Live from Las Vegas, host Ryan Nauman welcomes DoubleLine Deputy CIO Jeffrey Sherman to discuss the macro backdrop and portfolio implications. Sherman outlines DoubleLine’s fixed-income focus and multi-wrapper approach across mutual funds, ETFs, and separate accounts. They cover the new Fed chair pick Kevin Warsh, Fed independence, the tension between inflation and employment, and the challenge of financing large U.S. deficits and Treasury rollover needs. Sherman explains why 10-year yields rose during the war amid a repricing of inflation risk, why the Fed’s threshold for cuts has increased, and why he prefers the front end and belly of the curve over long bonds. They discuss tight credit spreads, risks emerging in loans/private credit, agency MBS opportunities and Fannie/Freddie uncertainty, the attractiveness of emerging markets as a way to bet against the dollar, and the role of gold in diversified portfolios.

Zephyr can help financial advisors create modern diversified portfolios. Learn more here.

Learn more about DoubleLine here.

00:40 Walkup Music Banter

01:00 Live From ETF Exchange

01:23 Meet Jeffrey Sherman

01:41 Tahoe Small Talk

03:05 DoubleLine Overview

05:35 Macro Crosscurrents Fed

07:34 New Fed Chair Risks

10:52 Fed Independence Debt

13:21 Why Yields Rose

18:12 Credit Spreads Check

22:14 What Widens Spreads

23:15 Oil and Credit Spreads

24:47 Duration Strategy Today

27:28 Curve Positioning Playbook

28:35 Agency MBS Opportunity

30:51 Fannie Freddie Overhang

35:47 EM Debt as Dollar Hedge

38:32 Advisor Portfolio Takeaways

40:59 Gold and Dollar Outlook

41:44 Tahoe Banter and Wrap

Connect with Ryan Nauman: LinkedIn

Welcome to the Adjusted for Risk Podcast.

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Join myself, Brian Nauman as I

talk market investments economic.

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Let's get started in life as I help

prepare you for the upcoming in markets.

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I work for Zephyr in all

of Queens Express by.

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Self in my podcast, guests are

solely of their own opinions and do

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not reflect the opinion of Zephyr

or Informa its parents company.

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This podcast is for information

and purposes only and should not be

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relied on for investment decisions.

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Let's go.

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Jeffrey, you like that walkup music?

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I mean, that was amazing.

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That was amazing.

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Did everybody else get to

hear it or is it just me?

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Yeah, I, I hope everyone did be.

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I it took a lot of time trying

to pick that walkup song up.

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Well, the thing is, is that, uh, I

always have walkup music in my head,

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so I wasn't sure if it, I created that

and sourced it, or if it was from you.

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Yeah.

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So I, I, it was a good choice.

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Good.

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Good, good.

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Welcome everyone to zephyr's

Adjusted Forest podcast.

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We are on site at Exchange ETF conference

in Las Vegas, and I tell you I'm really

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happy that we've, uh, we've scheduled

this podcast outside at 11 in the

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morning before it gets really hot.

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That's a beautiful day.

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Perfect timing.

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We got, we got some fake plants behind

us and we got some real palm trees

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in front of us, so it's looking good.

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It's fantastic.

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Um, with me, Jeffrey, you don't

really need an introduction, but with

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me is one of the keynote speakers

of the event, Jeffrey Sherman.

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Uh, Jeffrey, thank you so much

for coming back on the show.

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We.

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At this event last year.

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That's right.

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Great conversation.

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Honor to have you back on.

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Normally when I open up the

podcast, say we're, you know,

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live on the shores of Lake Tahoe.

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We are not in Lake Tahoe today.

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No.

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No Dondo.

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No Dondo.

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You're not, yeah.

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You, uh, you have some connections at ta.

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Uh, yeah.

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Uh, my parents, uh, used to live up there.

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Um, you know, so I, I spent many,

uh, summers up there as well.

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And, um, as I get older, I, I don't

like the, the cold weather as much.

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Yeah.

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But, but, um, I don't think

there's a better lake in the entire

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country up than, than Lake Tahoe.

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Yeah.

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Yeah.

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Uh.

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I am a little biased, a little biased

since I lived there, but, uh, I agree.

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Yeah.

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I, although, although we could use some

snow, Jeffrey, uh, 70 degrees this week.

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Yeah.

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Wow.

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That's pretty amazing.

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Well, there's the heat wave

going through California.

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Yeah.

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Uh, when I drove back from the

office on Thursday, it was like

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97 going through the valley.

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So, um, I guess the rest of the, the

rest of the country's gonna have any,

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any sympathy for us at all though.

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Yeah, they, they can have, they

can have the snow that's, uh.

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Ripping across the

country in those storms.

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Thank you again for coming on.

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It's an honor to have you on.

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Really excited.

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So much to talk about.

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So much to talk about.

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You know, like I said, LA we

spoke last year, same event.

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I think last year we

had the liberation day.

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Ah, to talk about.

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Yeah.

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Now we've got the conflict that

feels as if, you know, things

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have changed, but then maybe

they haven't changed a whole lot.

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Yeah.

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End of year.

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Um, but let's just start.

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Jeffrey, you're the deputy, uh, CIO,

chief Investment Officer at Double Line.

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Tell us a little bit

more about Double Line.

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Um, we're a Los Angeles based, um,

uh, investment management firm.

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We run just shy of a

hundred billion dollars.

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Um, we focus on institutional

and wealth management clients,

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so we have separate accounts.

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We run mutual funds ETFs.

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Shocking.

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We're at the ETF conference, right?

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Um, we run UIDs.

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We have an international business.

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Um, you know, we think of ourselves

as a, a full service investment firm

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with a heavy focus on fixed income.

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And that's, uh, that's one

of our specialties out there.

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And, uh, you know, we just look to

provide solutions to clients and,

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you know, we, we've always been

agnostic to what wrapper you use.

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Meaning do you buy in

a fund, a mutual fund?

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Do you buy in ETFA use it?

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It's just bringing our investment

acumen and expertise mm-hmm.

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Uh, to however people want

to access the product.

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And so, um, you know,

with the kind of, um.

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I would say the amount of growth in

the ETF industry, you can't ignore it.

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Um, but we've also not just

started an ETF business.

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We've been running actively

managed ETFs for over 10 years now.

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Um, a couple of them under spider brand,

uh, spider double line, uh, whether

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that's total return tactical or, you know,

our, our shorter duration product there.

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Um, so we have a, a lot of experience

in the ETF wrapper as well.

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Mm-hmm.

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And then, uh, four, four years ago.

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We launched our own ETF complex as well.

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So, um, we just, we kind of go to where

the markets are moving and where people

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want product and, um, you know, we, we

build products that we wanna invest in

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ourselves and hopefully, you know, that's

what other people, uh, see as well.

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So.

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Um, you know, it's continuing to grow

and, um, we're excited about, um, you

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know, just the opportunity out there.

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Yeah.

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I feel as if that's so important, Jeffrey.

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Like, I don't want to invest

in a product that the manager

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doesn't wanna invest alongside me.

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Yeah.

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Well I always, I always joke 'cause we get

a lot of things where clients will say,

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well, is this your best ideas portfolio?

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And I'm like, of course we, we

don't run a bad idea portfolio.

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Right.

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It may be bad, it may be bad, it may,

it may be a bad idea, but we didn't

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think it was a bad idea portfolio.

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Right.

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So.

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At the end of the day, we, we

have, we're bringing the same

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process to each of our products.

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It just depends on what's the parameters,

the guidelines, the, you know,

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constraints we have there and how it's

supposed to behave through a cycle.

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But in general.

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Regardless of the product you're

getting from us, you're getting the

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same type of thinking, the same folks

that are making those decisions as well.

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Mm-hmm.

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No, that's fantastic.

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I love that.

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Yeah.

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The best, the best product, best ideas.

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Well, of course they're

gonna be great ideas.

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I love it.

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So let's, let's start

on the macro level here.

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Uh, there's a lot to contend with.

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We've got a new Fed

chairman, we've got the war.

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Conflict and Iran, however

you want to say it.

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I think once you've roped in

12 or 13 countries, it's no

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longer a skirmish or a conflict.

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I think you kind of

gotta use the war word.

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So we can use the war.

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That three letter word, we can use it.

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Okay.

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Um, labor market supply,

demand has softened.

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Inflation is cool, but

it remains sticky here.

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So, but with that, economic

growth remains solid.

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Um, right now, how do you shift

through all this macro noise, this

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macro environment, and is there one

item that you're really focusing on?

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Well, that's a, that is a lot.

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Um, so from, from the standpoint

of the Fed, don't forget that

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they don't forecast growth.

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They do put in their forecast, but

their mandate has nothing to do with.

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Growth in the economy.

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So they focus on two things.

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The inflation, they

call it price stability.

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I call it that they only wanna

steal 2% of your money a year.

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Uh, that's what the inflation is.

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And I, I love the planes overhead.

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It makes us feel like we're at home.

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Um, but, but, um, but the thing is,

and then, and they always have a focus

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on what they call full employment.

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And so those two signals are the two

things that they're trying to, that are

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at the core of the central, their mandate.

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Are in conflict with each other right now.

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So that's actually a conflict.

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It's, it's not a war between,

it's not a, it's not a war

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between labor and inflation.

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It's a conflict.

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But, so what you have is, you, you

mentioned the softening and definitely the

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demand side of labor had been softening.

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Um, and, but the other thing that's

happened over the last years is we've had

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a softening of labor supply, meaning that,

you know, we have fewer people working.

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And the last jobs report was a

little tough because the, the

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participation rate, labor participation

rate went down meaningfully.

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It went down like 40 basis

points, which you don't typically

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see in a month to month.

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So I wonder if there's

some noise in there.

