (11:23):
At you're listening to the Bloomberg Surveillance Podcast. Catch us
live weekday afternoons from seven to ten am Eastern Listen
on Applecarplay and Android Auto with the Bloomberg Business app,
or watch us live on YouTube looking.
Speaker 2 (11:42):
And Fixing Him. This hour, we finished strong with Morgan
Stanley's Jim Karen, who joins us now to get us
to the top of the are geta Martin Adams on
this equity market. We'll do that at the eight o'clock
moment Wall Street time. Jim Karen, it's not too early
in this chaos to ask what are you going to
write Friday into the weekend. What within the Morgan Stanley
(12:03):
sphere of fixed income are you thinking about?
Speaker 7 (12:07):
Well, it's all about jobs, because I think that's going.
Speaker 2 (12:09):
To determine cery.
Speaker 7 (12:13):
So our forecast, the economics team's forecast, I should say,
is one hundred and thirty five thousand jobs added, around
four point two percent unemployment rate. Look, that might not
sound like a dramatic change. We did recently get the
Jolts data. We are starting to see some softening in
the jobs data, but we're not seeing it collapse in
the jobs market. So going forward, it's really all about consumption.
(12:34):
How does the consumer handle potentially higher prices with tariffs
and everything else.
Speaker 2 (12:40):
But we got a negative zero point two percent Q
one GDP survey here at eight thirty coming up in
fifty minutes. That's pretty moldy, isn't it.
Speaker 7 (12:51):
Yeah, And you know, Tom, I think the risk is
that the number could even be weaker. So there's a
lot of adjustments that really took place as of yesterday
just because of the trade data that came in. You know,
the deficit came in at record levels, so that forced
all the Wall Street analysts to reduce or downgrade their
GDP estimates for today. And essentially, what we have to
(13:13):
understand is that a lot of this is coming from imports,
meaning that companies have pulled forward purchases, so their imports
have actually gone up. When you have high imports versus exports,
that actually subtracts. That's a negative that what we call
the net number is actually subtracting from GDP. But there's
a problem, Tom. The problem is that what's also not
(13:35):
being calculated is that these things should balance out. Not
only if you have really big imports, you should then
start to see inventory build, and you should also start
to see spending and consumption on those imports that's not
yet coming into the equation yet. There's a quirk in
the timing here, so it's almost like you're going to
get negative aspects, but you're going to miss some of
(13:56):
the positive and that's what's giving it a big negative number.
Speaker 2 (13:58):
When now Paul I go to this is between a
Dalton with fidelity years ago domestic final sales. Okay, that's
where I go sort of in tear its inside statistics.
I'll try to find that number. I'm not as good
as my key. Takes me a while, she's got it,
like three seconds takes me out.
Speaker 6 (14:16):
Hey, Jim, you've seen the stock market bounce back a
little bit off that initial sell off on the tariff worries.
Speaker 5 (14:22):
We haven't seen the dollar bounce back at all. Why
are people so sour on the dollar these days?
Speaker 2 (14:27):
Yeah?
Speaker 7 (14:28):
You know, in my view is that the dollar is
going to weaken, but it's not because of safe haven
status or anything like that. I mean, I listened to
George and Coves earlier, my former colleague and friend, and
I think he's right about this. Look, the first thing
that we have to understand is, if you go back
to twenty ten post financial crisis, there was an onslaught
of investment that came in from foreigners into the US markets,
(14:50):
which means you have to buy the dollar. If you
look at the Fed's Broad Dollar Trade Weighted Index, a
very good index and measure to look at the dollar,
that index shows a dollar appreciation since twenty tens to
the end of twenty twenty four of about forty percent,
which means that the dollar is very expensive and people
are overweight. Foreigners are overweight US assets. What we're seeing
(15:13):
right now is a rebalancing. We're not seeing a sale,
a liquidation of dollars, a loss of faith, a loss
of confidence, None of that is really taking place. What
you're seeing is people who are overweight US assets. Now
we have tariffs and what have you, and US assets
equities are kind of moving sideways. People are repatriating, and
what that means is that the dollar is going to weaken,
(15:35):
but from very expensive levels. And I think that's an
important caveat to actually make this in this whole story here.
So you know, look, I do think the dollar is
going to weaken, but I don't think that it's costs
for alarm. I think we have to put this into context.
Speaker 5 (15:52):
So again, Jim, so real quick here, what's the number
one issue you're talking with clients these days at Mortgage Daneling.
Speaker 7 (16:04):
So what does it mean when the dollar starts to
weaken like this right? What does it mean when it
starts to sell off from very expensive levels? It means
that bond yields have to make the adjustment so effectively,
what it tells us is that longer term bond yields
will not go down as much as what we had
previously seen over the last fifteen years. So a lot
of the relationships that we look at, like oh, the
(16:25):
equity market's down, how come bond yields aren't down more?
Or why isn't the bond market supporting the equity market
as much? It's because this rebalancing is taking place. So
what we're telling clients is that when you start to
construct a portfolio of fixed income, inequities and alternatives and
you put everything together, essentially, we have to understand that
bonds will not hedge your equity risk like they did
(16:49):
in the past. At least not longer duration bonds. So
we're telling clients is at shorter duration bonds front end
bonds to your yields around three sixty five. I mean,
you know that's being controlled by FED and fed pal
and expectations. Shorter term bonds are actually the longer term
bonds are going to be a little bit more risky.
And we see a yal Curbstee.
Speaker 2 (17:07):
Jim too shorter visit got to do it longer next time.
Mister Karen is with the Morgan Stanley. Thank you so much.
Speaker 1 (17:12):
This is the Bloomberg Surveillance Podcast. Listen live each weekday
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Speaker 2 (17:29):
George Conkalfus joins us head of US Macro Strategy MUFG
Securities Americas as well. I love this where we have
Amandoline and men Jim Karen scheduled and you're with us.
Is everybody on the same page in your worlders? Within
the daily grind of the fixed income industry, is there
(17:49):
a lot of debate out there.
Speaker 8 (17:50):
There is and you mentioned earlier there's this version everywhere,
this version around economic forecast views, and it's obviously leads
to some volatility every so often.
Speaker 5 (18:01):
So George, actually, first, Lisa, George is a Rutgers grad.
I mean, you guys are everywhere on the global street
rugs to the State University of New Jersey.
Speaker 7 (18:11):
George, what are.
Speaker 2 (18:12):
We doing here?
Speaker 6 (18:13):
I mean, I've got so much uncertainty out there in
the marketplace. I've got equity markets really don't know which
way to go, I've got the dollar on for sale.
Where are you suggesting your clients really focus these days?
Because this level of uncertainty it seems like it's going
to be here for a while.
Speaker 8 (18:30):
Absolutely, And look and we we tailor more towards institutional investors,
and we're obviously, uh, you know, facing facing these large
investors and the and the concerns for it kind of
naturally forces people to kind of de risk and really
get defensive. And we have been advocating for a long
time buying the dips in the two year I know
it sounds boring, but it's it's been like a really
(18:53):
simple trade that's worth because I do think that we
are differentiating amongst fixed income high quality in many ways,
Like you know, in Amanda's last segment which I heard,
which she did great, this kind of barbelled approach that
you could like in an odd way, high yield has
become better quality over time in terms of rating. It's
shorter duration and you know less, it's less volatile.
Speaker 2 (19:16):
But you know, there's always that point where you don't
know about the macro.
Speaker 8 (19:20):
If we enter an inflection point, all bets are off,
credit does become problematic.
Speaker 5 (19:25):
So are you guys, are you guys focusing on do
you guys think the recession is that in your scenario?
Speaker 8 (19:31):
I mean the other thing is we're all debating are
we accelerating to kind of get into this downturn and
then pop back out? I mean, a recession usually obviously
has negative connotations, and people are always concerned about that.
It might linger if it's just kind of like a
technical recession because we're seeing all these oscillations within these
large segments of the economy.
Speaker 5 (19:50):
People might look through it, okay, And many.
Speaker 8 (19:53):
Investors that I talked to are like saying, well, you
know what, it's going to be a blip, So why
should I get defensive.
Speaker 2 (19:57):
You for the forever have been just one wonderful about
the foreign appetite for full faith in credit US paper.
I should point out, folks, m UFG is a is
a wonderful Japanese entity. What do you see of the
confidence to buy full faith in credit? Yeah?
Speaker 8 (20:15):
Look, so this has been for years now, especially in
the higher rate environment. It's become much more tactical. You
have to remember a lot of these investors overseas have
been legacy holders for decades and they and then they
naturally roll over.
Speaker 2 (20:31):
The question is are they adding right?
Speaker 8 (20:33):
And it's and what you see in the public data
and what you kind of can witness, they're much more traders.
They're they're more tactically moving things in and out. They're
actively trading flow.
Speaker 2 (20:43):
We got to stop the show, folks. This is really
really important. There's a viajillion dollars of full faith in
credit US overseas. It's like a lead brick. It's staying there, right. Debatable.
I do think that.
Speaker 8 (20:57):
Look, you can't square the circle if we're trying to
fix our trade deficit, but we're running large budget deficits.
Either US savings have to go up a lot and
you have to force US investors to buy all the treasuries.
I mean, it has to kind of even tell you that.
Speaker 2 (21:11):
I remember when that was actually the case. But what's
important here is if they or if if she sees
them walk away, this is them by definition, price down,
yield higher.
Speaker 8 (21:23):
Look, I think we're not losing the support of the
foreign investor. And I know we get into these moments
where we're scared about dedollarization, We're worried about the perceptions
about how people are viewing policies out of the US.
There's still still the biggest reserve currency. It's what you know,
what anchors all these central banks around the world, is
(21:44):
still the dollar. Even though it's been coming down over
the last fifteen twenty years, it's not a new phenomenon.
So you just don't abandon it overnight. You can't just
like walk away from holdings of treasuries and dollars.
Speaker 2 (21:54):
There's a lot of hysteria Paul about this. You know,
I try to stay cool day one day, Japan or
China gonna walk away, and I are they going to go?
