November 17, 2025 • 59 mins
Stocks are overpriced. Bonds are overpriced. And private assets are a powder keg. This is the view of Jeffrey Gundlach, the founder and CEO of DoubleLine Capital. As part of our 10-year anniversary celebration of the Odd Lots podcast, we've been talking to some big names in markets and economics to get a sense of how they see the world and what's changed in recent years. One major change, obviously, is the end of ZIRP. And while Treasuries have rallied modestly this year, Gundlach sees mounting pressure on government balance sheets pushing yields higher going into the future. We also talk about gold, the greater opportunities for a US-based investor when looking internationally, and why everyone should be holding more cash in their portfolios.
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Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:02):
Bloomberg Audio Studios, Podcasts, Radio News.
Speaker 2 (00:18):
Hello and welcome to another episode of the Odd Loots podcast.
I'm Tracy Alloway and I'm Joe Whysenthal. Joe, we're still
in celebratory mode. Yes, tenure anniversary.
Speaker 3 (00:27):
It's ten your anniversary month, really yeah, and even next
month kind of ten year anniversary month. So we can
just extend this for a long time.
Speaker 2 (00:33):
We could just make this. Well, we should have made
twenty twenty five the Odd Lots ten year anniversary years. Yeah,
but we're almost at the end of the year, so
we failed in that respect. But obviously we're sort of
reflecting on the past decade or so at Odd Lots
and things that have or haven't changed in markets. And
one thing I've been thinking about a lot is what's
been going on in the bond market.
Speaker 3 (00:55):
Yeah, you can't, well, I think, look, there is nothing
that's more different in twenty twenty five versus twenty fifteen
than what's going on in fixed in right, So you.
Speaker 2 (01:04):
Say that, and it is true, Okay, you know, if
you look at if you look at the benchmark ten
year yield, Okay, sure, we're at four percent now above
four percent, and in twenty fifteen, we were at like
two percent. Right, that's changed, and we went through inflation,
which is something we hadn't experienced for a pretty long
time in you know, previous years. But I also feel
(01:24):
like it's changed, but a lot of it hasn't a
lot of the discussions haven't changed. If I think about
what we were discussing back in twenty fifteen, it was
stuff like who's going to buy US treasuries, who's going
to fund the US deficit? Bond vigilantes. I mean, how
many years have we been talking about bond vigilantes. Now
the credit market, it was whether or not investors are
(01:46):
being adequately compensated for the risk they're taking on. And
the funny thing is now, you know, if you look
at spreads on junk raated bonds, if you didn't think
they were being adequately compensated at like seven point two
percent in twenty fifteen, I wonder what you think when
you look at spreads of six point four percent in
twenty twenty five.
Speaker 3 (02:04):
This is a really good point, actually, because especially lately,
obviously we've had all of these, you know, we've had
a number of credit events, these little blow ups. Jamie
Diamond used the term cockroaches, et cetera. But by and
large spreads, which were sort of infinitously narrow last decade,
remained quite narrow by historical terms.
Speaker 2 (02:23):
I feel like we should just mention here we are
recording on November tenth. Oh yeah, things are changing fast
in the credit market. There's a little bit of nervousness
creeping in, but you're you're absolutely right, By and large
spreads are at you know, pretty very pretty low levels,
and people have been complaining about it for a long
time now. Well, speaking of credit, you also have the
rise of private credit, which is something we were talking
(02:45):
about even back in twenty fifteen. But back in the
way you were, well, no, it both were, but we
called it something different. We called it you know, shadow
banks and agencies and.
Speaker 4 (02:53):
All of that.
Speaker 3 (02:55):
But that is a space that's much bigger, much more interest,
much more scrutiny. I mean, just a whole you know,
orders of magnitude bigger. Since twenty fifteen, I don't think
people have any real handle on like what risk scenarios
look like, the quality of the underwriting, et cetera. So
this is definitely something and it's you know, we've been
talking about it for years but it continues to grow
(03:16):
in with some of these coote cockroaches, et cetera, more
interest in what's really going on.
Speaker 2 (03:21):
Right, So things have changed, but things have also kind
of stayed the same in some respects. But I'm very
happy to say we do, in fact have the perfect
guest to talk about all of this, someone who has,
you know, been writing and conversing and going on TV
and talking about a lot of these themes.
Speaker 3 (03:37):
For us and making a great career directly these.
Speaker 2 (03:41):
Actually investing based off some of these ideas. We're going
to be speaking with. Jeff gun Lacky is of course,
the founder and CEO of Double Line Capital, someone we've
wanted to get on the show for a long time.
So Jeff, thank you so much for coming on.
Speaker 4 (03:53):
All thoughts, well, thanks for having me. I'm looking forward
to our discussion today.
Speaker 2 (03:58):
So let's start big picture because I actually we can
take this in you know, a bunch of different directions.
But when you look at the treasury market and when
you look at the credit market, which are you more
concerned about at the moment, because I know you've voiced
some worries about both of these things.
Speaker 5 (04:15):
Yeah, I'm concerned about the financing of long term treasuries,
primarily because we're issuing a lot of them, and there's
inflationary policies that are being run and probably likely to
be further doubled down upon when Jerome Paul leaves as
Fed Sherman, I mean, we've got Scott Bessant as the
(04:38):
Treasury Secretary, and he's talking about well, he's basically mimicking
what the President says. He basically says rate should be
a point lower, two points lower. I've heard different numbers
out of President Trump. He wants rates at two percent
three percent, but inflation is running above three percent on
the headline CPI, and it's not likely to come down
(05:00):
to the Fed's two percent target. And so there's a
lot of interest in artificially lowering interest rates and perhaps
taking the maturities of treasuries ever increasingly to under one
year in maturity. A lot of investors aren't aware of
the fact that something like eighty percent of all treasuries
(05:21):
issued in the last twelve months, and this has been
the case for the last few years, are less than
one year.
Speaker 4 (05:26):
The treasuries that are issued.
Speaker 5 (05:28):
Longer than twenty years, so twenty years out to thirty
years is only one point seven percent of the treasurations
of the last twelve months. And what's interesting about that
is the Fed has been cutting interest rates over the
last thirteen months, and historically, when the Fed cuts interest rates,
of course, short term interest rates decline definitionally at the
(05:48):
Fed funds level, but also two year treasury rates decline,
five year treasure rates decline. In fact, long term treasure
rates have always declined subsequent to the first cut by
the Fell Reserve, particularly when you're in a sequence of
the Federal Reserve cuts, and that's certainly been the case
with now one hundred and fifty basis points. But this
(06:08):
time all interest rates outside of the two year are
higher than they were before the Fed's first rate cut.
That just never happens historically. Another interesting thing that has
never happened historically is earlier this year, during the tariff
tantrum of late March and early April, stock market had
a pretty significant correction, and it was going back back
(06:32):
to pround two thousand. It was the thirteenth correction in
the s and P five hundred defined by a drop
of ten percent at least ten percent in the twelve
corrections before the one here. In twenty twenty five, the
dollar went up when the stock market went down as
a flight to quality asset. That didn't happen this time.
(06:52):
When we went into that correction earlier this year, the
dollar went down. It usually goes up by around eight percent,
and in the first quarter of early second quarter of
this year it went down by around ten percent. So
what is happening here seems to be that the pattern
of interest rate movements and currency movements and what's the
(07:13):
flight to quality asset and what isn't seems to have
changed because interest rates have bottomed at the long end
of the yel curve. And I've been saying this for
five years now that the secular decline in interest rates
at the long term maturities is over and in fact,
in the next session long term interstrates are likely to
(07:34):
go higher, not lower. And what's happened since the Fed
started cutting corroborates this somewhat radical idea of mine. When
it comes to credit, spreads are tight, although you correctly
noted that they're not on the tights of the year anymore,
they're starting to widen.
Speaker 4 (07:50):
I think junk.
Speaker 5 (07:50):
Bond spreads are up by about thirty or forty basis points,
and yes, spreads have remained tight for a long time.
Speaker 4 (07:57):
But one thing that you also.
Speaker 5 (08:00):
For its a little bit is the quality of the
public corporate credit market is better than it's been historically.
Speaker 4 (08:08):
It's way better than it was prior.
Speaker 5 (08:10):
To the global financial crisis, where you've had all kinds
of garbage lending going on. But in recent years, the
garbage lending has not gone to the public markets. The
garbage lending has gone to these private markets, and private
credit has been very popular and is now increasingly been
over allocated to by large asset pools.
Speaker 4 (08:32):
I remember Harvard University, for example.
Speaker 5 (08:34):
They've got like a fifty odd billion dollar endowment, and
their donors pulled back when they had uprisings on campus,
and the donors didn't like what was going on, so
they stopped donating for a while. And Harvard had no
money a fifty odd billion dollar endowment, and they couldn't
pay salaries, they couldn't pay the light bills, they couldn't
pay basic maintenance. They had to go to the bond
(08:56):
market to borrow. They tried to borrow about fourth a
billion dollars. I think I think they got away with
about two and a half billion dollars. But it's fascinating
that you have a huge asset pool that doesn't have
liquidity to pay the bills. And I've also heard that
another large endowment. I think it's Yale University. I might
be wrong there, but I think it's Yale. They're talking
about selling some of their private equity stakes because they
(09:18):
don't have any liquidity either. And this is bled over
into the private credit market. And I was at a
Bloomberg broadcasted event in Hollywood at Paramount Studios I think
it was, and I got there early and there was
a panel before my fireside chat where the members of
the panel were all significant executives at some of the
(09:40):
largest private credit firms. And it was really interesting to
hear them talk because the tone of the message they
were giving was far from bullish.
Speaker 4 (09:49):
You know.
Speaker 5 (09:49):
It's kind of like when you talk to a jump
bond manager, say what's the outlook for twenty twenty six,
and the most bearish thing they're going to say is,
we don't think spreads can get it a tighter. We
think that's the most sparrashing we're going to say, you're
going to earn the coupon. Well, these private credit people
were using words like tension and a lack of runway.
(10:12):
These are all euphemisms for bad things happening.
Speaker 4 (10:16):
And I think that, you know, we've started to see defaults.
Speaker 5 (10:19):
And there's something on the Bloomberg news wire today, it's
on top Go that speaks of a home renovation business
that was private credit, like one hundred and fifty million
dollar issuemance of private credit and it went to zero.
Speaker 4 (10:37):
There's called rent.
Speaker 5 (10:38):
Apparently there are firms that had it at one hundred
a few weeks ago and it went to zero and
a month ago. But anyway, it's called Renovo or something
like this. And the funny thing is the argument for
private credit has always been a sharp ratio argument. At
(10:59):
the center of it is that you know, you get
the same return or maybe a little better return than
the public markets, but you.
Speaker 4 (11:05):
Have much lower volatility.
Speaker 5 (11:07):
Well that's like saying that you have no risk in
a CD. You don't have any interest rate risk in
a CD. If you buy a five year CD, the
price never changes. Well, that's just because you don't market
to market. You know, of course, a CD that you
bought five years ago at one and a half percent
is not worth you couldn't sell it at.
Speaker 4 (11:28):
A power value.
Speaker 5 (11:29):
You're going to have to take a discount on it.
But that's the private credit argument. What really happens, and
this was really borrowed from private equity, which they use
the sharp ratio argument there too. They say, well, you'll
get the same return, or maybe a little better return
out of private equity than you will out of the
S and P five hundred, but.
Speaker 4 (11:46):
It's much lower volatility.
Speaker 5 (11:48):
So what happens is when the S and P five
hundred goes from one hundred to fifty, the private equity
firms mark their positions down from one hundred to eighty.
Now they're not worth eighty, you couldn't sell at eighty,
but that's.
Speaker 4 (11:59):
Where they get marked.
Speaker 5 (11:59):
And when the market recovers back to one hundred on
the S and P five hundred, they mark their private
equity up to one hundred.
Speaker 4 (12:05):
So lo and behold. Both the S and P five
hundred and the private equity have.
Speaker 5 (12:09):
A return of zero, but the volatility of the S
and P five hundred it's more than double the private equity.
So it's basically a sharper issue argument based upon the
volatility being under reported, and that's that goes on in
all of these these so called private markets. And now
it's very fascinating that this Rinovo in the article today,
(12:31):
it basically said that they had a Chapter seven filing
and bankruptcy filing and their assets, their liabilities were shown
listed as being between one hundred and five hundred million dollars.
Speaker 4 (12:44):
You check a box, you can give a specific.
Speaker 5 (12:46):
Number, so there's ranges, and there were range that their
aliabilities were in between one hundred and five hundred million dollars.
Their assets were listed as less than fifty thousand dollars,
just thousand dollars. Are you trying to tell me that
these big private equity firms and private credit firms with
all of their resources aren't aware of that type of
(13:09):
debt to equity ratio that's obviously far into a bankrupt situation.
Speaker 4 (13:16):
So what's going on here?
Speaker 5 (13:17):
That private equity firms had this marked a few weeks
ago at one hundred, when it was obvious that their
liabilities were vastly, vastly higher than their equity that should
have been marked down to I don't know, fifty twenty
five one, but at one hundred. What's going on it's
(13:38):
like there's only one price for private there's only two
prices for private credits.