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But remember, we we're still kind of

giving the, the, the pullback from the

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government shutdown, you know, um, we

still have some of those things out

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there, but the Fed chairperson, it's,

it's, it's a really interesting pick to

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have wars because wars, if you go off his

voting track record and his vocalization

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of policy, he seems to be antithesis of

what Donald Trump wants of cutting rates.

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Now, obviously to get the job, you had

to at least tell him that at one point.

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So I'm sure that happened somewhere.

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But you know, he, he's, he's

historically been a bit of an

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inflation hawk, meaning that he has

a higher keener eye on, on inflation,

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but also he's a balance sheet hawk.

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He hates the size of

the Fed's balance sheet.

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And if his objective is to reduce

the size of the balance sheet,

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that's not helping monetary pay.

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That's a tightening of policy.

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Mm-hmm.

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And so someone has to buy

those treasuries is the point.

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So.

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I think that it's an interesting

pick from the standpoint that

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I think he's qualified for.

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Sure.

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Uh, I, I think he's a good pick, but

we'll have to see how, how he behaves.

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And I say that because when you

get into like the Trump orbit, you

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just, you can't extrapolate how

people have behaved in the past.

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Yeah.

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He tends to have this,

this power over people.

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So I think it'll be interesting to

watch his first press conference.

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I'm gonna go out on a limb here

and say it's not gonna go well.

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It's not gonna go well.

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'cause the reporters are armed to the

teeth and he's not used to that forum yet.

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Yeah.

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He'll get he'll, he'll,

he'll get into the job.

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But he's only one person.

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And I, I, that's what I want to come

back to is that so much is made of the

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Fed chairperson because we've kind of

made them these mythical creatures,

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you know, starting a Greenspan,

who's called the Maestro, right?

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Uh, everyone subsequent to Volker

has been in this kind of world of.

228

00:09:15,345 --> 00:09:17,955

Really getting the, the consensus, right.

229

00:09:17,955 --> 00:09:22,185

He's a, the, the chairperson is

a consensus builder, and what

230

00:09:22,185 --> 00:09:25,485

you have inside the Fed today

is a lot of divisive opinion.

231

00:09:25,755 --> 00:09:25,965

Mm-hmm.

232

00:09:26,205 --> 00:09:28,995

I would say there's probably

more hawkish behavior than

233

00:09:28,995 --> 00:09:30,345

there's more dovish behavior.

234

00:09:30,585 --> 00:09:33,105

You know, you have your Miron on

one side and you know you're gonna

235

00:09:33,105 --> 00:09:34,155

have GULs be on the other side.

236

00:09:34,245 --> 00:09:35,715

You're always gonna

have this kind of pool.

237

00:09:36,074 --> 00:09:37,270

But the thing is, is that.

238

00:09:38,160 --> 00:09:41,130

Even warsh himself can't

flip the vote right now.

239

00:09:41,699 --> 00:09:44,430

And so to me, that's what I

think the market's gonna watch.

240

00:09:44,430 --> 00:09:46,829

And I think with this

announcement, you see it out there.

241

00:09:46,829 --> 00:09:48,150

The markets have been well-behaved.

242

00:09:48,360 --> 00:09:51,449

It's not a bad pick, it's just

we don't know what it'll be.

243

00:09:51,810 --> 00:09:55,110

And remember we got him for a long time

now Once, once he gets confirmed, right?

244

00:09:55,110 --> 00:09:55,319

Yeah.

245

00:09:55,380 --> 00:09:58,980

And so this isn't just a Trump thing, it's

the next administration, the next as well.

246

00:09:58,980 --> 00:10:00,689

So I, I think it's a good pick.

247

00:10:00,689 --> 00:10:03,449

I just don't know what to,

what to make of it, because.

248

00:10:03,795 --> 00:10:07,635

Of the uncertainty around, I know

know the one criterion for the job

249

00:10:07,635 --> 00:10:09,075

was you have to lower interest rates.

250

00:10:09,285 --> 00:10:09,435

Yeah.

251

00:10:09,465 --> 00:10:12,045

But it flies right in the face

of unwinding the balance sheet.

252

00:10:12,195 --> 00:10:12,495

Right.

253

00:10:12,735 --> 00:10:16,455

But you could also argue that maybe

you do both and then we have a

254

00:10:16,455 --> 00:10:18,525

neutralist policy because of it.

255

00:10:19,005 --> 00:10:20,025

But then why are you doing it?

256

00:10:20,025 --> 00:10:20,265

You know?

257

00:10:20,265 --> 00:10:20,685

I don't know.

258

00:10:20,685 --> 00:10:20,775

Mm-hmm.

259

00:10:21,105 --> 00:10:25,275

So, um, I, I, my, my, my, my

verdict is, is yet to be rendered.

260

00:10:25,574 --> 00:10:27,165

And I'll watch him, uh, on the job.

261

00:10:27,704 --> 00:10:29,685

Yeah, no, that's a great point, Jeffrey.

262

00:10:29,685 --> 00:10:34,635

And for, you know, it obviously made

headlines that week that it was announced,

263

00:10:34,635 --> 00:10:39,194

but I feel as if maybe it just hasn't been

talked a lot about, you know, there's a

264

00:10:39,194 --> 00:10:45,189

lot else to talk about right now, but it,

it's maybe more should be considered in

265

00:10:45,194 --> 00:10:49,545

it or, yeah, I, I think what's the, the,

the worst, or, or the thing that gives

266

00:10:49,545 --> 00:10:51,944

me the most concern about it is the.

267

00:10:52,320 --> 00:10:56,700

What Kevin War said about wanting

to work more closely with treasury,

268

00:10:57,480 --> 00:11:02,490

and that reeks of a little bit of,

of softening the independence there.

269

00:11:02,490 --> 00:11:02,790

Right.

270

00:11:03,150 --> 00:11:05,190

And I understand you

have to work with them.

271

00:11:05,190 --> 00:11:07,230

They're issuing the treasury,

you gotta figure stuff out.

272

00:11:07,230 --> 00:11:10,620

You gotta get your liability management

exercise under, under control.

273

00:11:10,950 --> 00:11:14,580

But are we gonna lower interest rates

because we're spending so much money?

274

00:11:15,150 --> 00:11:16,230

Is that the Fed's job?

275

00:11:16,230 --> 00:11:16,320

Mm-hmm.

276

00:11:16,560 --> 00:11:17,310

It's really not.

277

00:11:17,610 --> 00:11:19,980

You know, the, the Fed's

job is to the, the, the dual

278

00:11:19,980 --> 00:11:20,850

mandate we just talked about.

279

00:11:21,480 --> 00:11:24,030

So when I come back and look at

that, you know, we've been talking

280

00:11:24,030 --> 00:11:25,709

about fed independence as at risk.

281

00:11:26,130 --> 00:11:28,890

That's the one thing I don't think

that's been picked up enough on yet.

282

00:11:29,310 --> 00:11:30,750

Um, and we'll see how it works.

283

00:11:30,780 --> 00:11:33,000

We'll, we'll just, we'll totally

see how it works over time.

284

00:11:33,420 --> 00:11:36,569

But, you know, it's, it's a

challenge because, look, we have

285

00:11:36,569 --> 00:11:39,300

$10 trillion of treasuries have

to be financed in the next year.

286

00:11:39,720 --> 00:11:39,990

Right.

287

00:11:39,990 --> 00:11:40,620

In the next year.

288

00:11:40,620 --> 00:11:44,640

That's what's rolling off of just

treasury, maturation schedule, and

289

00:11:45,090 --> 00:11:46,260

it's gotta be financed somewhere.

290

00:11:46,290 --> 00:11:46,530

Yeah.

291

00:11:46,590 --> 00:11:48,990

Not to mention that if you

look at, you know, the CBO

292

00:11:48,990 --> 00:11:50,340

estimates came out last week.

293

00:11:51,030 --> 00:11:53,970

It said the first five

months we spent $1.05

294

00:11:53,970 --> 00:11:54,870

trillion.

295

00:11:55,290 --> 00:11:57,690

That's our deficit for the

first five months of the year.

296

00:11:57,990 --> 00:12:00,660

And that has no war budget in it.

297

00:12:00,690 --> 00:12:01,050

Right.

298

00:12:01,290 --> 00:12:02,550

So I gotta think it's going up.

299

00:12:02,610 --> 00:12:03,030

Right.

300

00:12:03,300 --> 00:12:07,680

So we have a lot of challenges here too,

and the Fed has to contend with this

301

00:12:07,680 --> 00:12:09,120

as well when they're thinking about it.

302

00:12:09,120 --> 00:12:12,990

If we're spending this money and

we're providing so many treasuries,

303

00:12:13,380 --> 00:12:14,850

they also gotta find buyers.

304

00:12:15,180 --> 00:12:15,480

So.

305

00:12:15,720 --> 00:12:18,735

If they want to unwind the balance

sheet, you need buyers, but we also

306

00:12:18,735 --> 00:12:22,035

just have this natural, we need an extra

trillion every five months right now.

307

00:12:22,365 --> 00:12:24,555

So it, it's a, it's a

tough situation, Ryan.

308

00:12:24,555 --> 00:12:27,945

I mean, when I, when I look at

it, and so look, I, I think the,

309

00:12:27,945 --> 00:12:30,285

those that are at the Fed, they're

gonna do the best they can.

310

00:12:30,555 --> 00:12:33,315

We give 'em a lot of crap because,

you know, it's, it's, our job is

311

00:12:33,315 --> 00:12:34,935

to criticize everybody else, right?

312

00:12:34,935 --> 00:12:36,855

Don't, don't criticize yourself,

criticize everybody else.

313

00:12:37,215 --> 00:12:40,695

But I, I think that when it really

comes back down to it, I think

314

00:12:40,815 --> 00:12:41,775

they're gonna do the right thing.