Where are they going to go?
Speaker 5 (22:04):
That's my point, and that's what people tell me. All Right,
George is with n u f G. That stands for
Mitsubishi UFJ Financial Group, a major Japanese financial The most
headquarters is a duke in turn exactly now they're headquarters
in Tokyo. How do the folks in Japan view the
US market these days? I mean, I'm sure you have.
(22:25):
You do talk to your clients, you do talk to
your traveled to Japan a lot and you travel to
How are they viewing the US these days?
Speaker 8 (22:32):
I think that there there's a view that the medium
term is still a great place to invest in the US.
It's more about perhaps we got over our skis on
the US exceptionalism and unheedged because it's just easy to
be long US everything, and now it's more about being
more selective.
Speaker 2 (22:52):
Let me ask you the question that we asked Samandliin
in the list. Probably ask Jim Careen that when he
comes up here as well as we celebrate the coupon,
how would ETFs changed George congals life?
Speaker 8 (23:04):
Well, I mean, I think if anything, it broadened out,
like the ability to express views massively, Yes, without doubt.
And it's an efficient vehicle and there's a lot of
things that go along with it. But within it. You know,
there's been a lot of just automation technology. It's really
made fixed income even more more transparent, and it's you know,
(23:24):
for times it was very opaque being in a fixed
income and you have to do.
Speaker 2 (23:27):
A lot of work.
Speaker 8 (23:28):
And you still have to do a lot of that
sort of due diligence and credit work. But I think
it's kind of you know, democratized fixed income.
Speaker 2 (23:34):
I mean, Paul would sit there with a Budweiser can
and it can and you have the stand I mean,
and you have the the and you have the standard
and Forest Blue Book open because you know, besides immunities,
you want to take a look at a Boise Cascade
ten year piece. Those days are gone. I mean, you
just buy the Boise Cascade ETF or whatever.
Speaker 5 (23:54):
Now.
Speaker 2 (23:55):
Yeah, So what are you doing.
Speaker 5 (23:56):
On the credit side, George, I mean in credit risk?
Speaker 2 (24:00):
How much?
Speaker 5 (24:00):
So interesting?
Speaker 2 (24:01):
I am?
Speaker 8 (24:01):
I am again more cautious by design around that.
Speaker 2 (24:06):
We think that we are heading into a slowdown.
Speaker 8 (24:08):
And the tariff news and the shock that we just
went through just exacerbated that. And look, the weaker credits
have been exposed and I do think that there is
going to be credit risks start the surface in the
second half of the year, it's going to be you know,
even if we try to pivot and the economy avoids
like a full blown recession, I think the damage is done.
Speaker 2 (24:28):
Fabulous, George, thank you so much. Sure and calls with
this what Mitsubishi.
Speaker 5 (24:36):
Yeah.
Speaker 1 (24:41):
This is the Bloomberg Surveillance Podcast. Listen live each weekday
starting at seven am Eastern on Applecarplay and Android Auto
with the Bloomberg Business app. You can also watch us
live every weekday on YouTube and always on the Bloomberg terminal.
Speaker 2 (24:55):
This is a really important conversation we're going to have
right now because it's something that that Paul and I
we just simply don't do enough on, which is loans,
high yield things with a coupon that stays there, sophisticated stuff.
He comes out of Pimco after tour duty at Harvard
and wandered over to Chicago to look at a lot
(25:18):
of math. There, a lot of microeconomics, which helps out
Senda Burne. Jones's right now and he's with Beach Point.
We have to describe that. Scott Klein, What's beach Point?
Speaker 9 (25:28):
Beach My Capital is an acid manager based out of
Santa Monica, California.
Speaker 2 (25:35):
Someone there to fill the coffee cups for you.
Speaker 9 (25:38):
Well, you guys should be proud. It seems like you're
doing weather right out here these days. So it's very
nice to be here, and thanks for having me.
Speaker 2 (25:44):
Actually, yesterday I said on the deck and said, oh
my god, it's like California is for one hundred and
sixty days of the of the year. Just we don't
do enough on this. Explain to our audience what a
loan is in your world.
Speaker 9 (25:57):
It sounds like a mortgage is no, So I mean,
we're talking mostly about senior bank loans in the form
of lending to different companies in both the public and
private corporate credit markets, but all forms of credit really
in beach point traffics across all of these asset classes,
but primarily in credit and primarily in leveraged credit. And
(26:19):
so a loan is an instrument that sits at the
top of a company's capital structure. It's usually comes with
some form of security and collateral that that backstops you
know us as lenders, and it comes with some form
of protections. And so it's something in this environment with
a lot of volatility that you know we like a
(26:39):
lot in terms of having in our portfolios and performing
well in addition to you know, all of the sort
of underlying fundamentals that support it in terms of the
corporate issuer base.
Speaker 5 (26:52):
So what are you finding in your market here? What's
the You know, there's a lot of uncertainty in the marketplace.
We see that reflected in across financial markets. Where are
you seeing it in the high old market and the
leverage loan markets? What's happening today?
Speaker 2 (27:05):
Sure?
Speaker 9 (27:05):
Well, these markets are really solving for two things.
Speaker 2 (27:09):
Really.
Speaker 9 (27:10):
The first is the first order impact of terrific exposure,
and so you've seen those types of credits that have
direct import exposure and predominantly to China sell off the
most in terms of price. The second thing the market's
solving for is what is the economic uncertainty that we
are already experiencing. You know, we have some distortion today
(27:30):
in terms of GDP data.
Speaker 2 (27:31):
But how long will that last?
Speaker 9 (27:33):
And how will these corporate issuers fare and navigate this environment?
And so you're seeing much higher dispersion in the market.
This is not dissimilar from other asset classes where you're
seeing certain sectors trade off more so than others certain
credits to us. We think this is the beginning of
a really nice opportunity.
Speaker 5 (27:52):
When I was at the Chase Manhattan Bank, I was
doing leverage lending to TMT companies. I do a five
hundred million dollar loan, indicate forty to eighty million dollars
off my books that guys like you. Although I don't
remember ever being in sent a monk marketing a loan.
So in the senior secured highly leveraged loans, is that
(28:13):
something you guys look at?
Speaker 2 (28:15):
Absolutely?
Speaker 9 (28:15):
Yeah, we look at senior secured levered loans as well
as HYLD bonds. I mean those primarily comprise the leverage
credit universe, and they can come in both public and
private flavors.
Speaker 5 (28:28):
Are there certain industries you guys like today? Does anything
screen better one or the other?
Speaker 2 (28:34):
Sure?
Speaker 9 (28:34):
I mean there are some industries that we think will
have more resilience through this environment.
Speaker 2 (28:39):
There don't have import risk.
Speaker 9 (28:41):
They may have some cyclicality attached to them, but they
have contractual revenues, so they have a lot of visibility
into the future. And they're the ones who are not
necessarily softening their outlooks when they're reporting.
Speaker 2 (28:52):
Since your garner this morning posts for a nice lengthy conversation.
Here he's senior bank loan portfolio manager Beach Point Capital.
Here he's driving the market lower. We are at negative
seventy now negative seventy nine on futures vis out two
big figures twenty six point four eight. The ten year yield,
you know, I was making jokes about it, but you
(29:13):
know I'm not there yet. The ten year year olds
four point eight percent, I'm not in a three ninety
nine watch I look at the number one question. Paul's
been great on this, but just the prism and particularly
in the crucible of Southern California, of Pacific Investment Managing Company,
of TCW, the Capital Group, Aminson, all of the finance
(29:35):
out there. How do you people look at private credit?
I mean, what is your window into private credit from
the adults out in Southern California.
Speaker 9 (29:46):
Well, we at Beach Point invest in both public and
private credit. And what we've observed in the growth of
that particular corner of the market is that companies have
a choice. They can finance themselves in various ways, and
they can there are different would say puts in takes
for doing so in either public or private, but you
can't ignore the amount of credit creation that's gone on
(30:07):
in the private markets, and it is scaled at a
time when we have not had a prolonged depreciation and
asset prices or a real credit freeze, and so they
most credit private credit funds have built in defense mechanisms
in terms of you know, not marketing to market.
Speaker 2 (30:26):
You know, good liquidity, a.
Speaker 9 (30:28):
Very sticker sticky investor base. All of these attributes are
very positive to be able to see through this particular environment.
Speaker 2 (30:33):
Okay, but this is important. I don't trust mark to market.
How do they do a legitimate I mean, let's take
it even over to private equity. Is it like VC
where they're making it up as they go or is
a legitimate mark to market?
Speaker 9 (30:46):
Well, the pricing services would would provide legitimate pricing for
those assets. The danger comes in just that, you know,
for example, an environment we're in, the more prolonged it becomes,
the more damage to these companies op reading ability and
their profit margins would occur. And as that starts to erode,
you know, perhaps some of those prices don't fully reflect
(31:07):
the underlying ask do you have in your head?
Speaker 2 (31:09):
And the average duration of private credit?
Speaker 9 (31:12):
Well, a lot of private credit is floating, right, So
in terms of interest rate duration, it's not going to
be sensitive moves of you know, the ten year for.
Speaker 2 (31:18):
Exact, almost European, right.
Speaker 9 (31:20):
But what they do have, if they were a margin market,
is spread duration. So they are going to be sensitive
to interest rate duration in terms of the reaction to
risk assets in the credit space to whatever is happening
in the economy as it relates to the risk free rate.
Speaker 5 (31:35):
Did you understand what he said that I went to
the Chase Manhattan Bank credit training program.
Speaker 2 (31:41):
You survived.
Speaker 5 (31:41):
I forgotten more than this guy knows. So I go
to the Beach Point Capital website. Very nice website. The
intro video is of Manhattan.
Speaker 2 (31:51):
We have a New York office.
Speaker 5 (31:53):
Yeah, you can't find something in LA Come on.
Speaker 2 (31:58):
Come to the Chase. Don't get me New York City
man having Visita stuff? Are you guys three days a
week at Michael's?