Speaker 4 (13:41):
Aperis yeah, one hundred, that's it.
Speaker 5 (13:45):
And I heard an announcement made from these private equity
people at that Bloomberger event, but they're sort of like,
as long as we believe that we're going to get
paid back, we leave it at one hundred.
Speaker 4 (13:55):
Well, okay, but.
Speaker 5 (13:57):
Once once you have one hundred fift million plus dollars
of liabilities and less than fifty thousand dollars of assets,
it's pretty unlikely you're going to get paid back. The
price should not be at one hundred. But that's what's
going on, And so you have that sharp ratio argument.
Then you have another argument for private credit, which had
been somewhat valid was just recent history, I mean performance.
(14:19):
The five year performance of private credit a couple of
years ago was definitely better than the five year performance
at least reported performance of public credit.
Speaker 4 (14:29):
Private credit did better than public credits.
Speaker 5 (14:30):
We had a trailing performance argument, which, of course trailing
performance is no guarantee of future results, which has stated
on every single perspectus. But recently private credit is not outperforming. Obviously,
with bonds going from one hundred to zero in a
matter of weeks. The public market has been performing better
than the private market. And then the most ridiculous argument
(14:52):
of all for private credit has been private credit belongs
in every portfolio because it lets you sleep at night,
because it helps you ride out the volatility of your
public credit. Again, that's just a repackaging of the volatility.
If you don't market to market, there's no volatility. But
if the price goes from one hundred to zero in
a matter of a few weeks, there's something untoward is
(15:16):
going on. And so I'm very, very negative on those
types of non transparent markets. It reminds me I've been
saying this for probably two years now that the next
big crisis in the financial markets is going to be
private credit. It has the same trappings as subprime mortgage
(15:38):
package repackaging had back in twenty twenty oh six. Now
it took a couple of years for its to totally unravel.
So this stuff doesn't happen in a week or a
year even, But I'm very negative on that. And so
where we stand on fixed income is we don't like
long term treasury bonds at all because we don't think
(15:58):
people are.
Speaker 4 (15:59):
Going to want them. During the next recession, the deficit
is going to.
Speaker 5 (16:02):
Go up, because it always goes up during a recession.
The deficit, the official deficit is about six percent of GDP.
That's a level that was associated historically with the depths
of recessions, because of course it goes up during recessions. Well,
when you go to recession, the deficit goes up on
average by well it depends long how long a time
(16:23):
series you use, but if you go back for about
fifty years, it goes up by about four or five
percent of GDP. And more recent recessions it's been a
lot worse than that. We could argue, you could make
the case somewhat plausibly that the goal of financial crisis
it was kind of weird, and that the COVID lockdown
recession was kind of weird. But during those the deficit
(16:44):
went up by about eight percent of GDP on average.
So what happens if the deficit goes from six percent
of GDP to ten percent of GDP or twelve percent
of GDP or fourteen percent of GDP, all of those
are possible. What happens is that you have to blow
up the entire system because all the tax.
Speaker 4 (17:03):
Receipts would go to interest expence.
Speaker 5 (17:06):
We're already at a large percentage, about one point four
to one point five trillion dollars of the seven trillion
dollar budget is now interest expense.
Speaker 4 (17:15):
Of course, we have a two trillion.
Speaker 5 (17:17):
Dollar budget deficit, so there's only five trillion dollars of taxes,
and you know, thirty percent of that is going to
interest expense, and that is going to go higher. And
as interest rates are still elevated from levels of six
or five to seven to twelve years ago, the bonds
that are rolling off have an average coupon for the
next few years of a little bit below three percent,
(17:40):
let's just call it three percent. That means that with
FED funds at three and seven eighths and treasuries at
four up to four and a half, that means that
on average, you're going to have higher interest expense on
just rolling over the existing debt. And of course you're
labeling on a couple trillion dollars in non recessionary period.
And so I did a thing at Grants conference. Jim
(18:01):
Grant had his fortieth anniversary conference and a couple of
years ago, and I did the simplest, most discinct presentation
I've ever given in my career.
Speaker 4 (18:11):
I just went through the interesting.
Speaker 5 (18:12):
Fence problem using plausible assumptions on where the deficit's going.
But the conclusion is, and this is an art and
not a science, so there's a lot of assumptions that
can be challenged, but putting it in a rather pessimistic light.
So I don't say this is the base case, but
by the year twenty thirty, so five years from now,
(18:32):
it's quite plausible that under the current tax system and
the current borrowing regime, that we have sixty percent of
all tax receipts going to interest expense. You can make
it really, really draconian and say, what if interest rates
go up to nine percent on treasuries, and what if
the budget deficit goes to twelve percent of GDP and
(18:53):
you make these kinds of pessimistic assumptions, well, by around
twenty thirty, you would have one one hundred and twenty
percent of tax receipts going to interest expense, which of
course is impossible. So that means that something has to happen,
and we're not talking about you know, early in my
career people were saying, we can't keep borrowing this money
(19:13):
that was under Reaganomics, which people thought was a bad
idea because it was deficit spending, and they said.
Speaker 4 (19:19):
You know where we're going. We're going to be broken.
Speaker 5 (19:22):
We'll be out of money in Social Security and other
entitlement programs by twenty fifty. And then ten years later,
you know, they moved it forward to twenty forty. So
it was initially supposed to be like a sixty year problem,
and then ten years later it was a forty year problem,
and then it was a twenty year problem, and now
it's like a five year problem, which means it's a
(19:42):
problem in real time and something has to be done
about this. So long term treasuries look vulnerable to me.
I still like short term treasuries because I think the
Fed is likely to cut interest rates, and that definitionally
leads to lower interest rates on say five years and immaturities.
Speaker 2 (20:00):
First of all, I hesitate to ask a question here
because you know, we could just let you go on
and hear you tear particularly private credit to shreds. That
was great, and thank you also for the plug for
both Bloomberg journalism and the Bloomberg Hollywood event that's called
screen Time. That's our conference there. And then secondly, Joe
I was going to make a drake joke about private credit.
(20:22):
I was going to say, going from one hundred to
zero real quick in private credit could be a really
terrible Drake song, like most of them are. But that
was five minutes ago, so I don't think my joke
is relevant anymore.
Speaker 3 (20:50):
You know, in the twenty tens, when we started this
podcast ten years ago, an investor could have a really
nice you know, sixty forty ish, and there are all
sorts of beautiful things with that, particularly that sort of
inverse correlation that that exhibited between treasuries and stocks, so that,
as you mentioned, typically in a downturn, you get a
(21:12):
stock market swoon. Well at least the slug of fixed
income that you owned. Maybe it outperforms, then gets a
little smoothing, but maybe you get some positive real rates.
It all works out really well. I understand. Okay, maybe
there's still some opportunities in the short end because rates
are going to go lower, et cetera. Maybe private maybe
public credit has better standards than private credit. Will get
into that, but like, do we have to go back
(21:34):
and revisit just the case or the for even having
fixed income in a diversified portfolio.
Speaker 1 (21:40):
And I know that.
Speaker 3 (21:41):
Look, you had your fixed income portfolio manager, So I
understand this is an existential question for you. So I
know there's but you know, like you know, how should
how would you sell the case for even having it?
Speaker 5 (21:52):
It would be an existential question for somebody that's spent
five to eight years in the business and it's just
getting going. Yeah, because you know, I've been I've been
at this for well over forty years, and I really
don't need to make money by managing other people's money
at all.
Speaker 4 (22:09):
So I'm very honest.
Speaker 5 (22:11):
What people like about me is they say I get
I get stopped on the street, and people say, I see.
Speaker 4 (22:15):
You on TV.
Speaker 5 (22:16):
I really love I'm really a fan of yours because
you're a straight shooter, you know, don't.
Speaker 4 (22:21):
I don't talk any kind of book whatsoever.
Speaker 5 (22:23):
But I think that right now, I think financial assets
broadly should be lower allocated, have a lower allocation than typical.
You talk about sixty forty, that means you have one
hundred perption financial assets. I think inequities today investors should
have maximum forty percent, and most of that in non
(22:45):
US equities, particularly if you're a dollar based investor, like
any American who would normally typically be I think you
want the dollar is going to fall, and so you're
not going to be making money on the currency. Translation,
you're to be losing money. And that's been the case
so far this year. Again, things are acting differently now
that we're in a rising rate regime and not a
(23:06):
falling rate regime. You're doing much better as a dollar
based investor in local currency emerging market stocks. I mean,
they're up something like twenty five percent y're to date
for a dollar based investor. You're even better off in
European stocks because the dollars down versus versus the Euro.
So I think the amount of people should haven't fixed
income should probably be about twenty five percent, not forty percent,
(23:29):
maybe twenty five percent, and I think that it should
be some of it in non dollar fixed income again,
emerging market fixed income, which is by far the highest
performing sector for dollar based investors in the fixed income
market this year. And so that leads to forty percent
that you're not. If you're at forty percent in stocks
and twenty percent or twenty five percent in bonds, you've
(23:51):
got another you know, thirty five forty percent to allocate,
and I've been very, very bullish on gold. We do
a podcast that gets up on our website. It's in
early January every year. It's called Roundtable Prime, Double ne
Roundtable Prime, and we have a bunch of thought leaders there.
(24:11):
It's the same group every year, and we go through.
One of the segments is you know, what are your
best ideas? And my number one best idea for this
year was gold because I think gold is now a
real asset class. I think people are allocating to gold,
not just the survivalists, you know, and the crazy speculators,
people who are allocating real money, because it's real value.
(24:34):
And of course gold's been the top performing asset for
the year and certainly for the last twelve months, and
so I think investors I was at one point advocating
twenty five percent of a portfolio in gold like things
real assets, high quality land, gold, you know, high value assets.
I think that's too high right now because I think
(24:56):
that trade has played out so very well, and gold
seems to stalled out in the last month or so
at a very high level, so it's consolidating scains. I
think it goes higher, but for the time being I'd
probably be more like at fifteen percent or something like that.
And the rest I think I would be in cash
because I think valuations are just incredibly high, and the
(25:17):
health of the equity market in the United States is
it's among the least healthy in my entire career in
terms of the PDE ratio, the cape ratio, all the
classic valuation metrics are off the charts. And of course
the market is incredibly speculative, and speculative markets always go
(25:38):
to insanely high levels. It happens every time. This is
not you know, obviously, it happened in the dot COM's,
it happened in the financials part of the GFC, it's
happening now in the AI and the data centers and
all that stuff, And you know, it's interesting. Probably the
biggest thing that changed the economy and the world in
the last I don't know, one hundred and fifty years
(25:59):
was electricity. Electricity being put into people's homes was probably
one of the biggest changes of all time. And of course,
around nineteen hundred people realized that electricity to homes was coming,
and so electricity stocks were in a huge manium and
they did it incredibly well, but the relative performance of
(26:20):
electricity relative to the entire stock market in the US
excluding electricity, so everything else but electricity. The electricity outperformance
peaked in nineteen eleven. Houses weren't even broadly electrified by
You had to be a very rich person to have
electricity in nineteen eleven, but yet that was the outperformance.
(26:44):
And so it all gets priced in very quickly and
excessively because people love to look at the benefits of
these transformative technologies, and they are transformative. I mean, look
at what happened to some of the internet stocks. They
dropped eighty ninety percent in the early os but there
are many, many multiples of what their peak was at
(27:05):
that time.
Speaker 4 (27:06):
But it gets priced in very, very early.
Speaker 5 (27:10):
So I think that one has to be very careful
about momentum investing during.
Speaker 4 (27:16):
Mania periods.
Speaker 5 (27:17):
And I feel like that's where we are right now.
I just don't think there's any arguments against the fact
that we're.
Speaker 4 (27:22):
In a menium.
Speaker 2 (27:23):
I want to go back to something you said just
then about how investors should be reducing their dollar exposure.
So this is, you know, the sell America thesis that
was very popular at the beginning of the year, and
per year comments is still very popular with some people.
But we have seen in general, you know, a little
bit of a strengthening in the dollar. Ten year treasury
(27:43):
yields have been going down compared to where they were earlier.
What accounts for, I guess the stickiness of US assets
in the global financial system and in investors' portfolios. Even
when I think we can all agree that there are
challenges head for US government debt and assets in the
form of high deficits and spending, and maybe political stasis
(28:07):
and things.
Speaker 5 (28:07):
Like that, have it, people are reluctant to make changes
to longstanding paradigms. One of the hardest things to do
in the investment business is to significantly change your allocations
after you've been right. That's counterintuitive to a lot of people,
(28:28):
but trust me, someone that's done this for a very
long time. That's the hardest thing to do. Because when
you do something and it works really well, it makes you.
It gives you satisfaction on every level, an economic level,
an emotional level, psychological level. It helps you to have
happy meetings with your clients. Just imagine if you bought
(28:48):
Apple at I don't know, five dollars a year and
it went up to I don't know, seven hundred, and
so you get to go to your review with your
client and you say, let's take a look at your portfolio.
Oh yeah, this cost five last price seven hundred. I
am working for you. You know I've done a good
job for you. Well, when you sell Apple at seven hundred,
(29:12):
you no longer have that line item, and so you
can't point to this great thing that you did for
that client. And so people like to project the past.