315

00:12:42,315 --> 00:12:45,855

And, you know, I, I don't

think Kevin Walsh is being a, a

316

00:12:45,855 --> 00:12:47,565

political pawn in this right now.

317

00:12:47,925 --> 00:12:52,035

Um, but we'll see, you know, again, I,

I reserve judgment until we get a couple

318

00:12:52,035 --> 00:12:55,665

meetings under our belt and we'll see how

he leads the Fed, assuming confirmation.

319

00:12:55,755 --> 00:12:57,465

Yeah, no, that's great Jeffrey.

320

00:12:57,465 --> 00:13:00,975

A lot of times when I talk to

my guests, I, I was like, I want

321

00:13:00,975 --> 00:13:02,895

the conversation to be very raw.

322

00:13:03,255 --> 00:13:06,345

A conversation like we're

sitting at a pub, having a beer

323

00:13:06,855 --> 00:13:08,655

with the airplanes flying over.

324

00:13:08,715 --> 00:13:08,865

Yeah.

325

00:13:08,895 --> 00:13:11,415

It gives us that raw

feeling of conversation.

326

00:13:11,415 --> 00:13:11,865

I love it.

327

00:13:11,895 --> 00:13:14,280

Well, in fairness, we only have

water, so we need to bring the, uh,

328

00:13:15,765 --> 00:13:18,885

uh, maybe we ask exchange next year.

329

00:13:18,885 --> 00:13:19,155

Yeah.

330

00:13:19,425 --> 00:13:21,345

For, for some cocktails out here.

331

00:13:21,855 --> 00:13:24,880

Um, let's talk about yields real quickly.

332

00:13:26,415 --> 00:13:29,895

Before the conf, before the

war started yield 10 year

333

00:13:29,895 --> 00:13:31,245

treasury yields fell below four.

334

00:13:32,655 --> 00:13:34,844

Wars started now they're, what are they?

335

00:13:34,844 --> 00:13:37,875

Four, 400, almost four 30 basis points.

336

00:13:37,875 --> 00:13:39,314

I think I lost checked.

337

00:13:40,064 --> 00:13:41,564

Is that counterintuitive?

338

00:13:41,655 --> 00:13:46,785

What does that signate To me, I think a

flight to safety yield should come down

339

00:13:46,785 --> 00:13:49,755

during this war, but that's not the case.

340

00:13:50,564 --> 00:13:52,964

I think it's the market is saying

that there's this, there's gonna be

341

00:13:52,964 --> 00:13:54,314

short term inflationary pressure.

342

00:13:54,915 --> 00:13:58,074

Um, and you, you still don't, we don't

know the length of this war either.

343

00:13:58,875 --> 00:14:04,035

And, uh, I think that's the, the bigger

variable here is that do we have $90 oil

344

00:14:04,035 --> 00:14:06,195

price, you know, for the next six months?

345

00:14:06,315 --> 00:14:08,745

You know, obviously it's bouncing

around a lot right now, so

346

00:14:08,775 --> 00:14:10,155

there is no stability there.

347

00:14:10,605 --> 00:14:14,295

But that's essentially, that's

how the market corrects itself.

348

00:14:14,655 --> 00:14:16,755

Um, the cure for high

prices is high prices.

349

00:14:16,755 --> 00:14:20,295

You're trying to discourage demand right

at the end of the day and consumption.

350

00:14:21,120 --> 00:14:25,380

I, I think what you're seeing in the, the

rates market over the short term has been

351

00:14:25,439 --> 00:14:27,210

a repricing of the inflation premium.

352

00:14:27,450 --> 00:14:28,620

That's what it comes down to.

353

00:14:28,740 --> 00:14:28,770

Okay.

354

00:14:28,920 --> 00:14:30,780

And you'll say, well,

it's only 20 basis points.

355

00:14:30,780 --> 00:14:31,020

Yeah.

356

00:14:31,020 --> 00:14:33,780

'cause it's, it's probably, we

get inflation, maybe we get an

357

00:14:33,780 --> 00:14:37,110

extra one, one and a half percent

inflation this year because of it.

358

00:14:37,110 --> 00:14:39,240

Again, no one really knows,

'cause we don't know where the

359

00:14:39,240 --> 00:14:40,740

path of oil is going right now.

360

00:14:41,130 --> 00:14:44,819

But, you know, so when you start to price

that through, it kind of makes some sense.

361

00:14:45,150 --> 00:14:49,500

By the way, you know, you're referencing a

data point of saying right before the war.

362

00:14:49,859 --> 00:14:51,930

We were at the very low end

of the range right then too.

363

00:14:52,410 --> 00:14:56,219

So I, I think when you, when you

look back and you go back to, let's

364

00:14:56,219 --> 00:14:59,790

just say September of last year,

the 10 year treasury's been in like

365

00:14:59,790 --> 00:15:03,780

a 50 basis point range, and the

low end's been like three 80 ish.

366

00:15:03,810 --> 00:15:05,040

The high end's like four 30.

367

00:15:05,459 --> 00:15:06,390

That's where we've been.

368

00:15:06,810 --> 00:15:08,069

And so where are you today?

369

00:15:08,189 --> 00:15:09,869

You're kind of at the

higher end of the range.

370

00:15:09,900 --> 00:15:14,369

So I don't think it's uncanny to see

rates go up a little bit because of this.

371

00:15:14,640 --> 00:15:18,329

And then, you know, probably you're

talking about financing the war, right?

372

00:15:18,329 --> 00:15:19,020

It's expensive.

373

00:15:19,410 --> 00:15:21,510

So that's probably part of it too.

374

00:15:21,510 --> 00:15:24,450

That means there's more interest,

there's more treasuries, and so

375

00:15:24,450 --> 00:15:25,710

I think some of that's there.

376

00:15:25,980 --> 00:15:29,010

So the flight to quality trade,

you've seen it, you've seen it go

377

00:15:29,010 --> 00:15:32,370

into like Swiss Franc, you've seen a

little bit in Japanese yen, but you

378

00:15:32,370 --> 00:15:35,250

haven't a lot because of the pain

that you've seen in Japan this year.

379

00:15:35,610 --> 00:15:38,520

So I, I think the, the

traditional havens have worked.

380

00:15:38,520 --> 00:15:39,090

Okay.

381

00:15:39,450 --> 00:15:43,380

But the question is, are treasury

still a safe haven asset?

382

00:15:43,740 --> 00:15:45,180

And I still say it depends.

383

00:15:45,570 --> 00:15:45,960

Right.

384

00:15:45,960 --> 00:15:52,320

And if, if we're just doing a, a, you

know, an un uh, I don't know, probably the

385

00:15:52,320 --> 00:15:55,530

best way to say, if, if we're just gonna

go out and spend money and get nothing out

386

00:15:55,530 --> 00:15:57,960

of it, then yield should be higher, right?

387

00:15:57,960 --> 00:16:02,970

It's not a productive, societal,

productive kind of, um, kicker to GDP.

388

00:16:02,970 --> 00:16:06,060

So anyway, I think that's what

the market's pricing and you've

389

00:16:06,060 --> 00:16:09,210

definitely pulled a rate cut out of,

out of the market, uh, this year.

390

00:16:09,300 --> 00:16:11,940

In fact, last week we got down

to where there was only, it was

391

00:16:11,940 --> 00:16:14,310

under one cut for the year and.

392

00:16:14,970 --> 00:16:17,340

It kind of feels right, and I, I

don't think that the Fed should

393

00:16:17,340 --> 00:16:18,840

hike because there's inflation.

394

00:16:18,870 --> 00:16:21,000

This is why they strip

out commodity prices.

395

00:16:21,390 --> 00:16:25,950

But I do think that the, the threshold

for cutting got higher, right?

396

00:16:25,955 --> 00:16:25,985

Mm-hmm.

397

00:16:26,100 --> 00:16:27,870

And I think that's what

the market's realizing.

398

00:16:28,230 --> 00:16:30,210

Don't forget, Ryan, we

talked about this a year ago.

399

00:16:30,325 --> 00:16:34,170

The, the bond market's been a bully to the

Fed for the last three and a half years.

400

00:16:34,530 --> 00:16:38,760

Since, since, since j Powell said we are

done hiking rates back in September of 22.

401

00:16:39,510 --> 00:16:42,090

The bond markets try to price

cuts in every single day since

402

00:16:42,090 --> 00:16:44,070

then, and it's been wrong.

403

00:16:44,745 --> 00:16:46,245

So it's, it's materialized.

404

00:16:46,245 --> 00:16:48,285

Like, Hey, we got three cuts last year.

405

00:16:48,345 --> 00:16:50,835

We got 'em by the skin

of our teeth effectively.

406

00:16:51,225 --> 00:16:53,265

Um, and I think that's where

we are this year as well.

407

00:16:53,265 --> 00:16:55,574

I think you still have enough

positive momentum in the economy.

408

00:16:55,574 --> 00:16:57,255

It doesn't make sense to be cutting rates.

409

00:16:57,645 --> 00:17:00,645

And then we'll see how things

evolve as the year goes on.

410

00:17:01,005 --> 00:17:05,085

And look, the war is a, is a really

negative draw on people right now.

411

00:17:05,085 --> 00:17:08,895

Like it's, it hurts disposable income,

it's gonna hurt some of the growth story.

412

00:17:09,314 --> 00:17:14,023

But, you know, um, we just, markets have

a way of pricing pricing what it has to

413

00:17:14,023 --> 00:17:17,835

be, and we'll get, we'll get through it

all, but I think yields make sense here.

414

00:17:18,165 --> 00:17:20,954

Um, and I think you'll, you'll

find buyers, if, if they went up

415

00:17:20,954 --> 00:17:24,013

another 30, 50 basis points, I

think you'd find significant buyers.

416

00:17:24,345 --> 00:17:26,534

Because I think we all look

through the inflation thing.