Speaker 5 (32:04):
Is that what you're doing three days a week at
Michael Credit?
Speaker 2 (32:09):
People over there?
Speaker 5 (32:10):
How do you guys think about credit qualities? Is that
we haven't had to worry about credit quality for that?
Speaker 2 (32:14):
That's right.
Speaker 5 (32:15):
I don't know. Fifteen years since a great financial crisis,
is that something you're telling your animals, Hey, guys, go
back to your models, start stressing them out a little bit.
How do you guys think about credit quality?
Speaker 9 (32:25):
Yeah, it's a great question, and it's really where the
proverbial rubber will meet the road the longer this goes.
And so the way we look at it is, well,
first of all, we're coming off of the inflationary and
rate hiking cycle, which allowed companies with pricing power to
improve their margins and that's what really fed into the
solid credit fundamentals that we have today. And so the
(32:46):
risk is that that profitability starts to come off in
a stagflationary environment and that's going to start to erode
credit fundamentals. That's when you start to seeing trouble increased
defaults start to increase. And so the way we approach
it is we take everything from the macro level down
to the micro level. We want our analysts to be
calling the management teams of the issuers in which we
(33:06):
invest regularly to get their outlook, what their color is,
and to stress test their companies and their business models
for a variety a range of outcomes that we can
foresee for.
Speaker 2 (33:17):
Global Wall Street, a great conversation. We continue with Sigeon
Baueren of Santa Monica. I mean, can we just go there?
You forget about this in New York. So I want
to point out. Let me three tweets in a row,
back to back. Liz Ane Sanders Zandy of Moody's. Firman
of Harvard liz Ane Sanders net exports subtracted nearly five
percentage points, most in history, Zandy of Moody's. The decline
(33:41):
in GDP overstates the weakness, but it is weak. Professor
Furhman of X ten at Harvard. Not the most exciting
day to day, but private wages X incentive compensation up nicely,
a slight bump, but take it together, ECI is still
a downward transcident. Did you take X tenant Harvard? Did
(34:04):
you survive? Was at manku or Feldsteam? So I did?
Speaker 9 (34:08):
But then I also went to the University of Chicago
Business School, where I also survived, had a concentration in
the economics, so yes, do.
Speaker 5 (34:15):
Much math there. So what do you think this Federal
Reserve is going to do? Here? What are you guys
at each point thinking about this year? I am I'm
not sure how much they can do given some of
the things that are happening. From a policy perspective, I'm
not really sure how much they can do. How do
you what are you guys discounting?
Speaker 2 (34:33):
Well, we would agree with that.
Speaker 9 (34:34):
We think that, I mean, similar to the last uh
sort of well, during the rate hiking cycle in twenty
twenty two and twenty three, the FED was effectively given
permission to raise rates because it was doing so into
a strong economy in a very strong consumer base, and
until pass forward to today the soft data translates into
(34:54):
much weaker hard data, we would agree that the Fed,
if they had their wish, would stay on pause. And
so that's one reason why on the margin we like
floating right over you know, fixed rate high yield for example,
because of that extra current income and carry that you
get through this particular cycle. And so it's really that's
(35:15):
the real tension, though, what does the FED do? Which
side of their dual mandate do they attempt to resolve?
And we think it's going to be still sensitive to
inflation over the near term until we get data that
shows that, you know, we're not really experiencing the same
inflationary pressures that we did.
Speaker 2 (35:31):
Last one final question and this is really important. And
we've talked to the La Port people all the time,
I mean, you guys in southern California and the absolute
crucible of this trade war at la and Long Beach
as well. And it's just as simple as is there
a belief at Beach Point that we just get back
to normal after this trade war? Or is this a
(35:53):
new I we're going to do this for Thomas cohon
or Harvard forty nine, I think it was. Is it
a new paradigm?
Speaker 9 (36:00):
Yeah, that's a great question. We would say that it
kind of depends on the cohde of the market you're discussing.
So it is a new paradigm for smaller companies. They
can't they don't have the bargaining power. They don't they
can't easily diversify their supply lines. And so if this
really is even a ninety day pause on tariffs, but
then it recommences some of those smaller types of companies
(36:22):
are just going to have a lot of difficulty in
this new economic structure that we've established.
Speaker 2 (36:27):
One final question, when the Harvard Club of Southern California
gets together at Cheves Ravine for the Dodgers, are you
guys sitting by the dugout. We will sit wherever we can.
And Dodgers, especially when they're playing that's right. I like
to cheer on Mookie right go away, very painful.
Speaker 9 (36:52):
So benefits from those types of trades.
Speaker 2 (36:55):
Don't be a stranger. Next time, brings your Oam Schneider
opinion with you, we'll have the two you on here
in short, short paper and long only paper.
Speaker 1 (37:03):
This is the Bloomberg Surveillance Podcast. Listen live each weekday
starting at seven am Eastern on Apple Corplay and Android
Auto with the Bloomberg Business App. You can also listen
live on Amazon Alexa from our flagship New York station.
Just say Alexa play Bloomberg eleven thirty.
Speaker 2 (37:20):
Yeah. I look at Ridholt's book I'm Not to Invest?
Speaker 5 (37:22):
Ye?
Speaker 2 (37:23):
Do you understand Amazon's put that little Amber Goldie number
one best seller, wasn't it? Yeah?
Speaker 5 (37:30):
Oh, I didn't know that.
Speaker 2 (37:32):
He wakes up every morning and he buys fifty bucks.
Just goos the numbers. Kelly Cox has read it cover
to cover. She joins us right now working as Baryo
as Chief market strategist Riddles Wealth Management. Let's just cut
to the case, Kelly. Part one bad ideas Section two,
Media madness. How does our audience interpret market punditry given
(37:56):
this chaos?
Speaker 10 (37:58):
This feels like a loaded question, but seriously, you have
to watch your media diet here. Barry is one of
the biggest disciples of this, and you know, honestly read
Berry if you haven't.
Speaker 3 (38:07):
But there's a lot of noise out there.
Speaker 10 (38:09):
I think I'm under I'm understating that. But you have
to also remember your time frame. Look years and decades
down the road. Many of us are investing for retirement.
So as you process headlines, take them in, contextualize them,
but ultimately remember that ninety percent of them aren't going
to affect.
Speaker 2 (38:26):
Your decision, So why take them in? That's the arch question.
I'm as guilty of this as anyone. You got a
three year, of five year, a ten year perspective, and
I'm watching Bloomberg headlines.
Speaker 10 (38:38):
Tom, you're talking against your own book.
Speaker 2 (38:40):
But seriously, you know, why take in the short term madness?
If I got a three year perspective.
Speaker 10 (38:46):
Well, we're all human. A lot of surpoils down to
we're all human and we want to hear what's happening
around us. That is natural, and I don't think that's
a bad thing. I don't think you can tell clients
and investors to just stop listening. That's that's like sticking
your head in the sand.
Speaker 5 (39:00):
That's impossible.
Speaker 2 (39:01):
We're human. If you know, if you get into Duke
in Chapel Hill, you choose to go to Chapel Hill, right.
Speaker 10 (39:05):
Yeah, correct, So that's the other that's what humans do. Yes,
it's humans.
Speaker 8 (39:09):
Do you know?
Speaker 5 (39:09):
I just last week and I was down to Duke
for re unions and drove down Franklin Street and Chapel Hill.
There might not be a prettyer college town anywhere.
Speaker 2 (39:17):
I know.
Speaker 5 (39:18):
I agree with that football Kelly. So you know, ever,
I would say for the last fifteen years, tech has
driven equity returns. Is that still a story? Do you think?
Speaker 3 (39:30):
Well?
Speaker 10 (39:30):
Obviously, over the past few months they've driven returns in
the wrong direction, I mean, which makes sense, right, When
you hit bumpy roads in the stock market, usually what's
done really well sells off the hardest. Tech is in
a weird spot right now. Earnings expectations are high. Analysts
expect tech earnings to grow an astounding twenty five percent
this year.
Speaker 5 (39:50):
Which feels really high.
Speaker 10 (39:52):
Considering that tech is the most exposed from a cost
of goods perspective and an international revenue perspective. So combine
that with the fact that the AI story, while still
very real, might hit some speed bumps here as well,
and you have to wonder if there are better areas
to sit into whether this market sell off.
Speaker 2 (40:08):
So how will you interpret Microsoft's earnings this after and
how does a general market strategist or our audience interpret
one ginormous companies report.
Speaker 10 (40:19):
I think there are two ways to answer this. I
am a bird's eye view strategist, so I'm not I
look through earnings calls, but I'm not parsing through and
making calls on individual stocks. That's just not the way
we invest Atarate Holts. But of course we're watching earnings.
Of course, you know you have to watch Microsoft earnings.
Microsoft is one of the biggest stocks on the market,
and I think it's an interesting bell weather right now,
as is Apples, as is Nvidia, A lot of those
(40:41):
MAGS seven stocks that we talk about because they are
a part of this tech sector that is incredibly exposed
to international well to tariffs and international catalysts.
Speaker 2 (40:50):
How do you use the vis.
Speaker 10 (40:54):
That's a fun question. So the VIX of course, is
the fear index. It's the gauge of thirty day SMP
options races. A lot of people watch as as a
sentiment index. I watch it as well. I think the
VIX has changed a lot because the options market has
just become so much more complex, so much more popular.
There are so many more options, for lack of a
better word, to hedge positions and hedge around events. So
(41:16):
typically in selloffs you see the VIX spike, and usually
when the VIC spikes, strategists like me say, okay, it's
time to buy.
Speaker 5 (41:23):
I think it's a little more complicated.
Speaker 10 (41:24):
Especially in selloffs where there are economic cracks, which I
expect to be the case here. I think it's an
open window for long term investors, you know, maybe thinking
think about being more opportunistic here. But I don't think
at this point the VIX could mark the bottom of
this sell off.
Speaker 5 (41:39):
That's what I'm worried about.