Successes of the past, they like to hang on to
them or even project them into the future. And that's
a dangerous thing to do. But when you chack, I was,
I was one hundred dollar. I owned no foreign currencies
(29:34):
for decades, and then starting about eighteen months ago, I
had to pull the trigger. I had to say, you
know what, I I don't think this paradigm is intact
any longer. And I think you're going to lose money
by betting on the dollar as a dominant asset. And
it's a scary thing to do because you're you. You
(29:56):
wake up in the morning and you look in the
mirror and say, I'm looking at a at a a
strong dollar guy, and then all of a sudden the
next day, you're saying, I'm looking at a guy that's
no longer confident in a strong dollar mirror.
Speaker 2 (30:08):
Who am I know?
Speaker 4 (30:10):
Like you know, I wonder why I have to have
to pay taxes.
Speaker 5 (30:13):
Quite frankly, when I look in the mirror, I don't
identify as a billionaire. I identify as a homeless, eighty
year old guy.
Speaker 4 (30:21):
Why should I have to.
Speaker 5 (30:21):
Pay taxes what I identify as a as a destitute
elderly man, I don't understand.
Speaker 3 (30:29):
So yeah, I think other people. Other people might identify
you differently. I want to go back to the rates
question as self identification. As you mentioned, it's sort of
an historically unusual that we've seen this period of the
FED cutting rates for the last thirteen months and very
little downward action. And the long end of the curve,
(30:52):
we know everyone could sort of look at the same
math that you look at in terms of interest expends.
We know that the long end of curve is very
sensitive for housing, and that's something that's very important to
these economy. We know that President Trump would like to
see the long end of the curve go down, perhaps
because he has deep familiarity with it from his real
estate days. Do you think at some point in the
(31:13):
sort of medium term future we're going to see the
return of proper yield curve control, that we're going to
see the Fed cut rates and not get the response
desired at the long end, and then more drastic action
is going to come such that actual steps are taken
to suppress that long end.
Speaker 4 (31:32):
That's my base case, and I've been talking about this.
Speaker 5 (31:35):
Now for nearly two years, that we cannot afford the
market to set interest rates if the deficit spending continues,
it won't be tenable. So what has to happen is
going to be some sort of drastic measures. And I'm
not exactly sure what those drastic measures are going to be.
(31:57):
There's a number of candidates for them. We could do
what we did from after World War Two until the
mid fifties when inflation was rising and we had significantly
negative real yields and we had inflation go up to
around eight percent, and the yell curve was kept at
the long lines were kept at two and a half percent.
Speaker 4 (32:16):
So you can.
Speaker 5 (32:17):
Absolutely manipulate the ill curve. Japan has did that for decades.
For decades, they kept rates at zero even though there
was no demand I actually had a meeting with the
guy that ran the biggest pension plan in the world.
It was one of the Japanese public pension plans, and
I was really anxious to sit down with him, and
I said, I really want to ask you this question.
(32:37):
Do you actually own these negative yielding jgb's And he
actually laughed out loud when I asked him that question.
Speaker 4 (32:45):
He said, of course not nobody owns them except the.
Speaker 5 (32:48):
Bank of Japan and the institutions that are forced to
buy them by the back of Japan.
Speaker 4 (32:53):
So it's a real thing.
Speaker 5 (32:54):
We did the United States for a decade, they did
in Japan for decades, and Secretary Vestan has alluded to
the fact that maybe that's on the table, some sort
of interest rate manipulation. So what this leads to is
a really interesting dilemma because what I think is my
roadmap for the future. And of course there's many variations
(33:16):
that one could use, but the starting point for me
is that interest rates will rise until such time as
they're uncomfortably high. For the Treasury Department, what is that?
Where is that five percent?
Speaker 4 (33:27):
Six percent?
Speaker 5 (33:28):
My guess is six is the highest that it would
be full on uncomfortable full on at six percent on
the long end. So what happens is you'd want to
avoid long bonds while the market forces are in play.
And Julie, you said that long rates aren't down very
(33:50):
much since the Fed started cutting. No, no, they're up
a lot. Long rates are a lot since the Fed
start cutting. This is the first time it's ever happened.
They're up by almost one hundred basis points with the
Fed cutting, It's never happened before. But with interest rates
rising as the Fed is cutting at the long end,
what's going to happen is they'll get to a point
where all of a sudden it's too uncomfortable and then
(34:12):
something dramatic will happen.
Speaker 4 (34:15):
Something dramatic. Could that simply be the government.
Speaker 5 (34:17):
The Treasury Department buys the treasuries, and if they announce
that they're going to buy treasuries and to control long
term interest rates, you would have a thirty point rally
in the long bond in a week. So there's a
very very sensitive strategy here where you have to be
very negative over the normal course of things, and then
(34:39):
once the intervention comes in, there's going to be a
step funk, a significant step function lower in yields, and
so you have to try to figure out how you're
going to do that pivot. That's what I spend most
of my time thinking about when it comes to the
treasury market these days. Although for now it's way too
earlier for them to panic and start manipulating the race.
What they might manipulate our mortgage rates. They could absolutely
(35:03):
buy Jimmy May's, Fanny Mays, Freddie Max the government guaranteed
mortgages and drive those yields down much closer to where
treasury yields are. And there's no rule that says they
can't go through treasury yields. I mean, there are instances
where non treasury yields are lower than treasure yields of
the same maturity. Just earlier this year, there was a
(35:24):
corporate bond that was lower yielding than the same maturity
treasury bond. That also happened in the early eighties when
IBM bonds traded a lower yield than treasury bonds of
the same maturity because investors had greater confidence in the
payback of IBM than they did in what they thought
was a bad strategy under Reaganomics. And that has begun
(35:44):
to enter the picture here in twenty twenty five with
corporate bonds periodically, not only the very best ones, of course,
but like Microsoft or something like that, trading through treasures,
and so that's a tell that something is up here.
The other thing that they might do, and there was
a white paper written about this just about a year
ago now that said maybe we should restructure the treasuries
(36:07):
held by foreigners, which is a very strange thing to say.
Speaker 2 (36:11):
This is accord, right, Yeah, yes it is.
Speaker 5 (36:16):
I don't know how you define what a foreigners. Foreigners
can hide behind entities and so it looks like they're
not owned by foreigners.
Speaker 4 (36:23):
So I'm not excitedly sure what foreigners mean. But why
put the word foreigners in there?
Speaker 5 (36:27):
Why not just say we're going to restructure the treasury
debt full stop.
Speaker 4 (36:32):
What does that mean?
Speaker 5 (36:33):
Well, one way to save on interest expense, to get
it back down from one point five trillion to the
three hundred billion it.
Speaker 4 (36:40):
Was a couple of years ago.
Speaker 5 (36:42):
Why don't you just say, all the treasuries that exist today,
we're changing their coupons. The ones that have a coupon
above one, the coupon is now one. The ones that
have a coupon less than one the coupon stays the same.
That would save a tremendous amount of interest expense. Of course,
it would cause a disastrous, tumultuous time in the government
(37:03):
bomb market. But people say to me, you're always talking
about this debt problem. What's the solution. The solution is
get to a point where people won't lend the government
money anymore, that the government can't borrow any money, so
that if you structure treasures that way, there'll be a
couple of generations the government won't be able to borrow
any money anymore, and that would actually put us in
(37:24):
a better place than where we are today.
Speaker 2 (37:41):
I want to ask another question about private credit, but
just before I do, I'm curious, do you ever talk
to Besant about your ideas for how to fix the
US treasury market basically, or voice your concerns?
Speaker 4 (37:53):
I think he watches my CMBC.
Speaker 2 (37:58):
All right, all right, let's go back to private credit
for a second, because that's obviously the topic DuJour, and
as Joe pointed out, one of the things that has
really grown exponentially over the past ten years. You've said,
you said on the podcast just now, and you've said
it before that you think private credit is the candidate
for another financial crisis. And I understand the marking issue,
(38:22):
I understand the liquidity mismatch. But when I look at
private credit, maybe what's missing in terms of some of
our more recent financial crises is that leverage built on
top of leverage aspect.
Speaker 5 (38:35):
Can you give it credit?
Speaker 4 (38:37):
Well, that is credit, This is leverage leverage.
Speaker 2 (38:41):
Yeah, okay, explain that. Explain that because as far as
I know, we're not seeing the scale of stuff getting
rebundled as we saw, for instance, in the financial crisis.
Speaker 5 (38:51):
Well, that's true, you're not getting to rebundling, but you
are having there's a lot of leverage.
Speaker 4 (38:56):
And the firms that they leverage, they're they're they're.
Speaker 5 (39:01):
Raising money and then they're borrowing money to buy more
private credit.
Speaker 4 (39:05):
It's absolutely leverage upon.
Speaker 5 (39:06):
Leverage and the other thing while they're not bundling, like putting.
Speaker 4 (39:11):
You know, the thing.
Speaker 5 (39:13):
About the goal of financial crisis is you took triple
B rated and it's questionable what they even deserved a
triple B rated thing, and creating triple A rated securities
out of them.
Speaker 4 (39:23):
I mean, just just that.
Speaker 5 (39:24):
That alone should make you just just you know, just
stop even thinking about investing in its. Suddenly a triple
A is turned into a triple triple B is turned
into triple A.
Speaker 4 (39:36):
But one thing they are.
Speaker 5 (39:37):
Doing is issuing public traded vehicles daily NAV vehicles to
allow main street America mom and pop investors to avail
themselves of this wonderful, fantastic opportunity of private credit, which
is totally a liquidit and mismatch. You've got daily nav
(39:58):
funds investing in things that don't trade at all. And
so once there's a run on those on those vehicles,
and I don't know how popular they've been, but there's
certainly been touted. But if they become it popular in
any way, you're going to have the catalyst for a
tremendous selling deluge because there is no people want to redeem,
(40:22):
and they won't be able to get their money out.
And once you get that, once people Where the trouble
always comes in financial markets is when people buy something
they think is safe. It's sold to them as safe,
but it's not safe. You buy a triple A rated
subprime mortgage pool. You think it's safe because it's triple
A rated, but it's not safe. It's extremely dangerous. You
(40:46):
buy CDO equity, you buy CDO squared equity back before
the goal of financial crisis, and there isn't any real equity.
It's I buy your equity, you buy my equity.
Speaker 4 (40:56):
We're all.
Speaker 5 (40:57):
It's just a game that's being played to make an
illusi of liquidity. That's where private credit is right now.
It's an illusion. They don't even claim it's liquidity. But
if you package it into a publicly traded vehicle that
trades on a daily basis, you have the perfect mismatch
of no liquidity with a vehicle that promises liquidity. It
(41:18):
looks like it's safe because you could sell it any day,
but it's not safe because the price at which you
sell it will be gapping lower, gapping lower, island gapping lower,
day after day after day, and so that's where the
risk rides. But these things go on forever. One of
the things about the investment business is it's hard. It's
difficult enough to be so called right about the direction
(41:39):
of things we're going, but it's impossible to be both
right on the direction and correct on the timing things.
Even if you're right on the direction, it's going to
take a lot longer than you think. I turn negative
on the package mortgage non guaranteed mortgage market in two
thousand and four. It took three years or to even
(42:01):
start to decay. So these things take forever, and it
goes on much longer than you think.
Speaker 4 (42:07):
You know.
Speaker 5 (42:08):
Remember I turned negative on the Nasdaq maximum negative September
thirtieth of nineteen ninety nine. I looked like a moron
three months later, because the Nasdaq went up eighty percent
in the fourth quarter of.
Speaker 4 (42:22):
Nineteen ninety nine.
Speaker 5 (42:23):
But if you had gone short the Nasdaq September thirtieth
of nineteen ninety nine, eighteen months later, you had a
profit of sixty four percent. Even though it went up
eighty percent in the first three months, it dropped so
much in the ensuing of fifteen months that the short
would have made you a profit, of a very handsome
(42:43):
profit in a very difficult market.
Speaker 4 (42:45):
Of course, we've been out of business. Sorry, I'm out
of business. You were mentioning people's money.
Speaker 2 (42:51):
Yes, slight problem there, But just very quickly, are you
betting against private credit?
Speaker 4 (42:55):
Now? I have no way to do that. Yeah, I don't.
Speaker 5 (43:00):
I don't really short bonds, shorting high yielding bonds is
a really difficult thing because the cost.
Speaker 4 (43:07):
Of carry is just brutal.
Speaker 5 (43:10):
Every day that it doesn't it doesn't decline, you're paying
out a very high uh, you know rate, and so
you're losing.
Speaker 4 (43:18):
Money all the time. So I don't really do that.
Speaker 5 (43:20):
What I do is I just don't allocate to it.
I allocate to things that will do better, you know,
that will be immune, relatively immune or fully immune from
the knock on effects of deterioration in private credit. So
that would that would mean higher you know, higher credit
things you know, using foreign currencies more than more than typically.
Speaker 4 (43:42):
But no, I don't think you can really short private credit.