417

00:17:26,534 --> 00:17:29,685

It's somewhat, dare I say the

word transitory, you know?

418

00:17:29,745 --> 00:17:33,165

Um, but it may be transitory from

a, I think there's a drinking game

419

00:17:33,495 --> 00:17:35,054

for that, for that, for transitory.

420

00:17:35,054 --> 00:17:35,294

Yeah.

421

00:17:35,504 --> 00:17:35,655

Yeah.

422

00:17:35,655 --> 00:17:37,485

It's, it's not as fun with water, but.

423

00:17:38,295 --> 00:17:42,615

The thing is, is that I, I do think that

we may be mired in these prices higher

424

00:17:42,615 --> 00:17:43,995

than the market's pricing right now.

425

00:17:43,995 --> 00:17:47,325

And why I say that is that

there's been a lot of disruption

426

00:17:47,325 --> 00:17:48,525

in supply of oil right now.

427

00:17:48,525 --> 00:17:52,455

This is not a, Hey, the conflict's

over tomorrow, everybody goes

428

00:17:52,455 --> 00:17:53,685

back to business as usual.

429

00:17:53,745 --> 00:17:56,715

There's a lot of infrastructural

damage and there's a lot that

430

00:17:56,715 --> 00:17:58,185

has to, to recover through there.

431

00:17:58,185 --> 00:18:00,135

So, and by the way, it's not over yet.

432

00:18:00,465 --> 00:18:01,665

So that's, that's the thing.

433

00:18:01,665 --> 00:18:05,385

And I think the market has become a

little complacent because a lot of

434

00:18:05,385 --> 00:18:06,680

these things that Trump backs off.

435

00:18:07,830 --> 00:18:10,830

But it just sure doesn't feel like

the US is backing off anytime soon.

436

00:18:10,830 --> 00:18:11,070

Yeah.

437

00:18:11,280 --> 00:18:12,210

No, that makes sense.

438

00:18:12,210 --> 00:18:15,150

Jeffrey, going back to what

our conversation we had last

439

00:18:15,150 --> 00:18:17,100

year, I did pay attention.

440

00:18:17,100 --> 00:18:20,070

I've got notes here about what you

talked about last year, so I'm holding

441

00:18:20,070 --> 00:18:21,390

you to, how long was I, what year?

442

00:18:21,395 --> 00:18:22,230

How long was I about everything?

443

00:18:22,230 --> 00:18:24,660

You, you were pretty spot on a year ago.

444

00:18:24,750 --> 00:18:24,960

Okay.

445

00:18:25,380 --> 00:18:27,180

Between what's happened in a year.

446

00:18:27,900 --> 00:18:29,850

A year ago, you reduced risk.

447

00:18:30,630 --> 00:18:32,460

In your portfolio credit risk.

448

00:18:32,465 --> 00:18:32,485

Yep.

449

00:18:32,700 --> 00:18:38,730

You took the reduced credit risk, you

went into more risk off, um, treasuries.

450

00:18:38,820 --> 00:18:38,910

Yep.

451

00:18:39,150 --> 00:18:44,610

Agency MBS, um, and it wasn't

because of geopolitical risk,

452

00:18:44,610 --> 00:18:46,045

it was more credit spreads.

453

00:18:46,800 --> 00:18:47,970

Weren't getting rewarded.

454

00:18:48,570 --> 00:18:50,520

How do you feel about

credit spreads today?

455

00:18:50,850 --> 00:18:53,460

Are you still bearish on credit?

456

00:18:53,460 --> 00:18:55,590

So we were never bearish per se.

457

00:18:55,590 --> 00:18:59,550

It was more of a, a, a thing of like, we

didn't like the riskier parts of credit.

458

00:18:59,700 --> 00:19:03,240

And I still stay in that camp today,

and I think we've seen more of the

459

00:19:03,300 --> 00:19:05,220

risks show up in the last six months.

460

00:19:05,220 --> 00:19:05,550

Right.

461

00:19:05,790 --> 00:19:07,380

You've seen this a lot in the loan market.

462

00:19:07,440 --> 00:19:09,570

You've seen it kind of

in the private markets.

463

00:19:10,185 --> 00:19:13,005

We're just at the tip of the

iceberg of this loan kind of issues.

464

00:19:13,035 --> 00:19:15,465

'cause the pain's been in the loan

market for the last few years.

465

00:19:15,465 --> 00:19:15,555

Mm-hmm.

466

00:19:15,795 --> 00:19:18,735

'cause they had the, all the hikes

hit them, the, the, the fastest.

467

00:19:19,065 --> 00:19:22,995

And so when I look back at it, we

ended up, you know, as yields got

468

00:19:22,995 --> 00:19:25,425

lower in the year, we actually went

and put more credit risk on in the

469

00:19:25,425 --> 00:19:27,675

summer and it turned out to be okay.

470

00:19:27,885 --> 00:19:32,895

Um, and then we had this huge risk rally

in the last month or so of the year

471

00:19:32,895 --> 00:19:34,095

that was mainly in corporate bonds.

472

00:19:34,095 --> 00:19:37,875

And then the securitized markets were on

fire for the first six weeks of the year.

473

00:19:38,280 --> 00:19:41,850

And so now we're back in that

position where a few weeks ago we're

474

00:19:41,850 --> 00:19:45,480

like, yeah, it doesn't make sense

to be adding more credit risk here.

475

00:19:45,930 --> 00:19:50,100

Um, but now given some of the little

noise we've seen here, it's starting

476

00:19:50,100 --> 00:19:53,400

to look a little bit better, but let's

talk about invest rate corporate bonds.

477

00:19:53,430 --> 00:19:53,700

Okay.

478

00:19:54,930 --> 00:19:57,180

Off the lows, we're 15 basis points wider.

479

00:19:57,660 --> 00:20:00,600

Should I be, how excited should

I be about 15 more basis points,

480

00:20:00,600 --> 00:20:02,190

Ryan, on a seven year asset, right?

481

00:20:02,250 --> 00:20:05,070

I mean, is that really gonna

change my outlook on things?

482

00:20:05,070 --> 00:20:05,380

Probably not.

483

00:20:06,045 --> 00:20:09,555

The high yield market off the

tights were probably 50 to 60.

484

00:20:09,585 --> 00:20:12,195

Just depends on pricing

this morning, uh, wider.

485

00:20:12,525 --> 00:20:13,545

That's not a lot either.

486

00:20:13,755 --> 00:20:18,075

So the thing is, is that I and I, it feels

like there's much more headline risk.

487

00:20:18,075 --> 00:20:19,755

Forget, forget the geopolitical.

488

00:20:20,235 --> 00:20:22,395

It seems that there are

credit problems right now.

489

00:20:22,785 --> 00:20:24,675

And are they gonna be okay?

490

00:20:24,735 --> 00:20:26,235

Yes, they always are.

491

00:20:26,625 --> 00:20:28,365

Um, but we're gonna

find out who's exposed.

492

00:20:28,545 --> 00:20:32,205

And I think it's gonna take a lot longer

than we all think because we're all used

493

00:20:32,205 --> 00:20:34,185

to analyzing public markets and saying.

494

00:20:34,604 --> 00:20:37,875

Oh, well, once you've, we all know

it's, the market will punish you.

495

00:20:38,114 --> 00:20:39,614

You can't punish the private trade.

496

00:20:40,395 --> 00:20:42,074

Private will just be what it is.

497

00:20:42,104 --> 00:20:45,794

So I, I think that this

thing stays over us longer.

498

00:20:46,185 --> 00:20:49,274

Um, and we'll see how the workouts

work and at the end of the day, there

499

00:20:49,274 --> 00:20:52,215

was a lot of money that went into it

and we'll see how the underwriting is.

500

00:20:52,604 --> 00:20:55,665

Um, but when I look at the

market and I look at like bank

501

00:20:55,665 --> 00:20:56,955

loans, they're weak right now.

502

00:20:57,315 --> 00:20:59,025

They're bleeding into

the CLO market, right?

503

00:20:59,385 --> 00:21:00,885

Um, it's hitting other things.

504

00:21:00,885 --> 00:21:03,555

And so, um, these are the things

we're talking about, but they

505

00:21:03,555 --> 00:21:04,545

last longer than you think.

506

00:21:04,695 --> 00:21:08,895

They, they, they, the, the excesses

last longer and also so does the pain.

507

00:21:09,315 --> 00:21:12,495

And I think that's what we're

all trying to digest right now.

508

00:21:12,915 --> 00:21:15,315

And, but things have

been very well contained.

509

00:21:15,315 --> 00:21:18,495

I mean, I just had an investment call

with the team, with all the sector heads

510

00:21:18,495 --> 00:21:22,275

and, you know, certain markets are immune

right now, like the a BS market has.

511

00:21:22,335 --> 00:21:25,180

You wouldn't even know there's a war

you wouldn't even know there's conflict.

512

00:21:25,770 --> 00:21:28,710

So there's, there's just little

pockets out there and I think what

513

00:21:28,710 --> 00:21:32,820

we're seeing in credit in general

is that there's still a bid for it.

514

00:21:33,210 --> 00:21:36,600

And there is because a lot of the

under, a lot of the US companies

515

00:21:36,600 --> 00:21:39,930

are in good shape and so that's

why credit spreads are tight.

516

00:21:40,290 --> 00:21:44,280

So I reminded the team last year

that just because spreads are

517

00:21:44,280 --> 00:21:45,540

tight doesn't mean they widen.

518

00:21:46,050 --> 00:21:48,750

They can stay very tight

for a long period of time.

519

00:21:48,780 --> 00:21:51,870

And history shows you this from like 2003.

520

00:21:52,754 --> 00:21:54,915

To 2006, which was a very good time.

521

00:21:54,915 --> 00:21:56,175

We were coming off the recession.