Speaker 2 (41:40):
I haven't seen the emotion though, No, I just haven't
seen the good arsis.
Speaker 5 (41:44):
I've heard what they say it's been an orderly sell
off and those types of things. I don't know. But
we did that the VIS you know, you know, well
above thirty there for a while.
Speaker 6 (41:52):
So Kelly did the good folks a road rid Holt's
Wealth Management. Have you guys changed kind of how you
think about stocks given that maybe this tariff thing's going
to be around for a while and some industries and
sectors will be more impacted than others.
Speaker 5 (42:07):
Has it affected your stock selection at all?
Speaker 10 (42:10):
Well, look, we've had a lot of conversations around this.
I think if you're a money manager and you haven't
at least had discussions around what's going on, then you're
probably falling behind. We haven't made any changes to our portfolios,
but we are, you know, thirty percent invested in international equities.
Speaker 5 (42:24):
Okay, so that's good in.
Speaker 10 (42:26):
Our main equity sleeves. So we we've always been a
proponent of international investing. I think it's all the more
important right now because as money moves around, and money
doesn't evaporate, remember it moves somewhere always. You know, we
think it could be looking for international sources. But so far,
no changes, and you know, we build our portfolios so
we don't have to change.
Speaker 2 (42:45):
Did you understand that you're thirty percent in international so
Barry can expense a trip to Italy?
Speaker 10 (42:52):
Well, you've got to take them on up to Barry
and tell them I want to take it.
Speaker 2 (42:56):
This is insufferable now because of the New York next.
I mean, sure, you guys, have you medicated, Barry.
Speaker 10 (43:03):
We're definitely a Knick's office. That's something I've learned over
the past year or so. And everybody's pretty excited. I
don't get into the NBA. The Charlotte Hornets have haven't
been a part of the conversation forever. True, But I'm
happy for the Knicks, and I'm excited because my colleagues
are exciting.
Speaker 5 (43:19):
Yeah, she's got some problems with the North Carolina Tar
Hills basketball program or the football program. Well, figure that's
to have fun, though, that's going to be fun. We
have Chapel Bill. Chapel Bill, that's right, Yeah, that's that's
his name.
Speaker 2 (43:35):
There you go. I'll be careful, man.
Speaker 5 (43:37):
I'm just saying I'm optimistic.
Speaker 10 (43:39):
I'm cautiously optimistic.
Speaker 2 (43:41):
Twenty seconds. What do you publish today? What's the lead
idea you're publishing within? You know, down negative four fifty.
Speaker 10 (43:47):
There's going to be a lot of talk around stagfletion.
I've already written a lot about this.
Speaker 2 (43:50):
Agreed, well said, I don't.
Speaker 10 (43:52):
Think we are quite there yet. Obviously the GDP dad
it didn't look great, but there's still a pretty buoyant
demand underneath. And it's also hard to read data at
the moment because the craziness.
Speaker 2 (44:02):
The GDP price it in deck just screamstagflation.
Speaker 10 (44:05):
Yeah, And I think that's what's spooking people because that's
that's the worry in the background, right agree, keep us
economic trenching to be.
Speaker 2 (44:12):
Lauren Summers, thank you so much for your coverage with
David Weston on that there is. Maybe it's not a
huge stagflation, but nevertheless it's tangible. Cayley Cox with his
Chief Market Strategies to Ridholtz Wealth Management.
Speaker 1 (44:26):
This is the Bloomberg Surveillance podcast, available on Apple, Spotify,
and anywhere else you get your podcasts. Listen live each weekday,
seven to ten am Easter and on Bloomberg dot Com,
the iHeartRadio app, tune In, and the Bloomberg Business App.
You can also watch us live every weekday on YouTube
(44:46):
and always on the Bloomberg Terminal
Bloomberg Audio Studios, podcasts, radio news. This is the Bloomberg
Surveillance Podcast. Catch us live weekdays at seven am Eastern
on Apple CarPlay or Android Auto with the Bloomberg Business App.
Listen on demand wherever you get your podcasts, or watch
(00:25):
us live on YouTube.
Speaker 2 (00:27):
It starts trying today with Amanda Lineum. She's at Black Rock.
As you look at the fixed income space, let's just
go there with the real yield. The real yield is
the inflation adjusted yield. There's different ways to measure it.
At the one I use is one point ninety two,
Well in over two percent. Why is the real yield
coming in? Is it a growth prediction?
Speaker 3 (00:46):
Good morning, Thank you for having me.
Speaker 4 (00:47):
I do think that's exactly a time a moderation and
growth outlook for the US, so that real.
Speaker 3 (00:52):
Yield is coming in, and I think that makes sense.
Speaker 4 (00:54):
When you listen to corporate earnings calls, even the ones
that have occurred over the past week, there's a significan
lack of visibility where these corporates can really see forward.
They're having a difficult time disentangling what is front loading.
Speaker 3 (01:06):
Of demand, what is real demand.
Speaker 4 (01:08):
Many of the consumer companies are expecting to be mitigating
teriffs for the next few quarters. But I think there's
a debate that is happening both internally and I would
say externally, where the market is saying, well, the hard
data hasn't yet caught down to the softer sentiment data,
so maybe it won't, maybe it won't, Maybe that moderation
won't happen.
Speaker 3 (01:25):
We think that that's actually just a matter of time.
Speaker 4 (01:28):
The hard data will actually catch down to the soft data,
but we shouldn't expect it to happen imminently.
Speaker 5 (01:33):
I got the tenure treasure. We're back down to four
point one six percent.
Speaker 2 (01:37):
Everything's coming in Holy Cow.
Speaker 5 (01:39):
I mean, what do you think we end the year here?
Speaker 4 (01:41):
Well, I think our two I would say more higher
conviction assumptions are for steeper curves and a rebuild of
term premia at the long end. And so really, when
you think about the long end, the drivers there are
budget deficits, concerned about the fiscal situation, possible increase in
inflation expectations over the long term. At the front end,
we actually think the FED has a more constrained reaction
(02:01):
function because inflation is just already above target and is
probably moving higher still, so we don't expect the FED
to be cutting preemptively. We expect that they will actually
need to see real deterioration in the labor market. Probably
not this Friday, but over time it's really going to
be that visible inflection in the hard data that will
allow the FED to cut. They may start with a
fifty basis point cut, right, that's not out of the question.
Speaker 3 (02:24):
It's not out of the question.
Speaker 4 (02:25):
But I think as it relates to the treasury market,
steeper curves a rebuilder of term premia at the long
end and actually kind of pushing back against market precing.
Although I will say market pricing really isn't reflecting a
full cut until July.
Speaker 2 (02:38):
Amandoline is so intimidating folks when I have to have
a logarithmic chart up here just to come before I
go to her. So I did the Bloomberg Total Return
Corporate Index, and I think it's greatly unknown by people
that the bond hemorrhage that we had a number of
years ago, priced down, yield way up, has really been
(03:00):
a bond recovery. Here. What has led the recovery of
price up, yield down.
Speaker 3 (03:05):
And bond So two things. One that's absolutely right.
Speaker 4 (03:09):
And the higher risk free rate, the higher yield just
compounding over time and boosting those total returns has really helped.
That's been a big capture, and that staying invested, capturing yield.
Speaker 2 (03:20):
She read the yield books, sitting on the home, so.
Speaker 4 (03:23):
Staying invested, capturing that higher yield that has been compounding.
What has been really more striking to me is if
you disentangle the corporate bond market into the subsets of quality,
high yield pockets of it have outperformed investment grade on
a total return basis year to date. And then, even
more interestingly, the triple C pocket of the high yeld
market has outperformed the S and P five hundred, the
(03:44):
NASTAQ one hundred, and the rustle and so the lowest
quality portion of the high yield market, despite all of
the growth concerns you mentioned at the top, has actually
been out performing the equity market on a total return
basis year to date, which I find to be really interesting.
Speaker 5 (04:00):
So, I mean, should we still be thinking about taking
credit risk case?
Speaker 3 (04:03):
Yes, so, I say selectively is the is the key point.
Speaker 4 (04:06):
So if you are an investor that is constrained to
the investment grade market, right, you really can just buy
investment grade paper.
Speaker 3 (04:12):
We like moving down into the.
Speaker 4 (04:13):
Triple b's, that low end of the investment grade universe.
If you can more, if you're more unconstrained, you can
really go anywhere. We'd like dipping down into the high
end of high yield, that double B factor. What we
found is that you're actually not giving up that much
credit quality by dipping into the high end of high
yield versus triple be's. Those leverage metrics have actually converged.
Speaker 2 (04:31):
What's I mean, can someone actually go out and do
that or they can't?
Speaker 3 (04:35):
Yeah, they can.
Speaker 4 (04:35):
So for example, the yield on the investment grade aggregate
index is above five percent at the moment, the yield
on the high yield index in aggregate is around seven
point eight percent.
Speaker 3 (04:44):
So there's a there's still a meaningful.
Speaker 4 (04:46):
Difference that you're picking up by kind of crossing into
high yield territory. Why is that important given the volatility
in the treasury market that you mentioned. Yes, we're we're
lower on yields yere to date in the treasury market,
but it's been volatile, as you know. Picking up that
in mental spread, staying invested letting that compound will boost
total returns over time. So we like dipping in selectively
(05:06):
into the lower quality pockets of the market. We would not, however,
importantly be chasing all the way down into the tail
of the market, into that triple C pocket. You really
need to go back to basics do real credit work.
This is a really challenging environment dynamically to invest.
Speaker 5 (05:22):
Are there some industries that screen better for you guys
these days?
Speaker 4 (05:25):
There are, so we've been favoring domestic focused services sectors,
so that could include things like insurance banks. Banks are
a massive part of the investment grade.
Speaker 5 (05:33):
In deexity, and they issue like they release earnings on Tuesday,
they issue on.
Speaker 4 (05:37):
Onesday and yes, and they tend to front load our
instruments earlier in the year. Historically that's the seasonal pattern.