Speaker 3 (43:46):
What have you learned in your career about longevity and
drawdowns or underperformance, Because as you mentioned, you can be
right or you could be You can correctly identify a
medium or long term trend, but it's some times takes
a while to play out, whether it's the case from
September ninety nine to the peak that's not actually that long,
that was closer to six months, or being bearish on
(44:09):
some of the housing assets starting in two thousand and
five that took a little bit longer. How do you
survive as a portfolio manager and be willing to take
time where you're just in accept that you're going to
underperform for a while.
Speaker 4 (44:25):
Well, you have to have.
Speaker 5 (44:27):
Think very carefully about your time horizon. When I started
in this industry, one of the first things I was
tasked to do was to do a study on what
would happen if you had perfect foresight in financial markets?
Speaker 4 (44:42):
Perfect foresight.
Speaker 5 (44:43):
And of course you can do a study like that
by using historical data. So you take stocks, bonds, real estate, commodities,
every asset class and you just look at the historical
returns and you can say, let's say at the beginning
of every year, I invest with a five year horizon,
and I pick the asset class that I know with
(45:03):
metaphysical certitude is going to have the highest return for
those five years.
Speaker 4 (45:07):
Because I'm looking.
Speaker 5 (45:08):
At historical data, I came to the conclusion that if
you had a five year horizon, you would go out
of business, even if though with physical certitude would have
the highest performing asset class. And that's because so often
the first two years of the five years, that best
performing asset class was not a good performer at all.
(45:29):
It was very frequently back end loaded. So I said,
we cannot invest other people's money with a five year horizon.
I think that most people that invest other people's money
use too short of a horizon. However, a lot of
investment managers talk about they have they're constantly reallocating, they're
constantly read. You know, they have one week horizon at
(45:51):
a weekly meeting, and the change of that's not going
to work. It's not going to work because the chance
of you being right in a week is very low.
Even if you're going to be right for over a
two year period, your chance of being right in a
week is very low. So I kept modulating time horizon,
and I came to conclusion that the sweet spot was
(46:11):
between eighteen months and two.
Speaker 4 (46:13):
Years for a time horizon. And what I've learned is.
Speaker 5 (46:17):
That having done that, I've have a seventy percent hit rate.
I've had a long enough career in enough strategies where
it's statistically significant, and i have a seventy percent hit rate,
which means I'm right seventy percent of the time, which
means I'm wrong thirty percent of the time. So I've
been at this for over forty years. So I've been
wrong for more than twelve years right, But thank god
(46:39):
they haven't been in a row. Because what you can't
do is really three years is wheneverone pulls the plug
if you're wrong, if you are to perform year one,
year two, and year three, you're gone. You know, if
you're wrong five years in a row, they shut your
janus on constrained bond fund because you can't have sequentially
(47:00):
years about performance.
Speaker 2 (47:01):
Like a very specific example, Jeff, I wonder where that
came from.
Speaker 5 (47:04):
Well, yeah, so, but the the so really it comes
down to about having.
Speaker 4 (47:13):
The sweet spot.
Speaker 5 (47:14):
I'm not being overly overly active and not being overly
you know, fixated on your long term idea. And I've
managed I've managed to do that. I've never I've never
really had three years in a row of under performance. So, uh,
that's that's been a good thing. And that's probably I
call myself. Is it uncas or Chinnich Cook who is
(47:35):
the last of the Mohicans? And John Van Moore Cooper.
I'm the last one. I'm the last man standing when
I started in this every single person of significance that's
been in the business since I started my career, they're
all retired or gone.
Speaker 4 (47:48):
I'm the last one standing.
Speaker 5 (47:49):
Dana Emery was the only one left and she was
at Dodging Cox, but she retired at the end of June.
Speaker 4 (47:55):
So I'm I'm uncas last of the Mohicans.
Speaker 2 (47:59):
Jeff, does that work? Jeff gun Kiss kind of very quickly.
You know, again, we're sort of we're very we're being
very introspective and retrospective on the show. But over the
past ten years, what's been the thing that surprised you most,
either in terms of the markets or the financial industry itself.
Speaker 4 (48:24):
I think the.
Speaker 5 (48:26):
Thing that's surprising, and as he believed, distressing is surprising
is the magnitude of money printing that occurred in twenty
twenty two. I just the fact that the Federal Reserve
broke the law and bought corporate bonds surprised me. It
(48:50):
probably shouldn't have surprised me because they broke They broke
the law when they modified mortgages during the global financial crisis.
Was that was not allowed for the perspectuses of trillions
of dollars of securities, but they did it anyway. And
so what I've learned is that the rules can be
changed in spite of the fact that they seem to
(49:13):
be set in Stone. And that's why I say and
when I say this, people really act very in a
shocked type of reaction. They don't believe that they can
restructure the treasury debt. But yes they can. They can
restructure the treasury debt. And I think that that sort
of has to happen in some fashion, whether it's the
(49:35):
coupon adjustment that I talked about, whether it's whether it's
doing the ueal care of control that Joel brought up earlier.
I think something like that has got to happen. Because
when something is impossible and paying our interest back in
today's buying power dollar is impossible, to pay off our debt,
it's impossible, then you have to open up your mind
(49:57):
to a radical change in the rules system. And of
course that is happening on every level. I mean, you
talk to you look at surveys of people that are
say thirty five and younger. They don't believe in the
institutions of this country at all. They don't believe in
the constitution, they don't believe in religion, they don't believe they.
Speaker 4 (50:16):
Don't believe in anything.
Speaker 5 (50:18):
And if they need, people need something to believe in,
and that's what has to replace the system, a system
that people can believe in.
Speaker 4 (50:25):
And what's being floated now just blows my mind, and.
Speaker 5 (50:28):
That is that we're going to because we have tariffs
that are raising a few hundred billion dollars a year
if they stay in place, well, that means that we
should give two thousand dollars to everybody as a tariff dividend.
We don't have any money. We're borrowing two trillion dollars.
We don't have two thousand dollars.
Speaker 4 (50:46):
To throw away at people.
Speaker 5 (50:47):
Again, didn't we learn that in twenty twenty to twenty
twenty two that giving money to people causes inflation?
Speaker 4 (50:54):
Remember people talking about modern monetary theory? What a joke?
Speaker 5 (50:58):
You know, you never had anybody talk about that anymore
because by modern military theory?
Speaker 2 (51:03):
How can no one talks about that.
Speaker 4 (51:06):
Because of inflation? What's a nine point one person?
Speaker 3 (51:09):
Can I ask one last question? Are you like it
seemed like, you know, you mentioned Trump floating the idea
of a two thousand dollars tariff dividend to the public,
But do you like are you was there an opportunity
in your view for Trump to have changed the status?
Quote like, are you disappointed that someone with sort of
Trump's persona energy, sort of perceived outsider status, did not
(51:33):
do has not done anything that actually changes some of
whether the fiscal or economic trajectory.
Speaker 4 (51:42):
He can't. The problem is, look at look at this
government shutdown. You know what is going on here?
Speaker 5 (51:51):
Why why do we have to pay taxes if the
government is shut should taxes not be charged for one days?
Shouldn't you have life an eleven percent tax rebate? Because
what's going on? Well, it's just because there's this massive
entrenched interest that is the kind of the uniparty government
(52:13):
that will fight tooth and nail. Just look at all
the lawfare at look at all the indictments, all the stuff.
I mean, they'll do anything they can to hold on
to power until such time as the people that vote
these people in say no, mass, no more of this.
And that began with Trump. It's been furthered just this
(52:37):
month with Mam Donnie Man. Donnie won because people do
not believe it's a little bit different.
Speaker 4 (52:43):
Well, Trump was more like the lower middle class. They
felt that nobody was listening to them.
Speaker 5 (52:49):
Now it's just young people, just broadly, people under I
don't know, thirty five years old, people that lost three
years of education with lockdowns and all these policies. They
feel like they have no chance of ever having the
life experience that the baby boomers had. Home prices are
more affordable, less affordable than they've ever been. People have
(53:14):
educations that aren't worth anything, jobs aren't available, nobody's hiring.
They feel like there's no future for them that looks
anything like what they look at Nancy Pelosi and Chuck
Schumer and Mitch McConnell and all these other people had.
They don't have it, and so they are not going
to go along with this. And so that's why Mount
Dombi one. It's just like, I don't have a shot
(53:35):
here in New York City as a young person, and
that's what's taking over, and so Trump can't do it himself.
He's caught on to something that was obviously kind of
hibernating within the psyche of part of the population, but
it's now become a generational thing. I wouldn't be surprised
(53:56):
talk about another crazy gunlock idea. I wouldn't be surprised
if are putting in place an age tax, not a
wealth tax, which they're doing to a certain extent through
electricity bills and stuff like that these days already, but
you could put it together an age tax that if
you're over age fifty five, you have a cer tax
based upon you had a better environment to accumulate wealth
(54:20):
than the subsequent generations have, and so you should give
some of that back.
Speaker 4 (54:26):
I think that might actually happen.
Speaker 2 (54:27):
That would be a popular platform with certainly a specific demographic.
Speaker 5 (54:32):
Are you going to run, Jeff positively?
Speaker 4 (54:35):
No? No chance? All right, absolutely no chance.
Speaker 1 (54:39):
All right.
Speaker 2 (54:39):
We shall leave it there, Jeff, thank you so much
for coming on.
Speaker 1 (54:42):
All thoughts.
Speaker 2 (54:42):
Really appreciate it.
Speaker 4 (54:44):
Well, thanks for having me on. I'm you're kind of
all over the map today, but I hope your audience.
Speaker 2 (54:48):
Insurator clearly a lot to unpack their Joe one of
the things. Actually this was towards the end, so that's
why it's in my mind. But you know, when he
was talking about the FED buying corporate bonds in twenty twenty,
(55:11):
I really think that was an underappreciated moment in financial
markets because I remember, again we're being very introspective here.
I remember writing pieces about the corporate bond market being
problematic in like circa twenty fifteen. Yeah, and I used
to have commenters who were like, Okay, so what's the
worst case scenario. And the most extreme scenario that we
(55:32):
used to talk about was, well, what if the FED
has to come in and buy corporate bonds? That was
the extreme scenario, and that's what happened in twenty twenty.
So I kind of I take his point about how
quickly these things can change and you can deviate from
norms totally.
Speaker 3 (55:48):
Remember we interviewed Bill Gross on the Beach a couple
of years ago and he called out Jeff for like
being the pretend bond king. Anyway, I liked Jeff returning
the favor by pointing out the short lived, the short
lived Janis on Constrained fund that Bill ran after having
left Kim KOs So, I see that the rivalry.
Speaker 2 (56:07):
The rivalry continues. Yeah, we should have them both on
and just let them do get.
Speaker 3 (56:12):
Just let them seriously, it's like, just do it. Yeah,
just both come on. People would love that.
Speaker 2 (56:17):
Oh I'm sure, I'm sure that would raise.
Speaker 3 (56:19):
Some money for charity or something.
Speaker 2 (56:22):
Okay, Jeff, if you are still listening, and Bill, if
you are listening, we should put pretend bond King in
the headline and maybe lure him on open invitation to
come on all bots and debate, but on a serious note,
more serious note. The other thing I was thinking about
was when it comes to private credit. Yeah, I thought
(56:42):
the point about how everyone's been piling into private credit
because it's outperformed public credit. That is changing now, you
know empirically that has changed this year. But then secondly,
everyone's been piling into private credit because of that low
volatility pitch, which is one that we've heard a number
of times on the podcast. Now, this idea that well,
you don't have to market to market, and that's actually
(57:03):
a big strength that sales pitch starts to lose a
lot of power and conviction when you're going from one
hundred to zero in the space of a month.
Speaker 3 (57:12):
I don't like how there are new ones like every day. Yeah,
I'm saying it's like each one of these little credit
cockroaches are pretty small in the grand scheme of things.
Speaker 4 (57:21):
But two things.
Speaker 3 (57:22):
A they're small, and yet they seem to be touching
a wide number. And I don't like how they keep popping.
Speaker 5 (57:28):
Right.
Speaker 3 (57:28):
I'm a little I'm a little ancient.
Speaker 2 (57:30):
Right, because you think the scale is small, but then
it just keeps well. This is also why why the
cockroach analogy is so perfect, right, because if you see one,
you know you have more than one.
Speaker 4 (57:40):
Yeah.
Speaker 2 (57:41):
I once read an entire book about cockroaches just because
I figured, like, know your enemy in New York, and
it was actually really interesting. Shall we leave it there,
Let's leave it there. Okay, this has been another episode
of the Authoughts podcast. I'm Tracy Alloway. You can follow
me at Tracy Alloway and.
Speaker 3 (57:58):
I'm Jill Why isnt Thal? You can follow me at
the Stalwart. Follow our guest Jeffrey Gunlock. He's at Truth Gunlock.
Follow our producers Kerman Rodriguez at Kerman Ermann, Dashel Bennett
at Dashbot, and Keil Brooks at Keil Brooks. For more
Oddlows content, go to Bloomberg dot com slash od Lots
with the daily newsletter and all of our episodes, and
you can chat about all of these topics twenty four
(58:18):
to seven in our discord Discord dot gg slash od lots.