522

00:21:57,044 --> 00:22:00,885

The IG market traded in like a 40

basis point spread band over that

523

00:22:00,885 --> 00:22:05,805

three year period, and we got to some

of the lowest spreads on record, and

524

00:22:05,895 --> 00:22:07,875

it takes a catalyst to do it and.

525

00:22:08,340 --> 00:22:10,350

You know, you need a

disruption in credit to do it.

526

00:22:10,379 --> 00:22:13,830

And that will come at some point when

some of the bad underwriting shows up.

527

00:22:14,280 --> 00:22:14,460

It.

528

00:22:14,970 --> 00:22:19,110

Jeffrey, that's a perfect segue 'cause

I was gonna ask, you know, we are

529

00:22:19,350 --> 00:22:23,280

oil's over a hundred dollars, we've

got all this noise out there, all this

530

00:22:23,280 --> 00:22:27,390

concern, but like you said, spreads,

if only widen by 15 basis points.

531

00:22:27,450 --> 00:22:28,890

What do I dare ask?

532

00:22:28,890 --> 00:22:30,270

Maybe I shouldn't ask this, but.

533

00:22:30,689 --> 00:22:35,040

What's it gonna take for spreads to

get more attractive at this point?

534

00:22:35,040 --> 00:22:38,520

You, you kind of mentioned it, but

it's like, we have all this noise yet.

535

00:22:39,149 --> 00:22:41,730

Yeah, but it's, it's noise

as you said, like oil prices.

536

00:22:41,730 --> 00:22:43,530

Are they gonna stay here for five years?

537

00:22:43,560 --> 00:22:44,159

I don't know.

538

00:22:44,220 --> 00:22:44,490

Right.

539

00:22:44,490 --> 00:22:45,990

We don't know what it looks like.

540

00:22:46,409 --> 00:22:50,040

And so I think, you know, the, the

first thing is to, to shake it off and

541

00:22:50,040 --> 00:22:54,990

slough it off and say it's not a big

deal, but ultimately it's how long it

542

00:22:54,990 --> 00:22:56,790

lingers around and goes into the input.

543

00:22:57,330 --> 00:22:58,620

It's just like tariffs, right?

544

00:22:58,919 --> 00:23:01,740

Tariffs were a debacle after

we got liberated, right?

545

00:23:02,040 --> 00:23:03,419

And it's like, oh, we

have to dial it back.

546

00:23:03,750 --> 00:23:07,379

Well, then it's like, okay, now we have

some, it's, you gotta find that balance.

547

00:23:07,379 --> 00:23:10,080

And so it's just re-underwriting

is what it comes down to.

548

00:23:10,080 --> 00:23:12,990

So the question is, is how

do you price oil today?

549

00:23:12,990 --> 00:23:15,120

Like, how do you put that into

your model of your inputs?

550

00:23:15,389 --> 00:23:17,909

And by the way, oil is the most

important commodity in the world.

551

00:23:18,300 --> 00:23:19,139

It just still is.

552

00:23:19,169 --> 00:23:22,409

You know, I, I know people would argue

semiconductors and chips pretty close.

553

00:23:22,409 --> 00:23:23,310

I would agree with that.

554

00:23:23,610 --> 00:23:25,200

But oil is still very important.

555

00:23:25,200 --> 00:23:26,370

We all use it every day.

556

00:23:26,639 --> 00:23:26,940

So.

557

00:23:27,630 --> 00:23:30,480

I think that what you're seeing

there is that, is it temporary

558

00:23:30,900 --> 00:23:34,290

or is it gonna be a longer, you

know, kind of structural problem.

559

00:23:34,710 --> 00:23:38,130

And I, I don't know, I think

the market is being a little too

560

00:23:38,130 --> 00:23:41,130

aggressive and assuming it's all

gonna go away and go back to normal.

561

00:23:41,490 --> 00:23:44,970

But then again, that's our job as bond

investors is to worry about things.

562

00:23:45,570 --> 00:23:45,720

Yeah.

563

00:23:45,780 --> 00:23:47,640

So do you think then credit spreads are.

564

00:23:48,090 --> 00:23:52,139

C, you know, reflect it at the

right level right now you think?

565

00:23:52,225 --> 00:23:52,620

I, I do.

566

00:23:52,620 --> 00:23:53,370

I do, I do.

567

00:23:53,370 --> 00:23:56,100

Because I think that it,

you go back to fundamentals.

568

00:23:56,100 --> 00:23:59,699

And so, you know, if you're talking

about credit that you know doesn't have

569

00:23:59,699 --> 00:24:04,080

a lot of oil or energy input into the

business model, then why, why should it,

570

00:24:04,320 --> 00:24:06,060

uh, have, have any reflection on that?

571

00:24:06,330 --> 00:24:08,850

It comes down to leverage, it comes

down to interest coverage, it comes

572

00:24:08,850 --> 00:24:10,350

down to all the metrics we'll look at.

573

00:24:10,665 --> 00:24:12,195

To say, can you pay your bills back?

574

00:24:12,585 --> 00:24:17,115

And so, you know, again, one part that's

been hot shocking is the energy names,

575

00:24:17,115 --> 00:24:18,015

you know, in the high yield space.

576

00:24:18,015 --> 00:24:18,285

Right.

577

00:24:18,555 --> 00:24:20,865

Uh, they've done very well

recently because they're gonna,

578

00:24:20,865 --> 00:24:22,005

they're gonna make their payments.

579

00:24:22,005 --> 00:24:22,305

Right.

580

00:24:22,605 --> 00:24:26,565

So I, I think it's, it's trying

to say how long does this go?

581

00:24:26,565 --> 00:24:30,525

And, uh, obviously none of us know,

but the conflicts in the Middle

582

00:24:30,525 --> 00:24:34,305

East tend to last a lot longer than

ever forecasted by our politicians.

583

00:24:34,635 --> 00:24:35,895

Yeah, exactly.

584

00:24:36,945 --> 00:24:38,235

It's been more than a week.

585

00:24:38,360 --> 00:24:39,885

Yeah, it's been, yeah, it has.

586

00:24:40,274 --> 00:24:43,425

I think this is the third week

now, you know, and it sure doesn't

587

00:24:43,425 --> 00:24:46,635

look like it's any, uh, any less,

uh, less, uh, toxic than it was.

588

00:24:46,635 --> 00:24:47,355

Exactly.

589

00:24:47,595 --> 00:24:49,669

Let's, uh, talk a little

bit about duration.

590

00:24:50,310 --> 00:24:54,600

There's kind of that, what do you

do at this point with duration?

591

00:24:54,600 --> 00:24:58,650

Do you lock in some of these yields

that are, could be attractive at

592

00:24:58,650 --> 00:25:02,070

this level, or do you go shorter?

593

00:25:02,220 --> 00:25:02,340

Yeah.

594

00:25:02,340 --> 00:25:03,780

Because of the uncertainty out there?

595

00:25:03,840 --> 00:25:08,190

Well, I mean, I think that when you think

about locking in yields, the question

596

00:25:08,190 --> 00:25:09,690

is, okay, what's the Fed gonna do?

597

00:25:09,690 --> 00:25:13,200

So if the Fed cuts rates this

year, let's say a couple times,

598

00:25:14,070 --> 00:25:15,660

does the backend follow it?

599

00:25:15,660 --> 00:25:16,740

Sure hasn't thus far.

600

00:25:17,100 --> 00:25:17,340

Right?

601

00:25:17,340 --> 00:25:19,320

So that's a different story.

602

00:25:19,860 --> 00:25:22,020

But if you're talking about locking

in, you think there's a couple cuts?

603

00:25:22,020 --> 00:25:24,090

Maybe owning something on the

two year part of the curve

604

00:25:24,090 --> 00:25:25,770

ma does make a lot of sense.

605

00:25:25,770 --> 00:25:25,980

Right?

606

00:25:26,880 --> 00:25:29,490

So in our shorter duration products,

we actually have lengthened our

607

00:25:29,490 --> 00:25:32,460

duration a little bit because we

had rolled down, you know, that's

608

00:25:32,460 --> 00:25:33,600

the one thing about a bond investor.

609

00:25:33,600 --> 00:25:36,090

Every day your portfolio gets

shorter, you know, just by that

610

00:25:36,090 --> 00:25:37,410

you have to reinvest some things.

611

00:25:37,710 --> 00:25:41,100

And so what we had was, um, you know,

we, we rolled some of our exposure out.

612

00:25:41,460 --> 00:25:44,100

Uh, on our t-bills and things,

trying to move out the curve a little

613

00:25:44,100 --> 00:25:45,420

bit, but we still own floaters.

614

00:25:45,420 --> 00:25:48,720

I still, you know, in the low duration

product, you know, have roughly

615

00:25:48,780 --> 00:25:50,910

20, 22% floating rate debt still.

616

00:25:51,210 --> 00:25:51,690

Why?

617

00:25:52,020 --> 00:25:55,350

It's kind of because the bond market's

been wrong on that and I'm not,

618

00:25:55,350 --> 00:25:56,700

we're not forecasting that side.

619

00:25:56,700 --> 00:25:58,410

And if I have good credit

that floats, it's fine.

620

00:25:58,890 --> 00:26:03,960

So I understand why investors are skittish

of duration and, um, there's a phrase

621

00:26:03,960 --> 00:26:07,260

we like to use that in general that

we say investors fight the last war.

622

00:26:07,620 --> 00:26:10,620

I'm not talking about the one ongoing

right now, but we're still fighting the

623

00:26:10,620 --> 00:26:14,790

inflation war and I think that that has

burned a lot of people and it's still

624

00:26:14,790 --> 00:26:18,780

seared into their memories and they're

skittish on duration for that reason.