The new issue market is wide open and investment grade.
Speaker 3 (05:45):
I know, I know, you.
Speaker 4 (05:47):
Know you've had conversations on the deck capital market side,
So we do actually like that. I would say parts
of even telecom right, the services based domestic based, right,
they're not importing goods across international waters and dealing with
ships and trade policy. The one thing you do have
to keep in mind, however, is that all of these
sectors would be impacted by a downturn and growth.
Speaker 2 (06:05):
So a high yield ETF for retirees, they're going to
pop five six seven percent yield. Great, what's their price
risk right now? What would you say to well, yeah,
putting grammar.
Speaker 4 (06:18):
Right now, Actually, I would say the price risk in
high yield is less than the price risk and investment
grade because high yield tends to have shorter duration. So
if you do have that sell off in treasure yields
that we expect, that steeper curve, then you would have
less of a price impact and that shorter duration pocket
of the market relative to the investment grade portion. So
again that's why we like moving selectively down in quality.
Speaker 2 (06:38):
Well, one year trailing, I'm looking to just a given
ETF for the superior sharp ratio nine point one percent return.
Speaker 5 (06:47):
Yeah, and then nothing wrong with that, I'll tell you
right now. That's like doubles like my new Jersey municipal.
Speaker 2 (06:53):
But that's almost as good as a triple leverage cash
fractly without the attended fees.
Speaker 5 (06:57):
Exactly a red headline crossing the term here. Ukraine ready
to sign US Resources deal as early as Wednesday, we'll
have more reports coming up.
Speaker 2 (07:07):
That's today.
Speaker 5 (07:07):
We'll see how that goes. So, Amanda, what's the blackrock
hall in this economy here? As you think about credit research?
Speaker 6 (07:15):
And are you guys thinking that this economy's got some
real head winds?
Speaker 2 (07:19):
Here?
Speaker 4 (07:20):
Two things I would say, a more challenging growth inflation mix,
unquestionably in the US, so lower growth, higher inflation. The
magnitude has yet to be determined, largely driven by what
is the off ramp for trade policy and what are
the positive offsets for example, tax cuts. We have to
consider the totality of the policy package, but absolutely expecting
more challenging growth inflation mix. I think the recovery and
(07:40):
risk assets that we've seen over the past few weeks
is more of a temporary reprieve. We don't think that
we're out of the woods quite yet. High yield spreads,
for example, have retraced over forty percent of the widening
since mid February. But we still don't really have substantial
trade deals locked in at this moment, so I think
we are expecting for periods of volatility. That will be
something important to monitor. I would say, importantly, though recession
(08:03):
is not our base case across the platform. So really
a slow down in growth is what we're expecting, not
a severe downturn.
Speaker 2 (08:10):
What does Blackrock see that people are doing with their money.
Speaker 4 (08:14):
I would say using periods of strength to reposition portfolios
in a more defensive way.
Speaker 3 (08:20):
But it's not defensive just generic up and quality.
Speaker 4 (08:22):
It's really underwriting what companies and sectors can navigate this
period of uncertainty. A lot of idiosyncratic credit work. What
are companies actually saying about the impact bracing for a
slow down in consumer spending, higher inflation again, not relying
on bonds to be the ballast in the portfolio.
Speaker 2 (08:40):
So if that's a structural low yield price up yield down,
that means new issuance takes off.
Speaker 4 (08:46):
Right, Well, I would say yields are lower on the year,
but still structurally high. I think the driver of corporate
issuance is going to be CFOs and treasures taking a
prudent approach and continuing to prefund year in advance. I
remember during the financial crisis some companies were shut out
of the market in two thousand and eight because they
waited too long to issue and they were forced to
(09:07):
repay bonds with cash on hand CP. So I do
think actually the driver of issuance is corporate behavior and
conservatisms commercial peope.
Speaker 5 (09:19):
Yeah, I got you. I remember I remem the first
days of the pandemic. The cruise lines rushed into the
parking place and were selling dea. Boy were they smart
because they knew those ships are going to be tied
up for a while. Here us about credit quality? Do
we We've never It seems like a long time since
we've had to worry about credit quality. There's so much
stimulus money into the economy. Is credit quality some of
(09:42):
you guys think about.
Speaker 4 (09:42):
Of course, I would say there is deterioration in credit quality.
It's just happening at the tails of the market amongst
the smaller issuers, so it's not impacting.
Speaker 3 (09:50):
In the index level.
Speaker 4 (09:51):
For example, there's a subset of this of the leverage
loan market where leverage is above seven times triple c's
and high yield interest coverage is already below one time,
so they actually can't cover their interest expense.
Speaker 3 (10:02):
And importantly that they're doing well.
Speaker 4 (10:04):
They're they're doing they're doing better, They're doing yes. But
I think the thing that I would be monitoring tom
given given just we're always monitoring risks.
Speaker 3 (10:13):
That's before we've had.
Speaker 4 (10:14):
Detiation in the hard data, right, do you have these
tails in the market that have that have already deteriorated,
but before we've seen.
Speaker 3 (10:20):
The deterioration in the hard changed your world.
Speaker 4 (10:24):
Significantly because it's allowed for risk transfer in markets in
a more seamless way. I would add portfolio trading and
algorithmic trading to that list as well. So actually, in
periods of disruption, the risk transfer in the corporate credit
market has become much more efficient, and we've seen that
actually investors can can move risk in ways that they
(10:45):
previously couldn't during the Financial crisis, for example.
Speaker 3 (10:47):
So that's been a positive development in our views. The
liquidity is there, you don't.
Speaker 2 (10:52):
See shadows of leverage or risk.
Speaker 4 (10:55):
Well, the ETF product is more just a repackaging of
a fixed income instrument. If you're talking about if you're
talking if you're talking about leverage in parts of the market,
for example, there are highly levered companies.
Speaker 3 (11:09):
Is that a systemic risk not an error?
Speaker 2 (11:11):
I love busting your chops. Can you come every morning
at seven o'clock? It is a wonderful wake up. I'm
gonna Lightam, Thank you so much for Blackrock. Just absolutely hyperkinetic.
Unfixed income a huge value.
Speaker 1 (11:23):
At you're listening to the Bloomberg Surveillance Podcast. Catch us
live weekday afternoons from seven to ten am Eastern Listen
on Applecarplay and Android Auto with the Bloomberg Business app,
or watch us live on YouTube looking.
Speaker 2 (11:42):
And Fixing Him. This hour, we finished strong with Morgan
Stanley's Jim Karen, who joins us now to get us
to the top of the are geta Martin Adams on
this equity market. We'll do that at the eight o'clock
moment Wall Street time. Jim Karen, it's not too early
in this chaos to ask what are you going to
write Friday into the weekend. What within the Morgan Stanley
(12:03):
sphere of fixed income are you thinking about?
Speaker 7 (12:07):
Well, it's all about jobs, because I think that's going.
Speaker 2 (12:09):
To determine cery.
Speaker 7 (12:13):
So our forecast, the economics team's forecast, I should say,
is one hundred and thirty five thousand jobs added, around
four point two percent unemployment rate. Look, that might not
sound like a dramatic change. We did recently get the
Jolts data. We are starting to see some softening in
the jobs data, but we're not seeing it collapse in
the jobs market. So going forward, it's really all about consumption.
(12:34):
How does the consumer handle potentially higher prices with tariffs
and everything else.
Speaker 2 (12:40):
But we got a negative zero point two percent Q
one GDP survey here at eight thirty coming up in
fifty minutes. That's pretty moldy, isn't it.
Speaker 7 (12:51):
Yeah, And you know, Tom, I think the risk is
that the number could even be weaker. So there's a
lot of adjustments that really took place as of yesterday
just because of the trade data that came in. You know,
the deficit came in at record levels, so that forced
all the Wall Street analysts to reduce or downgrade their
GDP estimates for today. And essentially, what we have to
(13:13):
understand is that a lot of this is coming from imports,
meaning that companies have pulled forward purchases, so their imports
have actually gone up. When you have high imports versus exports,
that actually subtracts. That's a negative that what we call
the net number is actually subtracting from GDP. But there's
a problem, Tom. The problem is that what's also not
(13:35):
being calculated is that these things should balance out. Not
only if you have really big imports, you should then
start to see inventory build, and you should also start
to see spending and consumption on those imports that's not
yet coming into the equation yet. There's a quirk in
the timing here, so it's almost like you're going to
get negative aspects, but you're going to miss some of
(13:56):
the positive and that's what's giving it a big negative number.
Speaker 2 (13:58):
When now Paul I go to this is between a
Dalton with fidelity years ago domestic final sales. Okay, that's
where I go sort of in tear its inside statistics.
I'll try to find that number. I'm not as good
as my key. Takes me a while, she's got it,
like three seconds takes me out.
Speaker 6 (14:16):
Hey, Jim, you've seen the stock market bounce back a
little bit off that initial sell off on the tariff worries.
Speaker 5 (14:22):
We haven't seen the dollar bounce back at all. Why
are people so sour on the dollar these days?
Speaker 2 (14:27):
Yeah?
Speaker 7 (14:28):
You know, in my view is that the dollar is
going to weaken, but it's not because of safe haven
status or anything like that. I mean, I listened to
George and Coves earlier, my former colleague and friend, and
I think he's right about this. Look, the first thing
that we have to understand is, if you go back
to twenty ten post financial crisis, there was an onslaught
of investment that came in from foreigners into the US markets,
(14:50):
which means you have to buy the dollar. If you
look at the Fed's Broad Dollar Trade Weighted Index, a
very good index and measure to look at the dollar,
that index shows a dollar appreciation since twenty tens to
the end of twenty twenty four of about forty percent,
which means that the dollar is very expensive and people
are overweight. Foreigners are overweight US assets. What we're seeing
(15:13):
right now is a rebalancing. We're not seeing a sale,
a liquidation of dollars, a loss of faith, a loss
of confidence, None of that is really taking place. What
you're seeing is people who are overweight US assets. Now
we have tariffs and what have you, and US assets
equities are kind of moving sideways. People are repatriating, and
what that means is that the dollar is going to weaken,
(15:35):
but from very expensive levels. And I think that's an
important caveat to actually make this in this whole story here.