Speaker 2 (58:23):
And if you enjoy odd Lots, if you want Jeff
Gunlock and Bill Groves to duke it out on the podcast,
then I should say proverbially, not literally, then please leave
us a positive review on your favorite podcast platform. And remember,
if you are a Bloomberg subscriber, you can listen to
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to do is find the Bloomberg channel on Apple Podcasts
(58:43):
and follow the instructions there. Thanks for listening in
Bloomberg Audio Studios, Podcasts, Radio News.
Speaker 2 (00:18):
Hello and welcome to another episode of the Odd Loots podcast.
I'm Tracy Alloway and I'm Joe Whysenthal. Joe, we're still
in celebratory mode. Yes, tenure anniversary.
Speaker 3 (00:27):
It's ten your anniversary month, really yeah, and even next
month kind of ten year anniversary month. So we can
just extend this for a long time.
Speaker 2 (00:33):
We could just make this. Well, we should have made
twenty twenty five the Odd Lots ten year anniversary years. Yeah,
but we're almost at the end of the year, so
we failed in that respect. But obviously we're sort of
reflecting on the past decade or so at Odd Lots
and things that have or haven't changed in markets. And
one thing I've been thinking about a lot is what's
been going on in the bond market.
Speaker 3 (00:55):
Yeah, you can't, well, I think, look, there is nothing
that's more different in twenty twenty five versus twenty fifteen
than what's going on in fixed in right, So you.
Speaker 2 (01:04):
Say that, and it is true, Okay, you know, if
you look at if you look at the benchmark ten
year yield, Okay, sure, we're at four percent now above
four percent, and in twenty fifteen, we were at like
two percent. Right, that's changed, and we went through inflation,
which is something we hadn't experienced for a pretty long
time in you know, previous years. But I also feel
(01:24):
like it's changed, but a lot of it hasn't a
lot of the discussions haven't changed. If I think about
what we were discussing back in twenty fifteen, it was
stuff like who's going to buy US treasuries, who's going
to fund the US deficit? Bond vigilantes. I mean, how
many years have we been talking about bond vigilantes. Now
the credit market, it was whether or not investors are
(01:46):
being adequately compensated for the risk they're taking on. And
the funny thing is now, you know, if you look
at spreads on junk raated bonds, if you didn't think
they were being adequately compensated at like seven point two
percent in twenty fifteen, I wonder what you think when
you look at spreads of six point four percent in
twenty twenty five.
Speaker 3 (02:04):
This is a really good point, actually, because especially lately,
obviously we've had all of these, you know, we've had
a number of credit events, these little blow ups. Jamie
Diamond used the term cockroaches, et cetera. But by and
large spreads, which were sort of infinitously narrow last decade,
remained quite narrow by historical terms.
Speaker 2 (02:23):
I feel like we should just mention here we are
recording on November tenth. Oh yeah, things are changing fast
in the credit market. There's a little bit of nervousness
creeping in, but you're you're absolutely right, By and large
spreads are at you know, pretty very pretty low levels,
and people have been complaining about it for a long
time now. Well, speaking of credit, you also have the
rise of private credit, which is something we were talking
(02:45):
about even back in twenty fifteen. But back in the
way you were, well, no, it both were, but we
called it something different. We called it you know, shadow
banks and agencies and.
Speaker 4 (02:53):
All of that.
Speaker 3 (02:55):
But that is a space that's much bigger, much more interest,
much more scrutiny. I mean, just a whole you know,
orders of magnitude bigger. Since twenty fifteen, I don't think
people have any real handle on like what risk scenarios
look like, the quality of the underwriting, et cetera. So
this is definitely something and it's you know, we've been
talking about it for years but it continues to grow
(03:16):
in with some of these coote cockroaches, et cetera, more
interest in what's really going on.
Speaker 2 (03:21):
Right, So things have changed, but things have also kind
of stayed the same in some respects. But I'm very
happy to say we do, in fact have the perfect
guest to talk about all of this, someone who has,
you know, been writing and conversing and going on TV
and talking about a lot of these themes.
Speaker 3 (03:37):
For us and making a great career directly these.
Speaker 2 (03:41):
Actually investing based off some of these ideas. We're going
to be speaking with. Jeff gun Lacky is of course,
the founder and CEO of Double Line Capital, someone we've
wanted to get on the show for a long time.
So Jeff, thank you so much for coming on.
Speaker 4 (03:53):
All thoughts, well, thanks for having me. I'm looking forward
to our discussion today.
Speaker 2 (03:58):
So let's start big picture because I actually we can
take this in you know, a bunch of different directions.
But when you look at the treasury market and when
you look at the credit market, which are you more
concerned about at the moment, because I know you've voiced
some worries about both of these things.
Speaker 5 (04:15):
Yeah, I'm concerned about the financing of long term treasuries,
primarily because we're issuing a lot of them, and there's
inflationary policies that are being run and probably likely to
be further doubled down upon when Jerome Paul leaves as
Fed Sherman, I mean, we've got Scott Bessant as the
(04:38):
Treasury Secretary, and he's talking about well, he's basically mimicking
what the President says. He basically says rate should be
a point lower, two points lower. I've heard different numbers
out of President Trump. He wants rates at two percent
three percent, but inflation is running above three percent on
the headline CPI, and it's not likely to come down
(05:00):
to the Fed's two percent target. And so there's a
lot of interest in artificially lowering interest rates and perhaps
taking the maturities of treasuries ever increasingly to under one
year in maturity. A lot of investors aren't aware of
the fact that something like eighty percent of all treasuries
(05:21):
issued in the last twelve months, and this has been
the case for the last few years, are less than
one year.
Speaker 4 (05:26):
The treasuries that are issued.
Speaker 5 (05:28):
Longer than twenty years, so twenty years out to thirty
years is only one point seven percent of the treasurations
of the last twelve months. And what's interesting about that
is the Fed has been cutting interest rates over the
last thirteen months, and historically, when the Fed cuts interest rates,
of course, short term interest rates decline definitionally at the
(05:48):
Fed funds level, but also two year treasury rates decline,
five year treasure rates decline. In fact, long term treasure
rates have always declined subsequent to the first cut by
the Fell Reserve, particularly when you're in a sequence of
the Federal Reserve cuts, and that's certainly been the case
with now one hundred and fifty basis points. But this
(06:08):
time all interest rates outside of the two year are
higher than they were before the Fed's first rate cut.
That just never happens historically. Another interesting thing that has
never happened historically is earlier this year, during the tariff
tantrum of late March and early April, stock market had
a pretty significant correction, and it was going back back
(06:32):
to pround two thousand. It was the thirteenth correction in
the s and P five hundred defined by a drop
of ten percent at least ten percent in the twelve
corrections before the one here. In twenty twenty five, the
dollar went up when the stock market went down as
a flight to quality asset. That didn't happen this time.
(06:52):
When we went into that correction earlier this year, the
dollar went down. It usually goes up by around eight percent,
and in the first quarter of early second quarter of
this year it went down by around ten percent. So
what is happening here seems to be that the pattern
of interest rate movements and currency movements and what's the
(07:13):
flight to quality asset and what isn't seems to have
changed because interest rates have bottomed at the long end
of the yel curve. And I've been saying this for
five years now that the secular decline in interest rates
at the long term maturities is over and in fact,
in the next session long term interstrates are likely to
(07:34):
go higher, not lower. And what's happened since the Fed
started cutting corroborates this somewhat radical idea of mine. When
it comes to credit, spreads are tight, although you correctly
noted that they're not on the tights of the year anymore,
they're starting to widen.
Speaker 4 (07:50):
I think junk.
Speaker 5 (07:50):
Bond spreads are up by about thirty or forty basis points,
and yes, spreads have remained tight for a long time.
Speaker 4 (07:57):
But one thing that you also.
Speaker 5 (08:00):
For its a little bit is the quality of the
public corporate credit market is better than it's been historically.
Speaker 4 (08:08):
It's way better than it was prior.
Speaker 5 (08:10):
To the global financial crisis, where you've had all kinds
of garbage lending going on. But in recent years, the
garbage lending has not gone to the public markets. The
garbage lending has gone to these private markets, and private
credit has been very popular and is now increasingly been
over allocated to by large asset pools.
Speaker 4 (08:32):
I remember Harvard University, for example.
Speaker 5 (08:34):
They've got like a fifty odd billion dollar endowment, and
their donors pulled back when they had uprisings on campus,
and the donors didn't like what was going on, so
they stopped donating for a while. And Harvard had no
money a fifty odd billion dollar endowment, and they couldn't
pay salaries, they couldn't pay the light bills, they couldn't
pay basic maintenance. They had to go to the bond
(08:56):
market to borrow. They tried to borrow about fourth a
billion dollars. I think I think they got away with
about two and a half billion dollars. But it's fascinating
that you have a huge asset pool that doesn't have
liquidity to pay the bills. And I've also heard that
another large endowment. I think it's Yale University. I might
be wrong there, but I think it's Yale. They're talking
about selling some of their private equity stakes because they
(09:18):
don't have any liquidity either. And this is bled over
into the private credit market. And I was at a
Bloomberg broadcasted event in Hollywood at Paramount Studios I think
it was, and I got there early and there was
a panel before my fireside chat where the members of
the panel were all significant executives at some of the
(09:40):
largest private credit firms. And it was really interesting to
hear them talk because the tone of the message they
were giving was far from bullish.
Speaker 4 (09:49):
You know.
Speaker 5 (09:49):
It's kind of like when you talk to a jump
bond manager, say what's the outlook for twenty twenty six,
and the most bearish thing they're going to say is,
we don't think spreads can get it a tighter. We
think that's the most sparrashing we're going to say, you're
going to earn the coupon. Well, these private credit people
were using words like tension and a lack of runway.
(10:12):
These are all euphemisms for bad things happening.
Speaker 4 (10:16):
And I think that, you know, we've started to see defaults.
Speaker 5 (10:19):
And there's something on the Bloomberg news wire today, it's
on top Go that speaks of a home renovation business
that was private credit, like one hundred and fifty million
dollar issuemance of private credit and it went to zero.
Speaker 4 (10:37):
There's called rent.
Speaker 5 (10:38):
Apparently there are firms that had it at one hundred
a few weeks ago and it went to zero and
a month ago. But anyway, it's called Renovo or something
like this. And the funny thing is the argument for
private credit has always been a sharp ratio argument. At
(10:59):
the center of it is that you know, you get
the same return or maybe a little better return than
the public markets, but you.
Speaker 4 (11:05):
Have much lower volatility.
Speaker 5 (11:07):
Well that's like saying that you have no risk in
a CD. You don't have any interest rate risk in
a CD. If you buy a five year CD, the
price never changes. Well, that's just because you don't market
to market. You know, of course, a CD that you
bought five years ago at one and a half percent
is not worth you couldn't sell it at.
Speaker 4 (11:28):
A power value.
Speaker 5 (11:29):
You're going to have to take a discount on it.
But that's the private credit argument. What really happens, and
this was really borrowed from private equity, which they use
the sharp ratio argument there too. They say, well, you'll
get the same return, or maybe a little better return
out of private equity than you will out of the
S and P five hundred, but.
Speaker 4 (11:46):
It's much lower volatility.
Speaker 5 (11:48):
So what happens is when the S and P five
hundred goes from one hundred to fifty, the private equity
firms mark their positions down from one hundred to eighty.
Now they're not worth eighty, you couldn't sell at eighty,
but that's.
Speaker 4 (11:59):
Where they get marked.
Speaker 5 (11:59):
And when the market recovers back to one hundred on
the S and P five hundred, they mark their private
equity up to one hundred.
Speaker 4 (12:05):
So lo and behold. Both the S and P five
hundred and the private equity have.
Speaker 5 (12:09):
A return of zero, but the volatility of the S
and P five hundred it's more than double the private equity.
So it's basically a sharper issue argument based upon the
volatility being under reported, and that's that goes on in
all of these these so called private markets. And now
it's very fascinating that this Rinovo in the article today,
(12:31):
it basically said that they had a Chapter seven filing
and bankruptcy filing and their assets, their liabilities were shown
listed as being between one hundred and five hundred million dollars.
Speaker 4 (12:44):
You check a box, you can give a specific.
Speaker 5 (12:46):
Number, so there's ranges, and there were range that their
aliabilities were in between one hundred and five hundred million dollars.
Their assets were listed as less than fifty thousand dollars,
just thousand dollars. Are you trying to tell me that
these big private equity firms and private credit firms with
all of their resources aren't aware of that type of
(13:09):
debt to equity ratio that's obviously far into a bankrupt situation.
Speaker 4 (13:16):
So what's going on here?
Speaker 5 (13:17):
That private equity firms had this marked a few weeks
ago at one hundred, when it was obvious that their
liabilities were vastly, vastly higher than their equity that should
have been marked down to I don't know, fifty twenty
five one, but at one hundred. What's going on it's
(13:38):
like there's only one price for private there's only two
prices for private credits.
Speaker 4 (13:41):
Aperis yeah, one hundred, that's it.
Speaker 5 (13:45):
And I heard an announcement made from these private equity
people at that Bloomberger event, but they're sort of like,
as long as we believe that we're going to get
paid back, we leave it at one hundred.
Speaker 4 (13:55):
Well, okay, but.