625

00:26:19,110 --> 00:26:22,500

And what I tell people is if you

think cash rates are coming down,

626

00:26:23,040 --> 00:26:25,110

you probably should be moving

out the curve a little bit.

627

00:26:25,470 --> 00:26:29,055

And so from our standpoint, we like

front end paper, like we like stuff in

628

00:26:29,100 --> 00:26:30,540

the one to two year parts of the curve.

629

00:26:30,540 --> 00:26:33,210

There's different parts of the

market you can buy there and you can

630

00:26:33,210 --> 00:26:35,550

do a hundred, 125 over cash today.

631

00:26:36,345 --> 00:26:38,055

So that's pretty attractive.

632

00:26:38,265 --> 00:26:38,385

Mm-hmm.

633

00:26:38,775 --> 00:26:42,315

Um, and, but if you start to buy

duration and you move into the

634

00:26:42,315 --> 00:26:46,515

belly of the curve, now you're

only picking up maybe 150 to cash.

635

00:26:47,085 --> 00:26:51,225

But there is the potential, if things slow

down, if this causes some slowdown, I do

636

00:26:51,225 --> 00:26:52,995

think yields come down across the curve.

637

00:26:53,385 --> 00:26:54,855

So I like a mix of it.

638

00:26:55,125 --> 00:26:59,355

But in general, general, um, I,

I, I really don't mind owning

639

00:26:59,355 --> 00:27:00,555

intermediate duration risk.

640

00:27:00,959 --> 00:27:02,370

But we hate the 30 year treasury.

641

00:27:02,730 --> 00:27:05,340

We hate the backend of the curve,

and I hate the backend of the curve.

642

00:27:05,340 --> 00:27:08,969

In every market, the developed

world, backend rates have been on

643

00:27:08,969 --> 00:27:13,199

a tear upward, and almost every

single developed world country

644

00:27:13,409 --> 00:27:15,389

trades near the high of those ranges.

645

00:27:15,540 --> 00:27:17,399

This is not just a US phenomenon.

646

00:27:17,730 --> 00:27:20,850

This is something that permeates the

entire developed world because we

647

00:27:20,850 --> 00:27:22,350

all have these same fiscal problems.

648

00:27:22,709 --> 00:27:26,459

So when it comes to duration, I don't

think you should load the boat up with it.

649

00:27:26,490 --> 00:27:26,610

Mm-hmm.

650

00:27:26,850 --> 00:27:27,925

I think you ought to be careful here.

651

00:27:28,575 --> 00:27:30,675

And look, I like the five

year part of the curve.

652

00:27:30,675 --> 00:27:32,355

Just to me, that's the economy.

653

00:27:32,715 --> 00:27:35,055

And if things slow down that part rallies.

654

00:27:35,475 --> 00:27:38,235

Um, but you don't get huge

pickup, continue to go out.

655

00:27:38,265 --> 00:27:39,675

'cause the curve isn't that steep.

656

00:27:40,095 --> 00:27:43,305

You know, where it's steep is two is

the thirties and it, I think it's steep

657

00:27:43,305 --> 00:27:46,365

for a reason, is that a lot of us are

skittish on that back and the curve.

658

00:27:46,815 --> 00:27:47,085

Yeah.

659

00:27:47,295 --> 00:27:48,105

That's fantastic.

660

00:27:48,105 --> 00:27:52,080

So you diversify a little

bit across the curve then?

661

00:27:52,080 --> 00:27:52,360

Yeah.

662

00:27:52,605 --> 00:27:52,785

Yeah.

663

00:27:52,785 --> 00:27:54,915

I mean, I, I like owning

credit on the front end.

664

00:27:55,245 --> 00:27:56,280

I like owning rates in the belly.

665

00:27:56,970 --> 00:27:57,270

Right.

666

00:27:57,270 --> 00:28:00,030

And own a little bit more like in the

10 year and a little bit out, just to

667

00:28:00,030 --> 00:28:01,890

kind of balance out some duration there.

668

00:28:02,220 --> 00:28:07,470

But I think owning shorter duration credit

today is very interesting because I don't

669

00:28:07,470 --> 00:28:11,220

have to deal with, you know, tariff and

certain, I, there's, I I, it's easier to

670

00:28:11,220 --> 00:28:14,790

calculate on a shorter path than saying,

are you gonna survive for 10 years?

671

00:28:15,000 --> 00:28:15,120

Mm-hmm.

672

00:28:15,150 --> 00:28:15,480

Right.

673

00:28:15,630 --> 00:28:17,910

But there's a reason that credit

spreads are tight is because

674

00:28:17,910 --> 00:28:19,140

the underwriting has been good.

675

00:28:19,560 --> 00:28:22,980

And don't forget, these companies have de

levered just based on their stock prices.

676

00:28:23,685 --> 00:28:26,834

Right now that can reverse and that can,

you know, lever you up a little bit.

677

00:28:26,834 --> 00:28:32,205

But the quality of the, of the overall

market is higher than it's been, but

678

00:28:32,205 --> 00:28:33,344

there's just a lot of debt out there.

679

00:28:33,735 --> 00:28:35,385

Yeah, no, fantastic.

680

00:28:35,385 --> 00:28:39,524

So one of the best performing fixed income

asset classes over the past year has been.

681

00:28:39,885 --> 00:28:42,735

Agency mortgage backs fantastic year.

682

00:28:42,945 --> 00:28:45,915

Do you think there's more

room to run mortgage rates?

683

00:28:45,975 --> 00:28:50,325

They've come down some, does that concern

you about maybe some prepayment risk

684

00:28:50,325 --> 00:28:52,185

there or are they still attractive?

685

00:28:52,245 --> 00:28:53,355

Yeah, they're still attractive.

686

00:28:53,415 --> 00:28:58,995

Um, but they're not like they were, so

mortgages really suffered in 22 and 23

687

00:28:59,235 --> 00:29:03,225

because they were over owned by the banks,

you know, so remember the way the banking

688

00:29:03,225 --> 00:29:06,795

system works, when we got those stimulus

checks and it went to the banking system.

689

00:29:07,305 --> 00:29:09,945

It sits there, they have to invest

and they bought a lot of mortgages.

690

00:29:09,945 --> 00:29:14,805

So mortgage spreads got extremely

tight in like the summer, let's call

691

00:29:14,805 --> 00:29:17,505

it, of 21, um, all the way through 22.

692

00:29:18,435 --> 00:29:20,055

And then we got this big reversal.

693

00:29:20,355 --> 00:29:22,815

And so they were mired

out there for a while.

694

00:29:22,815 --> 00:29:25,635

It, it took really the second

half of the year for agency

695

00:29:25,665 --> 00:29:27,165

mortgages to really come down.

696

00:29:27,435 --> 00:29:29,385

And a lot of that was rate

volatility coming down.

697

00:29:29,445 --> 00:29:31,575

So, 'cause you have, you're short

an option, blah, blah, blah.

698

00:29:32,055 --> 00:29:32,895

No one cares about all this stuff.

699

00:29:33,255 --> 00:29:36,675

But the thing is, is that you do have

prepayment risk on buying that trade.

700

00:29:36,990 --> 00:29:40,140

That trade today probably yields

one 20 over comparable treasury.

701

00:29:40,140 --> 00:29:42,720

So I'm not using a spread, I'm

just giving you duration match.

702

00:29:43,230 --> 00:29:45,450

Um, but you can, you can

actually manage that risk.

703

00:29:45,450 --> 00:29:48,060

Ryan, there's when to do it,

and there's these things called

704

00:29:48,270 --> 00:29:49,920

seasoned coupon mortgages.

705

00:29:50,220 --> 00:29:53,820

These are these old archaic

mortgages back from 2021.

706

00:29:54,510 --> 00:29:57,270

They have two and a half, three

coupons, three and a half coupons.

707

00:29:57,270 --> 00:29:59,730

So with that, they don't

have prepayment risk.

708

00:30:00,060 --> 00:30:03,210

Now you can say, well,

what if someone refis it?

709

00:30:03,300 --> 00:30:05,760

Well, great, those bonds traded

like 85 cents in the dollar.

710

00:30:06,555 --> 00:30:09,825

I like things that I buy at 85 that

pay me a hundred really quickly.

711

00:30:10,095 --> 00:30:12,405

So there's a way of managing

that risk through it.

712

00:30:12,405 --> 00:30:16,215

Now it doesn't have as much yield on

that for good reason 'cause you don't

713

00:30:16,215 --> 00:30:17,985

have that, that negative convexity.

714

00:30:18,105 --> 00:30:21,435

But at the end of it, I think

that managing that together

715

00:30:21,435 --> 00:30:22,665

is a very interesting way.

716

00:30:22,665 --> 00:30:25,275

And by the way, you can put that

portfolio together and you have a

717

00:30:25,275 --> 00:30:26,925

higher yield than IG corporates.

718

00:30:27,195 --> 00:30:30,585

Now it doesn't mean I hate IG corporates

'cause I think IG corporates, they, they

719

00:30:30,585 --> 00:30:32,445

behave well in the same environment.

720

00:30:32,790 --> 00:30:34,590

And they don't have that prepayment side.

721

00:30:34,595 --> 00:30:34,625

Mm-hmm.

722

00:30:34,885 --> 00:30:38,490

So I think there's ways of managing

the two together that are, are

723

00:30:38,490 --> 00:30:40,080

ways of dialing your risk down.

724

00:30:40,440 --> 00:30:44,160

Um, but look, you know, mortgages got

very tight on that GSC announcement

725

00:30:44,160 --> 00:30:47,850

that President Trump did, and it

lasted like two days and we gave it

726

00:30:47,850 --> 00:30:51,000

all back because everybody's like,

yeah, there's really nothing there.

727

00:30:51,300 --> 00:30:51,600

Right.