So you know, look, I do think the dollar is
going to weaken, but I don't think that it's costs
for alarm. I think we have to put this into context.
Speaker 5 (15:52):
So again, Jim, so real quick here, what's the number
one issue you're talking with clients these days at Mortgage Daneling.
Speaker 7 (16:04):
So what does it mean when the dollar starts to
weaken like this right? What does it mean when it
starts to sell off from very expensive levels? It means
that bond yields have to make the adjustment so effectively,
what it tells us is that longer term bond yields
will not go down as much as what we had
previously seen over the last fifteen years. So a lot
of the relationships that we look at, like oh, the
(16:25):
equity market's down, how come bond yields aren't down more?
Or why isn't the bond market supporting the equity market
as much? It's because this rebalancing is taking place. So
what we're telling clients is that when you start to
construct a portfolio of fixed income, inequities and alternatives and
you put everything together, essentially, we have to understand that
bonds will not hedge your equity risk like they did
(16:49):
in the past. At least not longer duration bonds. So
we're telling clients is at shorter duration bonds front end
bonds to your yields around three sixty five. I mean,
you know that's being controlled by FED and fed pal
and expectations. Shorter term bonds are actually the longer term
bonds are going to be a little bit more risky.
And we see a yal Curbstee.
Speaker 2 (17:07):
Jim too shorter visit got to do it longer next time.
Mister Karen is with the Morgan Stanley. Thank you so much.
Speaker 1 (17:12):
This is the Bloomberg Surveillance Podcast. Listen live each weekday
starting at seven am Eastern on Applecarplay and Android Auto
with the Bloomberg Business App. You can also listen live
on Amazon Alexa from our flagship New York station, Just
say Alexa Play Bloomberg eleven thirty.
Speaker 2 (17:29):
George Conkalfus joins us head of US Macro Strategy MUFG
Securities Americas as well. I love this where we have
Amandoline and men Jim Karen scheduled and you're with us.
Is everybody on the same page in your worlders? Within
the daily grind of the fixed income industry, is there
(17:49):
a lot of debate out there.
Speaker 8 (17:50):
There is and you mentioned earlier there's this version everywhere,
this version around economic forecast views, and it's obviously leads
to some volatility every so often.
Speaker 5 (18:01):
So George, actually, first, Lisa, George is a Rutgers grad.
I mean, you guys are everywhere on the global street
rugs to the State University of New Jersey.
Speaker 7 (18:11):
George, what are.
Speaker 2 (18:12):
We doing here?
Speaker 6 (18:13):
I mean, I've got so much uncertainty out there in
the marketplace. I've got equity markets really don't know which
way to go, I've got the dollar on for sale.
Where are you suggesting your clients really focus these days?
Because this level of uncertainty it seems like it's going
to be here for a while.
Speaker 8 (18:30):
Absolutely, And look and we we tailor more towards institutional investors,
and we're obviously, uh, you know, facing facing these large
investors and the and the concerns for it kind of
naturally forces people to kind of de risk and really
get defensive. And we have been advocating for a long
time buying the dips in the two year I know
it sounds boring, but it's it's been like a really
(18:53):
simple trade that's worth because I do think that we
are differentiating amongst fixed income high quality in many ways,
Like you know, in Amanda's last segment which I heard,
which she did great, this kind of barbelled approach that
you could like in an odd way, high yield has
become better quality over time in terms of rating. It's
shorter duration and you know less, it's less volatile.
Speaker 2 (19:16):
But you know, there's always that point where you don't
know about the macro.
Speaker 8 (19:20):
If we enter an inflection point, all bets are off,
credit does become problematic.
Speaker 5 (19:25):
So are you guys, are you guys focusing on do
you guys think the recession is that in your scenario?
Speaker 8 (19:31):
I mean the other thing is we're all debating are
we accelerating to kind of get into this downturn and
then pop back out? I mean, a recession usually obviously
has negative connotations, and people are always concerned about that.
It might linger if it's just kind of like a
technical recession because we're seeing all these oscillations within these
large segments of the economy.
Speaker 5 (19:50):
People might look through it, okay, And many.
Speaker 8 (19:53):
Investors that I talked to are like saying, well, you
know what, it's going to be a blip, So why
should I get defensive.
Speaker 2 (19:57):
You for the forever have been just one wonderful about
the foreign appetite for full faith in credit US paper.
I should point out, folks, m UFG is a is
a wonderful Japanese entity. What do you see of the
confidence to buy full faith in credit? Yeah?
Speaker 8 (20:15):
Look, so this has been for years now, especially in
the higher rate environment. It's become much more tactical. You
have to remember a lot of these investors overseas have
been legacy holders for decades and they and then they
naturally roll over.
Speaker 2 (20:31):
The question is are they adding right?
Speaker 8 (20:33):
And it's and what you see in the public data
and what you kind of can witness, they're much more traders.
They're they're more tactically moving things in and out. They're
actively trading flow.
Speaker 2 (20:43):
We got to stop the show, folks. This is really
really important. There's a viajillion dollars of full faith in
credit US overseas. It's like a lead brick. It's staying there, right. Debatable.
I do think that.
Speaker 8 (20:57):
Look, you can't square the circle if we're trying to
fix our trade deficit, but we're running large budget deficits.
Either US savings have to go up a lot and
you have to force US investors to buy all the treasuries.
I mean, it has to kind of even tell you that.
Speaker 2 (21:11):
I remember when that was actually the case. But what's
important here is if they or if if she sees
them walk away, this is them by definition, price down,
yield higher.
Speaker 8 (21:23):
Look, I think we're not losing the support of the
foreign investor. And I know we get into these moments
where we're scared about dedollarization, We're worried about the perceptions
about how people are viewing policies out of the US.
There's still still the biggest reserve currency. It's what you know,
what anchors all these central banks around the world, is
(21:44):
still the dollar. Even though it's been coming down over
the last fifteen twenty years, it's not a new phenomenon.
So you just don't abandon it overnight. You can't just
like walk away from holdings of treasuries and dollars.
Speaker 2 (21:54):
There's a lot of hysteria Paul about this. You know,
I try to stay cool day one day, Japan or
China gonna walk away, and I are they going to go?
Where are they going to go?
Speaker 5 (22:04):
That's my point, and that's what people tell me. All Right,
George is with n u f G. That stands for
Mitsubishi UFJ Financial Group, a major Japanese financial The most
headquarters is a duke in turn exactly now they're headquarters
in Tokyo. How do the folks in Japan view the
US market these days? I mean, I'm sure you have.
(22:25):
You do talk to your clients, you do talk to
your traveled to Japan a lot and you travel to
How are they viewing the US these days?
Speaker 8 (22:32):
I think that there there's a view that the medium
term is still a great place to invest in the US.
It's more about perhaps we got over our skis on
the US exceptionalism and unheedged because it's just easy to
be long US everything, and now it's more about being
more selective.
Speaker 2 (22:52):
Let me ask you the question that we asked Samandliin
in the list. Probably ask Jim Careen that when he
comes up here as well as we celebrate the coupon,
how would ETFs changed George congals life?
Speaker 8 (23:04):
Well, I mean, I think if anything, it broadened out,
like the ability to express views massively, Yes, without doubt.
And it's an efficient vehicle and there's a lot of
things that go along with it. But within it. You know,
there's been a lot of just automation technology. It's really
made fixed income even more more transparent, and it's you know,
(23:24):
for times it was very opaque being in a fixed
income and you have to do.
Speaker 2 (23:27):
A lot of work.
Speaker 8 (23:28):
And you still have to do a lot of that
sort of due diligence and credit work. But I think
it's kind of you know, democratized fixed income.
Speaker 2 (23:34):
I mean, Paul would sit there with a Budweiser can
and it can and you have the stand I mean,
and you have the the and you have the standard
and Forest Blue Book open because you know, besides immunities,
you want to take a look at a Boise Cascade
ten year piece. Those days are gone. I mean, you
just buy the Boise Cascade ETF or whatever.
Speaker 5 (23:54):
Now.
Speaker 2 (23:55):
Yeah, So what are you doing.
Speaker 5 (23:56):
On the credit side, George, I mean in credit risk?
Speaker 2 (24:00):
How much?
Speaker 5 (24:00):
So interesting?
Speaker 2 (24:01):
I am?
Speaker 8 (24:01):
I am again more cautious by design around that.
Speaker 2 (24:06):
We think that we are heading into a slowdown.
Speaker 8 (24:08):
And the tariff news and the shock that we just
went through just exacerbated that. And look, the weaker credits
have been exposed and I do think that there is
going to be credit risks start the surface in the
second half of the year, it's going to be you know,
even if we try to pivot and the economy avoids
like a full blown recession, I think the damage is done.
Speaker 2 (24:28):
Fabulous, George, thank you so much. Sure and calls with
this what Mitsubishi.
Speaker 5 (24:36):
Yeah.
Speaker 1 (24:41):
This is the Bloomberg Surveillance Podcast. Listen live each weekday
starting at seven am Eastern on Applecarplay and Android Auto
with the Bloomberg Business app. You can also watch us
live every weekday on YouTube and always on the Bloomberg terminal.
Speaker 2 (24:55):
This is a really important conversation we're going to have
right now because it's something that that Paul and I
we just simply don't do enough on, which is loans,
high yield things with a coupon that stays there, sophisticated stuff.
He comes out of Pimco after tour duty at Harvard
and wandered over to Chicago to look at a lot
(25:18):
of math. There, a lot of microeconomics, which helps out
Senda Burne. Jones's right now and he's with Beach Point.
We have to describe that. Scott Klein, What's beach Point?
Speaker 9 (25:28):
Beach My Capital is an acid manager based out of
Santa Monica, California.
Speaker 2 (25:35):
Someone there to fill the coffee cups for you.