Speaker 5 (13:57):
Once once you have one hundred fift million plus dollars
of liabilities and less than fifty thousand dollars of assets,
it's pretty unlikely you're going to get paid back. The
price should not be at one hundred. But that's what's
going on, And so you have that sharp ratio argument.
Then you have another argument for private credit, which had
been somewhat valid was just recent history, I mean performance.
(14:19):
The five year performance of private credit a couple of
years ago was definitely better than the five year performance
at least reported performance of public credit.
Speaker 4 (14:29):
Private credit did better than public credits.
Speaker 5 (14:30):
We had a trailing performance argument, which, of course trailing
performance is no guarantee of future results, which has stated
on every single perspectus. But recently private credit is not outperforming. Obviously,
with bonds going from one hundred to zero in a
matter of weeks. The public market has been performing better
than the private market. And then the most ridiculous argument
(14:52):
of all for private credit has been private credit belongs
in every portfolio because it lets you sleep at night,
because it helps you ride out the volatility of your
public credit. Again, that's just a repackaging of the volatility.
If you don't market to market, there's no volatility. But
if the price goes from one hundred to zero in
a matter of a few weeks, there's something untoward is
(15:16):
going on. And so I'm very, very negative on those
types of non transparent markets. It reminds me I've been
saying this for probably two years now that the next
big crisis in the financial markets is going to be
private credit. It has the same trappings as subprime mortgage
(15:38):
package repackaging had back in twenty twenty oh six. Now
it took a couple of years for its to totally unravel.
So this stuff doesn't happen in a week or a
year even, But I'm very negative on that. And so
where we stand on fixed income is we don't like
long term treasury bonds at all because we don't think
(15:58):
people are.
Speaker 4 (15:59):
Going to want them. During the next recession, the deficit
is going to.
Speaker 5 (16:02):
Go up, because it always goes up during a recession.
The deficit, the official deficit is about six percent of GDP.
That's a level that was associated historically with the depths
of recessions, because of course it goes up during recessions. Well,
when you go to recession, the deficit goes up on
average by well it depends long how long a time
(16:23):
series you use, but if you go back for about
fifty years, it goes up by about four or five
percent of GDP. And more recent recessions it's been a
lot worse than that. We could argue, you could make
the case somewhat plausibly that the goal of financial crisis
it was kind of weird, and that the COVID lockdown
recession was kind of weird. But during those the deficit
(16:44):
went up by about eight percent of GDP on average.
So what happens if the deficit goes from six percent
of GDP to ten percent of GDP or twelve percent
of GDP or fourteen percent of GDP, all of those
are possible. What happens is that you have to blow
up the entire system because all the tax.
Speaker 4 (17:03):
Receipts would go to interest expence.
Speaker 5 (17:06):
We're already at a large percentage, about one point four
to one point five trillion dollars of the seven trillion
dollar budget is now interest expense.
Speaker 4 (17:15):
Of course, we have a two trillion.
Speaker 5 (17:17):
Dollar budget deficit, so there's only five trillion dollars of taxes,
and you know, thirty percent of that is going to
interest expense, and that is going to go higher. And
as interest rates are still elevated from levels of six
or five to seven to twelve years ago, the bonds
that are rolling off have an average coupon for the
next few years of a little bit below three percent,
(17:40):
let's just call it three percent. That means that with
FED funds at three and seven eighths and treasuries at
four up to four and a half, that means that
on average, you're going to have higher interest expense on
just rolling over the existing debt. And of course you're
labeling on a couple trillion dollars in non recessionary period.
And so I did a thing at Grants conference. Jim
(18:01):
Grant had his fortieth anniversary conference and a couple of
years ago, and I did the simplest, most discinct presentation
I've ever given in my career.
Speaker 4 (18:11):
I just went through the interesting.
Speaker 5 (18:12):
Fence problem using plausible assumptions on where the deficit's going.
But the conclusion is, and this is an art and
not a science, so there's a lot of assumptions that
can be challenged, but putting it in a rather pessimistic light.
So I don't say this is the base case, but
by the year twenty thirty, so five years from now,
(18:32):
it's quite plausible that under the current tax system and
the current borrowing regime, that we have sixty percent of
all tax receipts going to interest expense. You can make
it really, really draconian and say, what if interest rates
go up to nine percent on treasuries, and what if
the budget deficit goes to twelve percent of GDP and
(18:53):
you make these kinds of pessimistic assumptions, well, by around
twenty thirty, you would have one one hundred and twenty
percent of tax receipts going to interest expense, which of
course is impossible. So that means that something has to happen,
and we're not talking about you know, early in my
career people were saying, we can't keep borrowing this money
(19:13):
that was under Reaganomics, which people thought was a bad
idea because it was deficit spending, and they said.
Speaker 4 (19:19):
You know where we're going. We're going to be broken.
Speaker 5 (19:22):
We'll be out of money in Social Security and other
entitlement programs by twenty fifty. And then ten years later,
you know, they moved it forward to twenty forty. So
it was initially supposed to be like a sixty year problem,
and then ten years later it was a forty year problem,
and then it was a twenty year problem, and now
it's like a five year problem, which means it's a
(19:42):
problem in real time and something has to be done
about this. So long term treasuries look vulnerable to me.
I still like short term treasuries because I think the
Fed is likely to cut interest rates, and that definitionally
leads to lower interest rates on say five years and immaturities.
Speaker 2 (20:00):
First of all, I hesitate to ask a question here
because you know, we could just let you go on
and hear you tear particularly private credit to shreds. That
was great, and thank you also for the plug for
both Bloomberg journalism and the Bloomberg Hollywood event that's called
screen Time. That's our conference there. And then secondly, Joe
I was going to make a drake joke about private credit.
(20:22):
I was going to say, going from one hundred to
zero real quick in private credit could be a really
terrible Drake song, like most of them are. But that
was five minutes ago, so I don't think my joke
is relevant anymore.
Speaker 3 (20:50):
You know, in the twenty tens, when we started this
podcast ten years ago, an investor could have a really
nice you know, sixty forty ish, and there are all
sorts of beautiful things with that, particularly that sort of
inverse correlation that that exhibited between treasuries and stocks, so that,
as you mentioned, typically in a downturn, you get a
(21:12):
stock market swoon. Well at least the slug of fixed
income that you owned. Maybe it outperforms, then gets a
little smoothing, but maybe you get some positive real rates.
It all works out really well. I understand. Okay, maybe
there's still some opportunities in the short end because rates
are going to go lower, et cetera. Maybe private maybe
public credit has better standards than private credit. Will get
into that, but like, do we have to go back
(21:34):
and revisit just the case or the for even having
fixed income in a diversified portfolio.
Speaker 1 (21:40):
And I know that.
Speaker 3 (21:41):
Look, you had your fixed income portfolio manager, So I
understand this is an existential question for you. So I
know there's but you know, like you know, how should
how would you sell the case for even having it?
Speaker 5 (21:52):
It would be an existential question for somebody that's spent
five to eight years in the business and it's just
getting going. Yeah, because you know, I've been I've been
at this for well over forty years, and I really
don't need to make money by managing other people's money
at all.
Speaker 4 (22:09):
So I'm very honest.
Speaker 5 (22:11):
What people like about me is they say I get
I get stopped on the street, and people say, I see.
Speaker 4 (22:15):
You on TV.
Speaker 5 (22:16):
I really love I'm really a fan of yours because
you're a straight shooter, you know, don't.
Speaker 4 (22:21):
I don't talk any kind of book whatsoever.
Speaker 5 (22:23):
But I think that right now, I think financial assets
broadly should be lower allocated, have a lower allocation than typical.
You talk about sixty forty, that means you have one
hundred perption financial assets. I think inequities today investors should
have maximum forty percent, and most of that in non
(22:45):
US equities, particularly if you're a dollar based investor, like
any American who would normally typically be I think you
want the dollar is going to fall, and so you're
not going to be making money on the currency. Translation,
you're to be losing money. And that's been the case
so far this year. Again, things are acting differently now
that we're in a rising rate regime and not a
(23:06):
falling rate regime. You're doing much better as a dollar
based investor in local currency emerging market stocks. I mean,
they're up something like twenty five percent y're to date
for a dollar based investor. You're even better off in
European stocks because the dollars down versus versus the Euro.
So I think the amount of people should haven't fixed
income should probably be about twenty five percent, not forty percent,
(23:29):
maybe twenty five percent, and I think that it should
be some of it in non dollar fixed income again,
emerging market fixed income, which is by far the highest
performing sector for dollar based investors in the fixed income
market this year. And so that leads to forty percent
that you're not. If you're at forty percent in stocks
and twenty percent or twenty five percent in bonds, you've
(23:51):
got another you know, thirty five forty percent to allocate,
and I've been very, very bullish on gold. We do
a podcast that gets up on our website. It's in
early January every year. It's called Roundtable Prime, Double ne
Roundtable Prime, and we have a bunch of thought leaders there.
(24:11):
It's the same group every year, and we go through.
One of the segments is you know, what are your
best ideas? And my number one best idea for this
year was gold because I think gold is now a
real asset class. I think people are allocating to gold,
not just the survivalists, you know, and the crazy speculators,
people who are allocating real money, because it's real value.
(24:34):
And of course gold's been the top performing asset for
the year and certainly for the last twelve months, and
so I think investors I was at one point advocating
twenty five percent of a portfolio in gold like things
real assets, high quality land, gold, you know, high value assets.
I think that's too high right now because I think
(24:56):
that trade has played out so very well, and gold
seems to stalled out in the last month or so
at a very high level, so it's consolidating scains. I
think it goes higher, but for the time being I'd
probably be more like at fifteen percent or something like that.
And the rest I think I would be in cash
because I think valuations are just incredibly high, and the
(25:17):
health of the equity market in the United States is
it's among the least healthy in my entire career in
terms of the PDE ratio, the cape ratio, all the
classic valuation metrics are off the charts. And of course
the market is incredibly speculative, and speculative markets always go
(25:38):
to insanely high levels. It happens every time. This is
not you know, obviously, it happened in the dot COM's,
it happened in the financials part of the GFC, it's
happening now in the AI and the data centers and
all that stuff, And you know, it's interesting. Probably the
biggest thing that changed the economy and the world in
the last I don't know, one hundred and fifty years
(25:59):
was electricity. Electricity being put into people's homes was probably
one of the biggest changes of all time. And of course,
around nineteen hundred people realized that electricity to homes was coming,
and so electricity stocks were in a huge manium and
they did it incredibly well, but the relative performance of
(26:20):
electricity relative to the entire stock market in the US
excluding electricity, so everything else but electricity. The electricity outperformance
peaked in nineteen eleven. Houses weren't even broadly electrified by
You had to be a very rich person to have
electricity in nineteen eleven, but yet that was the outperformance.
(26:44):
And so it all gets priced in very quickly and
excessively because people love to look at the benefits of
these transformative technologies, and they are transformative. I mean, look
at what happened to some of the internet stocks. They
dropped eighty ninety percent in the early os but there
are many, many multiples of what their peak was at
(27:05):
that time.
Speaker 4 (27:06):
But it gets priced in very, very early.
Speaker 5 (27:10):
So I think that one has to be very careful
about momentum investing during.
Speaker 4 (27:16):
Mania periods.
Speaker 5 (27:17):
And I feel like that's where we are right now.
I just don't think there's any arguments against the fact
that we're.
Speaker 4 (27:22):
In a menium.
Speaker 2 (27:23):
I want to go back to something you said just
then about how investors should be reducing their dollar exposure.
So this is, you know, the sell America thesis that
was very popular at the beginning of the year, and
per year comments is still very popular with some people.
But we have seen in general, you know, a little
bit of a strengthening in the dollar. Ten year treasury
(27:43):
yields have been going down compared to where they were earlier.
What accounts for, I guess the stickiness of US assets
in the global financial system and in investors' portfolios. Even
when I think we can all agree that there are
challenges head for US government debt and assets in the
form of high deficits and spending, and maybe political stasis
(28:07):
and things.
Speaker 5 (28:07):
Like that, have it, people are reluctant to make changes
to longstanding paradigms. One of the hardest things to do
in the investment business is to significantly change your allocations
after you've been right. That's counterintuitive to a lot of people,
(28:28):
but trust me, someone that's done this for a very
long time. That's the hardest thing to do. Because when
you do something and it works really well, it makes you.
It gives you satisfaction on every level, an economic level,
an emotional level, psychological level. It helps you to have
happy meetings with your clients. Just imagine if you bought
(28:48):
Apple at I don't know, five dollars a year and
it went up to I don't know, seven hundred, and
so you get to go to your review with your
client and you say, let's take a look at your portfolio.
Oh yeah, this cost five last price seven hundred. I
am working for you. You know I've done a good
job for you. Well, when you sell Apple at seven hundred,
(29:12):
you no longer have that line item, and so you
can't point to this great thing that you did for
that client. And so people like to project the past.
Successes of the past, they like to hang on to
them or even project them into the future. And that's
a dangerous thing to do. But when you chack, I was,
I was one hundred dollar. I owned no foreign currencies
(29:34):
for decades, and then starting about eighteen months ago, I
had to pull the trigger. I had to say, you
know what, I I don't think this paradigm is intact
any longer. And I think you're going to lose money
by betting on the dollar as a dominant asset. And
it's a scary thing to do because you're you. You
(29:56):
wake up in the morning and you look in the
mirror and say, I'm looking at a at a a
strong dollar guy, and then all of a sudden the
next day, you're saying, I'm looking at a guy that's
no longer confident in a strong dollar mirror.