728

00:30:51,810 --> 00:30:55,800

Um, so I think a bigger concern still

that overhangs the agency market is

729

00:30:55,800 --> 00:30:57,240

what happens with Fannie and Freddie.

730

00:30:57,570 --> 00:30:59,370

Are they gonna, you know, make 'em public?

731

00:30:59,370 --> 00:31:01,560

Is it gonna be some quasi

public private thing?

732

00:31:01,935 --> 00:31:07,935

And I say, who knows still also why I, I

I always ask, why, why would you do this?

733

00:31:07,935 --> 00:31:08,955

And it doesn't make sense.

734

00:31:08,955 --> 00:31:12,465

'cause I think that actually could

potentially increase borrowing costs.

735

00:31:13,035 --> 00:31:15,945

That doesn't sound like someone trying

to solve an affordability crisis.

736

00:31:16,125 --> 00:31:16,605

Yeah, right.

737

00:31:16,845 --> 00:31:17,505

Exactly.

738

00:31:17,535 --> 00:31:20,295

So anyway, I, I do think that's a

attractive part of the market that's

739

00:31:20,295 --> 00:31:22,635

not owned enough across folks as well.

740

00:31:22,635 --> 00:31:25,815

And I think, um, there's just ways

of executing those trades I think

741

00:31:25,815 --> 00:31:27,555

are, are, are very interesting today.

742

00:31:27,915 --> 00:31:29,415

That you can mitigate a lot of that risk.

743

00:31:29,955 --> 00:31:33,225

I feel as, I'm glad you brought

up Freddy and Fran Fannie.

744

00:31:33,495 --> 00:31:38,025

Um, it feels as if that's been an

issue and a talking point for years.

745

00:31:38,235 --> 00:31:39,165

What to do with them?

746

00:31:39,525 --> 00:31:42,915

Well, I, well I think it comes back

to why did we let 'em be what they

747

00:31:42,915 --> 00:31:44,235

were in the early two thousands.

748

00:31:44,265 --> 00:31:46,965

Um, um, I worked for a guy that

used to call 'em the biggest

749

00:31:46,965 --> 00:31:47,745

hedge funds in the world.

750

00:31:48,075 --> 00:31:51,525

They get to borrow at agency rates and

they lever up a mortgage portfolio and

751

00:31:51,525 --> 00:31:54,525

they, they don't know how to manage the

convexity and they'd screw it all up

752

00:31:54,525 --> 00:31:56,205

and they'd still make profits, you know.

753

00:31:56,205 --> 00:31:57,255

But, um.

754

00:31:57,629 --> 00:32:00,120

Trump has been on this from

his first, first campaign or

755

00:32:00,120 --> 00:32:01,199

for his first administration.

756

00:32:01,199 --> 00:32:03,210

He, he, he thinks that

they should be public.

757

00:32:03,659 --> 00:32:06,090

Um, you know, and so I, I don't know.

758

00:32:06,095 --> 00:32:07,470

Or, or I guess they should be private.

759

00:32:07,470 --> 00:32:09,000

They should be, they should

trade in the public markets.

760

00:32:09,000 --> 00:32:13,620

What I was thinking, um, but I don't

understand why, and the criticism

761

00:32:13,620 --> 00:32:18,210

is that, oh, why, you know, like

Fed bo these mortgages, they juiced

762

00:32:18,210 --> 00:32:19,560

house prices, all that stuff.

763

00:32:19,889 --> 00:32:22,409

Well, they did that in oh

eight because there was no bid.

764

00:32:22,770 --> 00:32:26,280

And by the way, housing still fell 50

to 60% depending on your region, right?

765

00:32:26,610 --> 00:32:31,050

So, um, the Fed buying mortgages

didn't distort the mortgage market.

766

00:32:31,500 --> 00:32:34,200

Um, they were just, what happened

when the Fed first did it?

767

00:32:34,200 --> 00:32:36,960

When Bernanke did it, he didn't

wanna be Japan and own too

768

00:32:36,960 --> 00:32:38,129

much of the treasury market.

769

00:32:38,730 --> 00:32:42,389

Now, I think if you ask the Fed Governors,

you even ask Wars, they would rather

770

00:32:42,389 --> 00:32:46,050

own treasuries than mortgages because

they had at least controls the interest.

771

00:32:46,050 --> 00:32:46,919

So don't forget this, Ron.

772

00:32:46,919 --> 00:32:50,010

I'd like to remind people of this

because I think it gets lost a lot.

773

00:32:50,399 --> 00:32:52,950

Every single treasury that sits

on the Fed's balance sheet,

774

00:32:53,340 --> 00:32:55,350

because Fed rebates, treasury.

775

00:32:56,100 --> 00:32:57,690

Those are financed at zero.

776

00:32:58,530 --> 00:32:59,820

You know what's not financed at zero?

777

00:32:59,820 --> 00:33:01,680

The mortgage is 'cause the

mortgage is in the pool.

778

00:33:01,680 --> 00:33:03,300

They're just, they're just

putting that back into the

779

00:33:03,300 --> 00:33:04,680

income of the treasury account.

780

00:33:05,130 --> 00:33:09,090

So there is something special about owning

your own treasuries, is that because of

781

00:33:09,090 --> 00:33:11,340

the mechanism there is financed at zero.

782

00:33:11,760 --> 00:33:15,510

So coming back to Fannie and Freddie

though, is that if we're gonna

783

00:33:15,510 --> 00:33:18,060

increase borrow cost to homeowners,

how is that a helpful thing?

784

00:33:18,120 --> 00:33:19,715

Now you can say that they should

have never been in the market.

785

00:33:20,715 --> 00:33:22,425

We've done it for 50 years roughly.

786

00:33:22,665 --> 00:33:22,995

Right.

787

00:33:22,995 --> 00:33:25,335

And so we'll have to

see what, what happens.

788

00:33:25,335 --> 00:33:28,935

And it sounds like they may just

sell a piece of it, but that's

789

00:33:28,935 --> 00:33:31,215

what, what Fannie and Freddie

were back in the two thousands.

790

00:33:31,215 --> 00:33:32,985

They were quasi-public and private.

791

00:33:33,375 --> 00:33:35,235

And so what is your objective?

792

00:33:35,235 --> 00:33:37,095

Is it to generate return for shareholders?

793

00:33:37,395 --> 00:33:39,255

That doesn't sound like

you're helping affordability.

794

00:33:39,435 --> 00:33:42,405

It sounds like you're maximizing

profit, but I, I don't know.

795

00:33:42,435 --> 00:33:43,425

It's, it's the answer.

796

00:33:43,425 --> 00:33:47,325

And if you do anything to

increase the cost of borrowing.

797

00:33:47,820 --> 00:33:51,239

Uh, that doesn't sound very popular to

me in, in, in the US populace today.

798

00:33:51,600 --> 00:33:51,870

Yeah.

799

00:33:52,139 --> 00:33:53,219

No, that's fantastic.

800

00:33:53,219 --> 00:33:57,060

It's always, it seems like it's always

been a question for, for a long time.

801

00:33:57,090 --> 00:33:58,649

Well, it's, it's easy target, right, too.

802

00:33:58,649 --> 00:33:58,739

Yeah.

803

00:33:58,770 --> 00:34:00,360

'cause it feels like

it's being manipulated.

804

00:34:00,360 --> 00:34:01,409

There's something happening there.

805

00:34:01,409 --> 00:34:07,979

But remember for from 2007 till like 20

11, 20 12, that was the only game in town.

806

00:34:08,310 --> 00:34:10,139

There was no private

lending and mortgages.

807

00:34:10,139 --> 00:34:13,529

The only way it was happening is that

if it was Fannie Freddie eligible.

808

00:34:13,844 --> 00:34:16,034

To be able to put in those

conforming pools to do it.

809

00:34:16,364 --> 00:34:20,685

And so that market had to reopen in like,

I think it was like 20 12, 20 13, we

810

00:34:20,685 --> 00:34:22,364

started seeing non agencies come back.

811

00:34:22,364 --> 00:34:22,455

Mm-hmm.

812

00:34:22,694 --> 00:34:23,804

And restructure of this stuff.

813

00:34:23,864 --> 00:34:27,975

So, you know, if you want to know where it

should trade, go to the non-agency market.

814

00:34:28,455 --> 00:34:31,063

That means you're gonna slap on,

depending on the capital structure,

815

00:34:31,574 --> 00:34:34,875

2020 to like 70 basis points, you know?

816

00:34:34,875 --> 00:34:36,884

So, and by the way, another thing.

817

00:34:37,485 --> 00:34:40,065

We already have the mechanism

to bail out the taxpayer.

818

00:34:40,125 --> 00:34:43,215

On Friday and Friday, we created these,

these securities called credit risk

819

00:34:43,215 --> 00:34:46,005

transfers back in the, in the mid-teens.

820

00:34:46,335 --> 00:34:50,025

Uh, and the reason for that was that

the taxpayers shouldn't be on the hook.

821

00:34:50,295 --> 00:34:52,695

By the way, those things

are extremely well bid.

822

00:34:52,695 --> 00:34:53,605

They trade very well.

823

00:34:54,389 --> 00:34:58,140

And there's will investors willing

to go out there and support that.

824

00:34:58,170 --> 00:35:00,960

And these are like, they're not

technically first loss pieces.

825

00:35:00,960 --> 00:35:02,880

They're second loss,

but they're very thin.

826

00:35:03,270 --> 00:35:07,080

And so we already have the mechanism

to protect the to the taxpayer.

827

00:35:07,410 --> 00:35:10,440

And it's already, so that's what

I don't understand, like mm-hmm.

828

00:35:10,680 --> 00:35:11,550

I come back to why.

829

00:35:11,910 --> 00:35:14,550

But if I sat around and thought

about this administration and why I

830

00:35:14,550 --> 00:35:16,140

would just lose brain cells, right?