Speaker 9 (25:38):
Well, you guys should be proud. It seems like you're
doing weather right out here these days. So it's very
nice to be here, and thanks for having me.
Speaker 2 (25:44):
Actually, yesterday I said on the deck and said, oh
my god, it's like California is for one hundred and
sixty days of the of the year. Just we don't
do enough on this. Explain to our audience what a
loan is in your world.
Speaker 9 (25:57):
It sounds like a mortgage is no, So I mean,
we're talking mostly about senior bank loans in the form
of lending to different companies in both the public and
private corporate credit markets, but all forms of credit really
in beach point traffics across all of these asset classes,
but primarily in credit and primarily in leveraged credit. And
(26:19):
so a loan is an instrument that sits at the
top of a company's capital structure. It's usually comes with
some form of security and collateral that that backstops you
know us as lenders, and it comes with some form
of protections. And so it's something in this environment with
a lot of volatility that you know we like a
(26:39):
lot in terms of having in our portfolios and performing
well in addition to you know, all of the sort
of underlying fundamentals that support it in terms of the
corporate issuer base.
Speaker 5 (26:52):
So what are you finding in your market here? What's
the You know, there's a lot of uncertainty in the marketplace.
We see that reflected in across financial markets. Where are
you seeing it in the high old market and the
leverage loan markets? What's happening today?
Speaker 2 (27:05):
Sure?
Speaker 9 (27:05):
Well, these markets are really solving for two things.
Speaker 2 (27:09):
Really.
Speaker 9 (27:10):
The first is the first order impact of terrific exposure,
and so you've seen those types of credits that have
direct import exposure and predominantly to China sell off the
most in terms of price. The second thing the market's
solving for is what is the economic uncertainty that we
are already experiencing. You know, we have some distortion today
(27:30):
in terms of GDP data.
Speaker 2 (27:31):
But how long will that last?
Speaker 9 (27:33):
And how will these corporate issuers fare and navigate this environment?
And so you're seeing much higher dispersion in the market.
This is not dissimilar from other asset classes where you're
seeing certain sectors trade off more so than others certain
credits to us. We think this is the beginning of
a really nice opportunity.
Speaker 5 (27:52):
When I was at the Chase Manhattan Bank, I was
doing leverage lending to TMT companies. I do a five
hundred million dollar loan, indicate forty to eighty million dollars
off my books that guys like you. Although I don't
remember ever being in sent a monk marketing a loan.
So in the senior secured highly leveraged loans, is that
(28:13):
something you guys look at?
Speaker 2 (28:15):
Absolutely?
Speaker 9 (28:15):
Yeah, we look at senior secured levered loans as well
as HYLD bonds. I mean those primarily comprise the leverage
credit universe, and they can come in both public and
private flavors.
Speaker 5 (28:28):
Are there certain industries you guys like today? Does anything
screen better one or the other?
Speaker 2 (28:34):
Sure?
Speaker 9 (28:34):
I mean there are some industries that we think will
have more resilience through this environment.
Speaker 2 (28:39):
There don't have import risk.
Speaker 9 (28:41):
They may have some cyclicality attached to them, but they
have contractual revenues, so they have a lot of visibility
into the future. And they're the ones who are not
necessarily softening their outlooks when they're reporting.
Speaker 2 (28:52):
Since your garner this morning posts for a nice lengthy conversation.
Here he's senior bank loan portfolio manager Beach Point Capital.
Here he's driving the market lower. We are at negative
seventy now negative seventy nine on futures vis out two
big figures twenty six point four eight. The ten year yield,
you know, I was making jokes about it, but you
(29:13):
know I'm not there yet. The ten year year olds
four point eight percent, I'm not in a three ninety
nine watch I look at the number one question. Paul's
been great on this, but just the prism and particularly
in the crucible of Southern California, of Pacific Investment Managing Company,
of TCW, the Capital Group, Aminson, all of the finance
(29:35):
out there. How do you people look at private credit?
I mean, what is your window into private credit from
the adults out in Southern California.
Speaker 9 (29:46):
Well, we at Beach Point invest in both public and
private credit. And what we've observed in the growth of
that particular corner of the market is that companies have
a choice. They can finance themselves in various ways, and
they can there are different would say puts in takes
for doing so in either public or private, but you
can't ignore the amount of credit creation that's gone on
(30:07):
in the private markets, and it is scaled at a
time when we have not had a prolonged depreciation and
asset prices or a real credit freeze, and so they
most credit private credit funds have built in defense mechanisms
in terms of you know, not marketing to market.
Speaker 2 (30:26):
You know, good liquidity, a.
Speaker 9 (30:28):
Very sticker sticky investor base. All of these attributes are
very positive to be able to see through this particular environment.
Speaker 2 (30:33):
Okay, but this is important. I don't trust mark to market.
How do they do a legitimate I mean, let's take
it even over to private equity. Is it like VC
where they're making it up as they go or is
a legitimate mark to market?
Speaker 9 (30:46):
Well, the pricing services would would provide legitimate pricing for
those assets. The danger comes in just that, you know,
for example, an environment we're in, the more prolonged it becomes,
the more damage to these companies op reading ability and
their profit margins would occur. And as that starts to erode,
you know, perhaps some of those prices don't fully reflect
(31:07):
the underlying ask do you have in your head?
Speaker 2 (31:09):
And the average duration of private credit?
Speaker 9 (31:12):
Well, a lot of private credit is floating, right, So
in terms of interest rate duration, it's not going to
be sensitive moves of you know, the ten year for.
Speaker 2 (31:18):
Exact, almost European, right.
Speaker 9 (31:20):
But what they do have, if they were a margin market,
is spread duration. So they are going to be sensitive
to interest rate duration in terms of the reaction to
risk assets in the credit space to whatever is happening
in the economy as it relates to the risk free rate.
Speaker 5 (31:35):
Did you understand what he said that I went to
the Chase Manhattan Bank credit training program.
Speaker 2 (31:41):
You survived.
Speaker 5 (31:41):
I forgotten more than this guy knows. So I go
to the Beach Point Capital website. Very nice website. The
intro video is of Manhattan.
Speaker 2 (31:51):
We have a New York office.
Speaker 5 (31:53):
Yeah, you can't find something in LA Come on.
Speaker 2 (31:58):
Come to the Chase. Don't get me New York City
man having Visita stuff? Are you guys three days a
week at Michael's?
Speaker 5 (32:04):
Is that what you're doing three days a week at
Michael Credit?
Speaker 2 (32:09):
People over there?
Speaker 5 (32:10):
How do you guys think about credit qualities? Is that
we haven't had to worry about credit quality for that?
Speaker 2 (32:14):
That's right.
Speaker 5 (32:15):
I don't know. Fifteen years since a great financial crisis,
is that something you're telling your animals, Hey, guys, go
back to your models, start stressing them out a little bit.
How do you guys think about credit quality?
Speaker 9 (32:25):
Yeah, it's a great question, and it's really where the
proverbial rubber will meet the road the longer this goes.
And so the way we look at it is, well,
first of all, we're coming off of the inflationary and
rate hiking cycle, which allowed companies with pricing power to
improve their margins and that's what really fed into the
solid credit fundamentals that we have today. And so the
(32:46):
risk is that that profitability starts to come off in
a stagflationary environment and that's going to start to erode
credit fundamentals. That's when you start to seeing trouble increased
defaults start to increase. And so the way we approach
it is we take everything from the macro level down
to the micro level. We want our analysts to be
calling the management teams of the issuers in which we
(33:06):
invest regularly to get their outlook, what their color is,
and to stress test their companies and their business models
for a variety a range of outcomes that we can
foresee for.
Speaker 2 (33:17):
Global Wall Street, a great conversation. We continue with Sigeon
Baueren of Santa Monica. I mean, can we just go there?
You forget about this in New York. So I want
to point out. Let me three tweets in a row,
back to back. Liz Ane Sanders Zandy of Moody's. Firman
of Harvard liz Ane Sanders net exports subtracted nearly five
percentage points, most in history, Zandy of Moody's. The decline
(33:41):
in GDP overstates the weakness, but it is weak. Professor
Furhman of X ten at Harvard. Not the most exciting
day to day, but private wages X incentive compensation up nicely,
a slight bump, but take it together, ECI is still
a downward transcident. Did you take X tenant Harvard? Did
(34:04):
you survive? Was at manku or Feldsteam? So I did?
Speaker 9 (34:08):
But then I also went to the University of Chicago
Business School, where I also survived, had a concentration in
the economics, so yes, do.
Speaker 5 (34:15):
Much math there. So what do you think this Federal
Reserve is going to do? Here? What are you guys
at each point thinking about this year? I am I'm
not sure how much they can do given some of
the things that are happening. From a policy perspective, I'm
not really sure how much they can do. How do
you what are you guys discounting?
Speaker 2 (34:33):
Well, we would agree with that.
Speaker 9 (34:34):
We think that, I mean, similar to the last uh
sort of well, during the rate hiking cycle in twenty
twenty two and twenty three, the FED was effectively given
permission to raise rates because it was doing so into
a strong economy in a very strong consumer base, and
until pass forward to today the soft data translates into
(34:54):
much weaker hard data, we would agree that the Fed,
if they had their wish, would stay on pause. And
so that's one reason why on the margin we like
floating right over you know, fixed rate high yield for example,
because of that extra current income and carry that you
get through this particular cycle. And so it's really that's
(35:15):
the real tension, though, what does the FED do? Which
side of their dual mandate do they attempt to resolve?
And we think it's going to be still sensitive to
inflation over the near term until we get data that
shows that, you know, we're not really experiencing the same
inflationary pressures that we did.
Speaker 2 (35:31):
Last one final question and this is really important. And
we've talked to the La Port people all the time,
I mean, you guys in southern California and the absolute
crucible of this trade war at la and Long Beach
as well. And it's just as simple as is there
a belief at Beach Point that we just get back
to normal after this trade war? Or is this a
(35:53):
new I we're going to do this for Thomas cohon
or Harvard forty nine, I think it was. Is it
a new paradigm?