Speaker 2 (30:08):
Who am I know?
Speaker 4 (30:10):
Like you know, I wonder why I have to have
to pay taxes.
Speaker 5 (30:13):
Quite frankly, when I look in the mirror, I don't
identify as a billionaire. I identify as a homeless, eighty
year old guy.
Speaker 4 (30:21):
Why should I have to.
Speaker 5 (30:21):
Pay taxes what I identify as a as a destitute
elderly man, I don't understand.
Speaker 3 (30:29):
So yeah, I think other people. Other people might identify
you differently. I want to go back to the rates
question as self identification. As you mentioned, it's sort of
an historically unusual that we've seen this period of the
FED cutting rates for the last thirteen months and very
little downward action. And the long end of the curve,
(30:52):
we know everyone could sort of look at the same
math that you look at in terms of interest expends.
We know that the long end of curve is very
sensitive for housing, and that's something that's very important to
these economy. We know that President Trump would like to
see the long end of the curve go down, perhaps
because he has deep familiarity with it from his real
estate days. Do you think at some point in the
(31:13):
sort of medium term future we're going to see the
return of proper yield curve control, that we're going to
see the Fed cut rates and not get the response
desired at the long end, and then more drastic action
is going to come such that actual steps are taken
to suppress that long end.
Speaker 4 (31:32):
That's my base case, and I've been talking about this.
Speaker 5 (31:35):
Now for nearly two years, that we cannot afford the
market to set interest rates if the deficit spending continues,
it won't be tenable. So what has to happen is
going to be some sort of drastic measures. And I'm
not exactly sure what those drastic measures are going to be.
(31:57):
There's a number of candidates for them. We could do
what we did from after World War Two until the
mid fifties when inflation was rising and we had significantly
negative real yields and we had inflation go up to
around eight percent, and the yell curve was kept at
the long lines were kept at two and a half percent.
Speaker 4 (32:16):
So you can.
Speaker 5 (32:17):
Absolutely manipulate the ill curve. Japan has did that for decades.
For decades, they kept rates at zero even though there
was no demand I actually had a meeting with the
guy that ran the biggest pension plan in the world.
It was one of the Japanese public pension plans, and
I was really anxious to sit down with him, and
I said, I really want to ask you this question.
(32:37):
Do you actually own these negative yielding jgb's And he
actually laughed out loud when I asked him that question.
Speaker 4 (32:45):
He said, of course not nobody owns them except the.
Speaker 5 (32:48):
Bank of Japan and the institutions that are forced to
buy them by the back of Japan.
Speaker 4 (32:53):
So it's a real thing.
Speaker 5 (32:54):
We did the United States for a decade, they did
in Japan for decades, and Secretary Vestan has alluded to
the fact that maybe that's on the table, some sort
of interest rate manipulation. So what this leads to is
a really interesting dilemma because what I think is my
roadmap for the future. And of course there's many variations
(33:16):
that one could use, but the starting point for me
is that interest rates will rise until such time as
they're uncomfortably high. For the Treasury Department, what is that?
Where is that five percent?
Speaker 4 (33:27):
Six percent?
Speaker 5 (33:28):
My guess is six is the highest that it would
be full on uncomfortable full on at six percent on
the long end. So what happens is you'd want to
avoid long bonds while the market forces are in play.
And Julie, you said that long rates aren't down very
(33:50):
much since the Fed started cutting. No, no, they're up
a lot. Long rates are a lot since the Fed
start cutting. This is the first time it's ever happened.
They're up by almost one hundred basis points with the
Fed cutting, It's never happened before. But with interest rates
rising as the Fed is cutting at the long end,
what's going to happen is they'll get to a point
where all of a sudden it's too uncomfortable and then
(34:12):
something dramatic will happen.
Speaker 4 (34:15):
Something dramatic. Could that simply be the government.
Speaker 5 (34:17):
The Treasury Department buys the treasuries, and if they announce
that they're going to buy treasuries and to control long
term interest rates, you would have a thirty point rally
in the long bond in a week. So there's a
very very sensitive strategy here where you have to be
very negative over the normal course of things, and then
(34:39):
once the intervention comes in, there's going to be a
step funk, a significant step function lower in yields, and
so you have to try to figure out how you're
going to do that pivot. That's what I spend most
of my time thinking about when it comes to the
treasury market these days. Although for now it's way too
earlier for them to panic and start manipulating the race.
What they might manipulate our mortgage rates. They could absolutely
(35:03):
buy Jimmy May's, Fanny Mays, Freddie Max the government guaranteed
mortgages and drive those yields down much closer to where
treasury yields are. And there's no rule that says they
can't go through treasury yields. I mean, there are instances
where non treasury yields are lower than treasure yields of
the same maturity. Just earlier this year, there was a
(35:24):
corporate bond that was lower yielding than the same maturity
treasury bond. That also happened in the early eighties when
IBM bonds traded a lower yield than treasury bonds of
the same maturity because investors had greater confidence in the
payback of IBM than they did in what they thought
was a bad strategy under Reaganomics. And that has begun
(35:44):
to enter the picture here in twenty twenty five with
corporate bonds periodically, not only the very best ones, of course,
but like Microsoft or something like that, trading through treasures,
and so that's a tell that something is up here.
The other thing that they might do, and there was
a white paper written about this just about a year
ago now that said maybe we should restructure the treasuries
(36:07):
held by foreigners, which is a very strange thing to say.
Speaker 2 (36:11):
This is accord, right, Yeah, yes it is.
Speaker 5 (36:16):
I don't know how you define what a foreigners. Foreigners
can hide behind entities and so it looks like they're
not owned by foreigners.
Speaker 4 (36:23):
So I'm not excitedly sure what foreigners mean. But why
put the word foreigners in there?
Speaker 5 (36:27):
Why not just say we're going to restructure the treasury
debt full stop.
Speaker 4 (36:32):
What does that mean?
Speaker 5 (36:33):
Well, one way to save on interest expense, to get
it back down from one point five trillion to the
three hundred billion it.
Speaker 4 (36:40):
Was a couple of years ago.
Speaker 5 (36:42):
Why don't you just say, all the treasuries that exist today,
we're changing their coupons. The ones that have a coupon
above one, the coupon is now one. The ones that
have a coupon less than one the coupon stays the same.
That would save a tremendous amount of interest expense. Of course,
it would cause a disastrous, tumultuous time in the government
(37:03):
bomb market. But people say to me, you're always talking
about this debt problem. What's the solution. The solution is
get to a point where people won't lend the government
money anymore, that the government can't borrow any money, so
that if you structure treasures that way, there'll be a
couple of generations the government won't be able to borrow
any money anymore, and that would actually put us in
(37:24):
a better place than where we are today.
Speaker 2 (37:41):
I want to ask another question about private credit, but
just before I do, I'm curious, do you ever talk
to Besant about your ideas for how to fix the
US treasury market basically, or voice your concerns?
Speaker 4 (37:53):
I think he watches my CMBC.
Speaker 2 (37:58):
All right, all right, let's go back to private credit
for a second, because that's obviously the topic DuJour, and
as Joe pointed out, one of the things that has
really grown exponentially over the past ten years. You've said,
you said on the podcast just now, and you've said
it before that you think private credit is the candidate
for another financial crisis. And I understand the marking issue,
(38:22):
I understand the liquidity mismatch. But when I look at
private credit, maybe what's missing in terms of some of
our more recent financial crises is that leverage built on
top of leverage aspect.
Speaker 5 (38:35):
Can you give it credit?
Speaker 4 (38:37):
Well, that is credit, This is leverage leverage.
Speaker 2 (38:41):
Yeah, okay, explain that. Explain that because as far as
I know, we're not seeing the scale of stuff getting
rebundled as we saw, for instance, in the financial crisis.
Speaker 5 (38:51):
Well, that's true, you're not getting to rebundling, but you
are having there's a lot of leverage.
Speaker 4 (38:56):
And the firms that they leverage, they're they're they're.
Speaker 5 (39:01):
Raising money and then they're borrowing money to buy more
private credit.
Speaker 4 (39:05):
It's absolutely leverage upon.
Speaker 5 (39:06):
Leverage and the other thing while they're not bundling, like putting.
Speaker 4 (39:11):
You know, the thing.
Speaker 5 (39:13):
About the goal of financial crisis is you took triple
B rated and it's questionable what they even deserved a
triple B rated thing, and creating triple A rated securities
out of them.
Speaker 4 (39:23):
I mean, just just that.
Speaker 5 (39:24):
That alone should make you just just you know, just
stop even thinking about investing in its. Suddenly a triple
A is turned into a triple triple B is turned
into triple A.
Speaker 4 (39:36):
But one thing they are.
Speaker 5 (39:37):
Doing is issuing public traded vehicles daily NAV vehicles to
allow main street America mom and pop investors to avail
themselves of this wonderful, fantastic opportunity of private credit, which
is totally a liquidit and mismatch. You've got daily nav
(39:58):
funds investing in things that don't trade at all. And
so once there's a run on those on those vehicles,
and I don't know how popular they've been, but there's
certainly been touted. But if they become it popular in
any way, you're going to have the catalyst for a
tremendous selling deluge because there is no people want to redeem,
(40:22):
and they won't be able to get their money out.
And once you get that, once people Where the trouble
always comes in financial markets is when people buy something
they think is safe. It's sold to them as safe,
but it's not safe. You buy a triple A rated
subprime mortgage pool. You think it's safe because it's triple
A rated, but it's not safe. It's extremely dangerous. You
(40:46):
buy CDO equity, you buy CDO squared equity back before
the goal of financial crisis, and there isn't any real equity.
It's I buy your equity, you buy my equity.
Speaker 4 (40:56):
We're all.
Speaker 5 (40:57):
It's just a game that's being played to make an
illusi of liquidity. That's where private credit is right now.
It's an illusion. They don't even claim it's liquidity. But
if you package it into a publicly traded vehicle that
trades on a daily basis, you have the perfect mismatch
of no liquidity with a vehicle that promises liquidity. It
(41:18):
looks like it's safe because you could sell it any day,
but it's not safe because the price at which you
sell it will be gapping lower, gapping lower, island gapping lower,
day after day after day, and so that's where the
risk rides. But these things go on forever. One of
the things about the investment business is it's hard. It's
difficult enough to be so called right about the direction
(41:39):
of things we're going, but it's impossible to be both
right on the direction and correct on the timing things.
Even if you're right on the direction, it's going to
take a lot longer than you think. I turn negative
on the package mortgage non guaranteed mortgage market in two
thousand and four. It took three years or to even
(42:01):
start to decay. So these things take forever, and it
goes on much longer than you think.
Speaker 4 (42:07):
You know.
Speaker 5 (42:08):
Remember I turned negative on the Nasdaq maximum negative September
thirtieth of nineteen ninety nine. I looked like a moron
three months later, because the Nasdaq went up eighty percent
in the fourth quarter of.
Speaker 4 (42:22):
Nineteen ninety nine.
Speaker 5 (42:23):
But if you had gone short the Nasdaq September thirtieth
of nineteen ninety nine, eighteen months later, you had a
profit of sixty four percent. Even though it went up
eighty percent in the first three months, it dropped so
much in the ensuing of fifteen months that the short
would have made you a profit, of a very handsome
(42:43):
profit in a very difficult market.
Speaker 4 (42:45):
Of course, we've been out of business. Sorry, I'm out
of business. You were mentioning people's money.
Speaker 2 (42:51):
Yes, slight problem there, But just very quickly, are you
betting against private credit?
Speaker 4 (42:55):
Now? I have no way to do that. Yeah, I don't.
Speaker 5 (43:00):
I don't really short bonds, shorting high yielding bonds is
a really difficult thing because the cost.
Speaker 4 (43:07):
Of carry is just brutal.
Speaker 5 (43:10):
Every day that it doesn't it doesn't decline, you're paying
out a very high uh, you know rate, and so
you're losing.
Speaker 4 (43:18):
Money all the time. So I don't really do that.
Speaker 5 (43:20):
What I do is I just don't allocate to it.
I allocate to things that will do better, you know,
that will be immune, relatively immune or fully immune from
the knock on effects of deterioration in private credit. So
that would that would mean higher you know, higher credit
things you know, using foreign currencies more than more than typically.
Speaker 4 (43:42):
But no, I don't think you can really short private credit.
Speaker 3 (43:46):
What have you learned in your career about longevity and
drawdowns or underperformance, Because as you mentioned, you can be
right or you could be You can correctly identify a
medium or long term trend, but it's some times takes
a while to play out, whether it's the case from
September ninety nine to the peak that's not actually that long,
that was closer to six months, or being bearish on
(44:09):
some of the housing assets starting in two thousand and
five that took a little bit longer. How do you
survive as a portfolio manager and be willing to take
time where you're just in accept that you're going to
underperform for a while.
Speaker 4 (44:25):
Well, you have to have.