Speaker 9 (36:00):
Yeah, that's a great question. We would say that it
kind of depends on the cohde of the market you're discussing.
So it is a new paradigm for smaller companies. They
can't they don't have the bargaining power. They don't they
can't easily diversify their supply lines. And so if this
really is even a ninety day pause on tariffs, but
then it recommences some of those smaller types of companies
(36:22):
are just going to have a lot of difficulty in
this new economic structure that we've established.
Speaker 2 (36:27):
One final question, when the Harvard Club of Southern California
gets together at Cheves Ravine for the Dodgers, are you
guys sitting by the dugout. We will sit wherever we can.
And Dodgers, especially when they're playing that's right. I like
to cheer on Mookie right go away, very painful.
Speaker 9 (36:52):
So benefits from those types of trades.
Speaker 2 (36:55):
Don't be a stranger. Next time, brings your Oam Schneider
opinion with you, we'll have the two you on here
in short, short paper and long only paper.
Speaker 1 (37:03):
This is the Bloomberg Surveillance Podcast. Listen live each weekday
starting at seven am Eastern on Apple Corplay and Android
Auto with the Bloomberg Business App. You can also listen
live on Amazon Alexa from our flagship New York station.
Just say Alexa play Bloomberg eleven thirty.
Speaker 2 (37:20):
Yeah. I look at Ridholt's book I'm Not to Invest?
Speaker 5 (37:22):
Ye?
Speaker 2 (37:23):
Do you understand Amazon's put that little Amber Goldie number
one best seller, wasn't it? Yeah?
Speaker 5 (37:30):
Oh, I didn't know that.
Speaker 2 (37:32):
He wakes up every morning and he buys fifty bucks.
Just goos the numbers. Kelly Cox has read it cover
to cover. She joins us right now working as Baryo
as Chief market strategist Riddles Wealth Management. Let's just cut
to the case, Kelly. Part one bad ideas Section two,
Media madness. How does our audience interpret market punditry given
(37:56):
this chaos?
Speaker 10 (37:58):
This feels like a loaded question, but seriously, you have
to watch your media diet here. Barry is one of
the biggest disciples of this, and you know, honestly read
Berry if you haven't.
Speaker 3 (38:07):
But there's a lot of noise out there.
Speaker 10 (38:09):
I think I'm under I'm understating that. But you have
to also remember your time frame. Look years and decades
down the road. Many of us are investing for retirement.
So as you process headlines, take them in, contextualize them,
but ultimately remember that ninety percent of them aren't going
to affect.
Speaker 2 (38:26):
Your decision, So why take them in? That's the arch question.
I'm as guilty of this as anyone. You got a
three year, of five year, a ten year perspective, and
I'm watching Bloomberg headlines.
Speaker 10 (38:38):
Tom, you're talking against your own book.
Speaker 2 (38:40):
But seriously, you know, why take in the short term madness?
If I got a three year perspective.
Speaker 10 (38:46):
Well, we're all human. A lot of surpoils down to
we're all human and we want to hear what's happening
around us. That is natural, and I don't think that's
a bad thing. I don't think you can tell clients
and investors to just stop listening. That's that's like sticking
your head in the sand.
Speaker 5 (39:00):
That's impossible.
Speaker 2 (39:01):
We're human. If you know, if you get into Duke
in Chapel Hill, you choose to go to Chapel Hill, right.
Speaker 10 (39:05):
Yeah, correct, So that's the other that's what humans do. Yes,
it's humans.
Speaker 8 (39:09):
Do you know?
Speaker 5 (39:09):
I just last week and I was down to Duke
for re unions and drove down Franklin Street and Chapel Hill.
There might not be a prettyer college town anywhere.
Speaker 2 (39:17):
I know.
Speaker 5 (39:18):
I agree with that football Kelly. So you know, ever,
I would say for the last fifteen years, tech has
driven equity returns. Is that still a story? Do you think?
Speaker 3 (39:30):
Well?
Speaker 10 (39:30):
Obviously, over the past few months they've driven returns in
the wrong direction, I mean, which makes sense, right, When
you hit bumpy roads in the stock market, usually what's
done really well sells off the hardest. Tech is in
a weird spot right now. Earnings expectations are high. Analysts
expect tech earnings to grow an astounding twenty five percent
this year.
Speaker 5 (39:50):
Which feels really high.
Speaker 10 (39:52):
Considering that tech is the most exposed from a cost
of goods perspective and an international revenue perspective. So combine
that with the fact that the AI story, while still
very real, might hit some speed bumps here as well,
and you have to wonder if there are better areas
to sit into whether this market sell off.
Speaker 2 (40:08):
So how will you interpret Microsoft's earnings this after and
how does a general market strategist or our audience interpret
one ginormous companies report.
Speaker 10 (40:19):
I think there are two ways to answer this. I
am a bird's eye view strategist, so I'm not I
look through earnings calls, but I'm not parsing through and
making calls on individual stocks. That's just not the way
we invest Atarate Holts. But of course we're watching earnings.
Of course, you know you have to watch Microsoft earnings.
Microsoft is one of the biggest stocks on the market,
and I think it's an interesting bell weather right now,
as is Apples, as is Nvidia, A lot of those
(40:41):
MAGS seven stocks that we talk about because they are
a part of this tech sector that is incredibly exposed
to international well to tariffs and international catalysts.
Speaker 2 (40:50):
How do you use the vis.
Speaker 10 (40:54):
That's a fun question. So the VIX of course, is
the fear index. It's the gauge of thirty day SMP
options races. A lot of people watch as as a
sentiment index. I watch it as well. I think the
VIX has changed a lot because the options market has
just become so much more complex, so much more popular.
There are so many more options, for lack of a
better word, to hedge positions and hedge around events. So
(41:16):
typically in selloffs you see the VIX spike, and usually
when the VIC spikes, strategists like me say, okay, it's
time to buy.
Speaker 5 (41:23):
I think it's a little more complicated.
Speaker 10 (41:24):
Especially in selloffs where there are economic cracks, which I
expect to be the case here. I think it's an
open window for long term investors, you know, maybe thinking
think about being more opportunistic here. But I don't think
at this point the VIX could mark the bottom of
this sell off.
Speaker 5 (41:39):
That's what I'm worried about.
Speaker 2 (41:40):
I haven't seen the emotion though, No, I just haven't
seen the good arsis.
Speaker 5 (41:44):
I've heard what they say it's been an orderly sell
off and those types of things. I don't know. But
we did that the VIS you know, you know, well
above thirty there for a while.
Speaker 6 (41:52):
So Kelly did the good folks a road rid Holt's
Wealth Management. Have you guys changed kind of how you
think about stocks given that maybe this tariff thing's going
to be around for a while and some industries and
sectors will be more impacted than others.
Speaker 5 (42:07):
Has it affected your stock selection at all?
Speaker 10 (42:10):
Well, look, we've had a lot of conversations around this.
I think if you're a money manager and you haven't
at least had discussions around what's going on, then you're
probably falling behind. We haven't made any changes to our portfolios,
but we are, you know, thirty percent invested in international equities.
Speaker 5 (42:24):
Okay, so that's good in.
Speaker 10 (42:26):
Our main equity sleeves. So we we've always been a
proponent of international investing. I think it's all the more
important right now because as money moves around, and money
doesn't evaporate, remember it moves somewhere always. You know, we
think it could be looking for international sources. But so far,
no changes, and you know, we build our portfolios so
we don't have to change.
Speaker 2 (42:45):
Did you understand that you're thirty percent in international so
Barry can expense a trip to Italy?
Speaker 10 (42:52):
Well, you've got to take them on up to Barry
and tell them I want to take it.
Speaker 2 (42:56):
This is insufferable now because of the New York next.
I mean, sure, you guys, have you medicated, Barry.
Speaker 10 (43:03):
We're definitely a Knick's office. That's something I've learned over
the past year or so. And everybody's pretty excited. I
don't get into the NBA. The Charlotte Hornets have haven't
been a part of the conversation forever. True, But I'm
happy for the Knicks, and I'm excited because my colleagues
are exciting.
Speaker 5 (43:19):
Yeah, she's got some problems with the North Carolina Tar
Hills basketball program or the football program. Well, figure that's
to have fun, though, that's going to be fun. We
have Chapel Bill. Chapel Bill, that's right, Yeah, that's that's
his name.
Speaker 2 (43:35):
There you go. I'll be careful, man.
Speaker 5 (43:37):
I'm just saying I'm optimistic.
Speaker 10 (43:39):
I'm cautiously optimistic.
Speaker 2 (43:41):
Twenty seconds. What do you publish today? What's the lead
idea you're publishing within? You know, down negative four fifty.
Speaker 10 (43:47):
There's going to be a lot of talk around stagfletion.
I've already written a lot about this.
Speaker 2 (43:50):
Agreed, well said, I don't.
Speaker 10 (43:52):
Think we are quite there yet. Obviously the GDP dad
it didn't look great, but there's still a pretty buoyant
demand underneath. And it's also hard to read data at
the moment because the craziness.
Speaker 2 (44:02):
The GDP price it in deck just screamstagflation.
Speaker 10 (44:05):
Yeah, And I think that's what's spooking people because that's
that's the worry in the background, right agree, keep us
economic trenching to be.
Speaker 2 (44:12):
Lauren Summers, thank you so much for your coverage with
David Weston on that there is. Maybe it's not a
huge stagflation, but nevertheless it's tangible. Cayley Cox with his
Chief Market Strategies to Ridholtz Wealth Management.
Speaker 1 (44:26):
This is the Bloomberg Surveillance podcast, available on Apple, Spotify,
and anywhere else you get your podcasts. Listen live each weekday,
seven to ten am Easter and on Bloomberg dot Com,
the iHeartRadio app, tune In, and the Bloomberg Business App.
You can also watch us live every weekday on YouTube
(44:46):
and always on the Bloomberg Terminal
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