Speaker 5 (44:27):
Think very carefully about your time horizon. When I started
in this industry, one of the first things I was
tasked to do was to do a study on what
would happen if you had perfect foresight in financial markets?
Speaker 4 (44:42):
Perfect foresight.
Speaker 5 (44:43):
And of course you can do a study like that
by using historical data. So you take stocks, bonds, real estate, commodities,
every asset class and you just look at the historical
returns and you can say, let's say at the beginning
of every year, I invest with a five year horizon,
and I pick the asset class that I know with
(45:03):
metaphysical certitude is going to have the highest return for
those five years.
Speaker 4 (45:07):
Because I'm looking.
Speaker 5 (45:08):
At historical data, I came to the conclusion that if
you had a five year horizon, you would go out
of business, even if though with physical certitude would have
the highest performing asset class. And that's because so often
the first two years of the five years, that best
performing asset class was not a good performer at all.
(45:29):
It was very frequently back end loaded. So I said,
we cannot invest other people's money with a five year horizon.
I think that most people that invest other people's money
use too short of a horizon. However, a lot of
investment managers talk about they have they're constantly reallocating, they're
constantly read. You know, they have one week horizon at
(45:51):
a weekly meeting, and the change of that's not going
to work. It's not going to work because the chance
of you being right in a week is very low.
Even if you're going to be right for over a
two year period, your chance of being right in a
week is very low. So I kept modulating time horizon,
and I came to conclusion that the sweet spot was
(46:11):
between eighteen months and two.
Speaker 4 (46:13):
Years for a time horizon. And what I've learned is.
Speaker 5 (46:17):
That having done that, I've have a seventy percent hit rate.
I've had a long enough career in enough strategies where
it's statistically significant, and i have a seventy percent hit rate,
which means I'm right seventy percent of the time, which
means I'm wrong thirty percent of the time. So I've
been at this for over forty years. So I've been
wrong for more than twelve years right, But thank god
(46:39):
they haven't been in a row. Because what you can't
do is really three years is wheneverone pulls the plug
if you're wrong, if you are to perform year one,
year two, and year three, you're gone. You know, if
you're wrong five years in a row, they shut your
janus on constrained bond fund because you can't have sequentially
(47:00):
years about performance.
Speaker 2 (47:01):
Like a very specific example, Jeff, I wonder where that
came from.
Speaker 5 (47:04):
Well, yeah, so, but the the so really it comes
down to about having.
Speaker 4 (47:13):
The sweet spot.
Speaker 5 (47:14):
I'm not being overly overly active and not being overly
you know, fixated on your long term idea. And I've
managed I've managed to do that. I've never I've never
really had three years in a row of under performance. So, uh,
that's that's been a good thing. And that's probably I
call myself. Is it uncas or Chinnich Cook who is
(47:35):
the last of the Mohicans? And John Van Moore Cooper.
I'm the last one. I'm the last man standing when
I started in this every single person of significance that's
been in the business since I started my career, they're
all retired or gone.
Speaker 4 (47:48):
I'm the last one standing.
Speaker 5 (47:49):
Dana Emery was the only one left and she was
at Dodging Cox, but she retired at the end of June.
Speaker 4 (47:55):
So I'm I'm uncas last of the Mohicans.
Speaker 2 (47:59):
Jeff, does that work? Jeff gun Kiss kind of very quickly.
You know, again, we're sort of we're very we're being
very introspective and retrospective on the show. But over the
past ten years, what's been the thing that surprised you most,
either in terms of the markets or the financial industry itself.
Speaker 4 (48:24):
I think the.
Speaker 5 (48:26):
Thing that's surprising, and as he believed, distressing is surprising
is the magnitude of money printing that occurred in twenty
twenty two. I just the fact that the Federal Reserve
broke the law and bought corporate bonds surprised me. It
(48:50):
probably shouldn't have surprised me because they broke They broke
the law when they modified mortgages during the global financial crisis.
Was that was not allowed for the perspectuses of trillions
of dollars of securities, but they did it anyway. And
so what I've learned is that the rules can be
changed in spite of the fact that they seem to
(49:13):
be set in Stone. And that's why I say and
when I say this, people really act very in a
shocked type of reaction. They don't believe that they can
restructure the treasury debt. But yes they can. They can
restructure the treasury debt. And I think that that sort
of has to happen in some fashion, whether it's the
(49:35):
coupon adjustment that I talked about, whether it's whether it's
doing the ueal care of control that Joel brought up earlier.
I think something like that has got to happen. Because
when something is impossible and paying our interest back in
today's buying power dollar is impossible, to pay off our debt,
it's impossible, then you have to open up your mind
(49:57):
to a radical change in the rules system. And of
course that is happening on every level. I mean, you
talk to you look at surveys of people that are
say thirty five and younger. They don't believe in the
institutions of this country at all. They don't believe in
the constitution, they don't believe in religion, they don't believe they.
Speaker 4 (50:16):
Don't believe in anything.
Speaker 5 (50:18):
And if they need, people need something to believe in,
and that's what has to replace the system, a system
that people can believe in.
Speaker 4 (50:25):
And what's being floated now just blows my mind, and.
Speaker 5 (50:28):
That is that we're going to because we have tariffs
that are raising a few hundred billion dollars a year
if they stay in place, well, that means that we
should give two thousand dollars to everybody as a tariff dividend.
We don't have any money. We're borrowing two trillion dollars.
We don't have two thousand dollars.
Speaker 4 (50:46):
To throw away at people.
Speaker 5 (50:47):
Again, didn't we learn that in twenty twenty to twenty
twenty two that giving money to people causes inflation?
Speaker 4 (50:54):
Remember people talking about modern monetary theory? What a joke?
Speaker 5 (50:58):
You know, you never had anybody talk about that anymore
because by modern military theory?
Speaker 2 (51:03):
How can no one talks about that.
Speaker 4 (51:06):
Because of inflation? What's a nine point one person?
Speaker 3 (51:09):
Can I ask one last question? Are you like it
seemed like, you know, you mentioned Trump floating the idea
of a two thousand dollars tariff dividend to the public,
But do you like are you was there an opportunity
in your view for Trump to have changed the status?
Quote like, are you disappointed that someone with sort of
Trump's persona energy, sort of perceived outsider status, did not
(51:33):
do has not done anything that actually changes some of
whether the fiscal or economic trajectory.
Speaker 4 (51:42):
He can't. The problem is, look at look at this
government shutdown. You know what is going on here?
Speaker 5 (51:51):
Why why do we have to pay taxes if the
government is shut should taxes not be charged for one days?
Shouldn't you have life an eleven percent tax rebate? Because
what's going on? Well, it's just because there's this massive
entrenched interest that is the kind of the uniparty government
(52:13):
that will fight tooth and nail. Just look at all
the lawfare at look at all the indictments, all the stuff.
I mean, they'll do anything they can to hold on
to power until such time as the people that vote
these people in say no, mass, no more of this.
And that began with Trump. It's been furthered just this
(52:37):
month with Mam Donnie Man. Donnie won because people do
not believe it's a little bit different.
Speaker 4 (52:43):
Well, Trump was more like the lower middle class. They
felt that nobody was listening to them.
Speaker 5 (52:49):
Now it's just young people, just broadly, people under I
don't know, thirty five years old, people that lost three
years of education with lockdowns and all these policies. They
feel like they have no chance of ever having the
life experience that the baby boomers had. Home prices are
more affordable, less affordable than they've ever been. People have
(53:14):
educations that aren't worth anything, jobs aren't available, nobody's hiring.
They feel like there's no future for them that looks
anything like what they look at Nancy Pelosi and Chuck
Schumer and Mitch McConnell and all these other people had.
They don't have it, and so they are not going
to go along with this. And so that's why Mount
Dombi one. It's just like, I don't have a shot
(53:35):
here in New York City as a young person, and
that's what's taking over, and so Trump can't do it himself.
He's caught on to something that was obviously kind of
hibernating within the psyche of part of the population, but
it's now become a generational thing. I wouldn't be surprised
(53:56):
talk about another crazy gunlock idea. I wouldn't be surprised
if are putting in place an age tax, not a
wealth tax, which they're doing to a certain extent through
electricity bills and stuff like that these days already, but
you could put it together an age tax that if
you're over age fifty five, you have a cer tax
based upon you had a better environment to accumulate wealth
(54:20):
than the subsequent generations have, and so you should give
some of that back.
Speaker 4 (54:26):
I think that might actually happen.
Speaker 2 (54:27):
That would be a popular platform with certainly a specific demographic.
Speaker 5 (54:32):
Are you going to run, Jeff positively?
Speaker 4 (54:35):
No? No chance? All right, absolutely no chance.
Speaker 1 (54:39):
All right.
Speaker 2 (54:39):
We shall leave it there, Jeff, thank you so much
for coming on.
Speaker 1 (54:42):
All thoughts.
Speaker 2 (54:42):
Really appreciate it.
Speaker 4 (54:44):
Well, thanks for having me on. I'm you're kind of
all over the map today, but I hope your audience.
Speaker 2 (54:48):
Insurator clearly a lot to unpack their Joe one of
the things. Actually this was towards the end, so that's
why it's in my mind. But you know, when he
was talking about the FED buying corporate bonds in twenty twenty,
(55:11):
I really think that was an underappreciated moment in financial
markets because I remember, again we're being very introspective here.
I remember writing pieces about the corporate bond market being
problematic in like circa twenty fifteen. Yeah, and I used
to have commenters who were like, Okay, so what's the
worst case scenario. And the most extreme scenario that we
(55:32):
used to talk about was, well, what if the FED
has to come in and buy corporate bonds? That was
the extreme scenario, and that's what happened in twenty twenty.
So I kind of I take his point about how
quickly these things can change and you can deviate from
norms totally.
Speaker 3 (55:48):
Remember we interviewed Bill Gross on the Beach a couple
of years ago and he called out Jeff for like
being the pretend bond king. Anyway, I liked Jeff returning
the favor by pointing out the short lived, the short
lived Janis on Constrained fund that Bill ran after having
left Kim KOs So, I see that the rivalry.
Speaker 2 (56:07):
The rivalry continues. Yeah, we should have them both on
and just let them do get.
Speaker 3 (56:12):
Just let them seriously, it's like, just do it. Yeah,
just both come on. People would love that.
Speaker 2 (56:17):
Oh I'm sure, I'm sure that would raise.
Speaker 3 (56:19):
Some money for charity or something.
Speaker 2 (56:22):
Okay, Jeff, if you are still listening, and Bill, if
you are listening, we should put pretend bond King in
the headline and maybe lure him on open invitation to
come on all bots and debate, but on a serious note,
more serious note. The other thing I was thinking about
was when it comes to private credit. Yeah, I thought
(56:42):
the point about how everyone's been piling into private credit
because it's outperformed public credit. That is changing now, you
know empirically that has changed this year. But then secondly,
everyone's been piling into private credit because of that low
volatility pitch, which is one that we've heard a number
of times on the podcast. Now, this idea that well,
you don't have to market to market, and that's actually
(57:03):
a big strength that sales pitch starts to lose a
lot of power and conviction when you're going from one
hundred to zero in the space of a month.
Speaker 3 (57:12):
I don't like how there are new ones like every day. Yeah,
I'm saying it's like each one of these little credit
cockroaches are pretty small in the grand scheme of things.
Speaker 4 (57:21):
But two things.
Speaker 3 (57:22):
A they're small, and yet they seem to be touching
a wide number. And I don't like how they keep popping.
Speaker 5 (57:28):
Right.
Speaker 3 (57:28):
I'm a little I'm a little ancient.
Speaker 2 (57:30):
Right, because you think the scale is small, but then
it just keeps well. This is also why why the
cockroach analogy is so perfect, right, because if you see one,
you know you have more than one.
Speaker 4 (57:40):
Yeah.
Speaker 2 (57:41):
I once read an entire book about cockroaches just because
I figured, like, know your enemy in New York, and
it was actually really interesting. Shall we leave it there,
Let's leave it there. Okay, this has been another episode
of the Authoughts podcast. I'm Tracy Alloway. You can follow
me at Tracy Alloway and.
Speaker 3 (57:58):
I'm Jill Why isnt Thal? You can follow me at
the Stalwart. Follow our guest Jeffrey Gunlock. He's at Truth Gunlock.
Follow our producers Kerman Rodriguez at Kerman Ermann, Dashel Bennett
at Dashbot, and Keil Brooks at Keil Brooks. For more
Oddlows content, go to Bloomberg dot com slash od Lots
with the daily newsletter and all of our episodes, and
you can chat about all of these topics twenty four
(58:18):
to seven in our discord Discord dot gg slash od lots.
Speaker 2 (58:23):
And if you enjoy odd Lots, if you want Jeff
Gunlock and Bill Groves to duke it out on the podcast,
then I should say proverbially, not literally, then please leave
us a positive review on your favorite podcast platform. And remember,
if you are a Bloomberg subscriber, you can listen to
all of our episodes absolutely ad free. All you need
to do is find the Bloomberg channel on Apple Podcasts
(58:43):
and follow the instructions there. Thanks for listening in
Hosts And Creators
Joe Weisenthal
Tracy Alloway
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