831

00:35:16,140 --> 00:35:17,520

I, I, I can't ever figure it out.

832

00:35:17,730 --> 00:35:17,940

Yeah.

833

00:35:17,970 --> 00:35:23,250

Jeffrey, a lot of people ask me, why,

why, Ryan, why, why are you doing that?

834

00:35:23,255 --> 00:35:23,335

Yeah.

835

00:35:23,335 --> 00:35:24,330

I feel like a 2-year-old, right.

836

00:35:24,330 --> 00:35:24,660

Why?

837

00:35:24,660 --> 00:35:24,840

Right.

838

00:35:24,840 --> 00:35:26,700

I'm going through my why

stage of life right now.

839

00:35:26,910 --> 00:35:31,050

But I, I think that coming back

to it, it's that I, I think that

840

00:35:31,110 --> 00:35:33,330

the administration thinks it's

better off, and I, I don't think

841

00:35:33,330 --> 00:35:34,530

they're doing it with mal intent.

842

00:35:34,890 --> 00:35:38,700

Um, but you know, it has knock

on effects and, uh, I just, I

843

00:35:38,700 --> 00:35:40,440

can't see the societal benefit.

844

00:35:40,755 --> 00:35:43,965

At this point because we have that

mechanism to protect the taxpayer

845

00:35:43,965 --> 00:35:46,125

already and the market trades well.

846

00:35:46,995 --> 00:35:47,325

Yeah.

847

00:35:47,325 --> 00:35:52,095

Real quickly, Jeffrey, too, emerging

markets, whether it's equities or fixed

848

00:35:52,095 --> 00:35:58,424

income debt, they've had a fantastic year

outperformed regardless of asset class.

849

00:35:59,550 --> 00:36:02,520

This might be more of a question

for the US dollar, but do you

850

00:36:02,520 --> 00:36:06,030

think that's another, is still

attractive there, moving forward?

851

00:36:06,030 --> 00:36:07,830

Or do you think it's gonna run its course?

852

00:36:07,830 --> 00:36:08,490

Some definitely.

853

00:36:08,700 --> 00:36:11,880

I think it's definitely attractive

and, uh, we, we've been buyers of it.

854

00:36:11,880 --> 00:36:14,580

We started buying it, you know, kind

of early in the summer last year, so

855

00:36:14,580 --> 00:36:15,630

we were a little late to the trade.

856

00:36:15,630 --> 00:36:16,350

I'll, we'll admit it.

857

00:36:16,475 --> 00:36:21,630

Um, but it's something that we continue

to add and I think with this turmoil

858

00:36:21,630 --> 00:36:25,740

right now that's going on, it's, it's a,

it's becoming a little more interesting.

859

00:36:25,800 --> 00:36:28,560

And here's the difference is

that yes, it's a dollar trade.

860

00:36:28,980 --> 00:36:31,950

At the end of the day, you're buying

this to bet against the dollar,

861

00:36:32,670 --> 00:36:36,240

but to me, it's the best way of

betting against the dollar right now.

862

00:36:36,569 --> 00:36:42,480

And so coming into before this, let's

call war, um, you had every tailwind,

863

00:36:42,540 --> 00:36:47,310

you had higher yields, you had kind

of better fiscal positions, you had

864

00:36:47,310 --> 00:36:50,339

commodity producers, whether it's

copper, nickel, you had the gold miner.

865

00:36:50,339 --> 00:36:55,080

I mean, there was every, every confluence

of things was in a positive manner.

866

00:36:55,529 --> 00:36:57,240

Um, and now you kinda

hit a little speed bump.

867

00:36:57,825 --> 00:37:01,305

But I think that the difference here

is I, if I bet against, let's say the

868

00:37:01,305 --> 00:37:06,435

Euro or I bet against the yen or the

pound, I have an issue because our

869

00:37:06,435 --> 00:37:11,265

rates are too high relative to their, so

it's hard for me to see why the dollar

870

00:37:11,265 --> 00:37:15,225

should go down against them until we

get more yield convergence, meaning that

871

00:37:15,495 --> 00:37:18,435

there, there's either come up or, or

it's come down, we meet in the middle.

872

00:37:18,855 --> 00:37:23,685

So to me, the reason the emerging

market trade is a better way, one

873

00:37:23,685 --> 00:37:26,325

is I think that there's much more

room to run in the dollar there.

874

00:37:26,670 --> 00:37:29,609

But while I wait, I get

more, I get more yield.

875

00:37:30,060 --> 00:37:33,960

So where if I build a developed world

portfolio, I'm giving up a hundred

876

00:37:33,960 --> 00:37:36,270

to 150 basis points to US rates.

877

00:37:36,660 --> 00:37:40,890

I'm picking up 200 or two

50 relative to treasury.

878

00:37:40,890 --> 00:37:42,600

So I get paid for the trade.

879

00:37:42,960 --> 00:37:45,720

Now I know I get more

volatility though, right?

880

00:37:46,049 --> 00:37:50,400

But, uh, I do think that this is a, a

secular trend that one wants to play on.

881

00:37:50,700 --> 00:37:53,250

And if we're gonna continue

to print, you know, a trillion

882

00:37:53,250 --> 00:37:54,359

dollars every five months.

883

00:37:54,840 --> 00:37:56,970

Um, I think the, the direction

of the dollar is still down.

884

00:37:57,270 --> 00:37:59,130

Yeah, no, that's fantastic.

885

00:37:59,130 --> 00:38:03,210

And a lot of people are probably

underexposed there to emerging markets.

886

00:38:03,210 --> 00:38:06,990

They left a lot of, you know,

diversification's a big theme.

887

00:38:07,110 --> 00:38:09,030

Well, it didn't work for,

it didn't work for a decade.

888

00:38:09,090 --> 00:38:10,410

And that, that's, that's the issue.

889

00:38:10,410 --> 00:38:10,740

Right.

890

00:38:10,740 --> 00:38:13,440

And so, you know, once you,

once you get in, you say,

891

00:38:13,440 --> 00:38:14,760

that's never gonna work again.

892

00:38:14,760 --> 00:38:17,100

What that means is it's

about to work instantly.

893

00:38:17,100 --> 00:38:17,220

Yeah.

894

00:38:17,550 --> 00:38:17,820

Right.

895

00:38:17,820 --> 00:38:21,150

Whenever you hear never, it means

it's gonna happen instantaneously.

896

00:38:21,509 --> 00:38:23,850

And that's where we all

were with US equities.

897

00:38:23,850 --> 00:38:24,120

Right.

898

00:38:24,149 --> 00:38:27,120

And so even though, yeah, last

year was a good year in equities,

899

00:38:27,480 --> 00:38:30,029

it was better if you were anywhere

else in the world practically.

900

00:38:30,509 --> 00:38:30,750

Yeah.

901

00:38:30,810 --> 00:38:31,080

Yeah.

902

00:38:31,350 --> 00:38:32,069

Fantastic.

903

00:38:32,069 --> 00:38:33,240

Jeffrey, one last thing.

904

00:38:33,240 --> 00:38:36,600

We've talked a lot about

a lot of different topics.

905

00:38:36,660 --> 00:38:37,589

What's it all mean?

906

00:38:38,040 --> 00:38:38,399

Why?

907

00:38:38,460 --> 00:38:43,680

What's it all mean for financial advisors

trying to build a diversified portfolio

908

00:38:43,680 --> 00:38:45,839

with, you know, fixed income now that.

909

00:38:46,545 --> 00:38:49,335

Divers or diversification

is back in vogue.

910

00:38:49,515 --> 00:38:49,845

Yeah.

911

00:38:49,845 --> 00:38:53,295

I mean, you, you have the ability

to offset risk in portfolios that

912

00:38:53,295 --> 00:38:54,345

that's what it comes down to.

913

00:38:54,375 --> 00:38:57,525

So I think that, you know, for

advisors, it's like, don't get

914

00:38:57,525 --> 00:38:58,484

caught up in the headlines.

915

00:38:58,484 --> 00:38:59,775

That's what always tell folks.

916

00:38:59,895 --> 00:39:03,345

Like if you're, if you're a better

war general than ours, then go do it.

917

00:39:03,645 --> 00:39:04,065

You know?

918

00:39:04,095 --> 00:39:07,275

Um, but in general, you, you

can't get caught up in headlines.

919

00:39:07,275 --> 00:39:10,035

You have to figure out what fundamentals

are, what are driving things.

920

00:39:10,035 --> 00:39:13,065

And you know, look, we go through

different political regimes.

921

00:39:13,065 --> 00:39:16,125

We go through different macro regimes and.

922

00:39:16,649 --> 00:39:20,460

Right now the setup is, is a way where

you can still get income on this side.

923

00:39:20,879 --> 00:39:24,359

Um, bond portfolios do outstrip

inflation in my viewpoint right now.

924

00:39:24,689 --> 00:39:28,020

Um, and you know, you still have a

labor market that's holding up well

925

00:39:28,020 --> 00:39:29,490

enough to support the consumer.

926

00:39:29,819 --> 00:39:32,609

So all those things say that rates

should be somewhat range bound.

927

00:39:32,609 --> 00:39:33,000

Probably.

928

00:39:33,000 --> 00:39:36,330

You're gonna get some wiggles and

jiggles here, but at the end of it,

929

00:39:36,450 --> 00:39:38,069

you gotta think about what you want.

930

00:39:38,069 --> 00:39:41,460

And what I think about is one of the

bigger risk out there, and I don't

931

00:39:41,460 --> 00:39:42,810

think it would be, it would shock you.

932

00:39:43,200 --> 00:39:46,920

But it's the AI tech trade, and

you know what, a lot of that

933

00:39:46,920 --> 00:39:48,359

doesn't exist in the bond world.

934

00:39:48,720 --> 00:39:51,990

And so we can get things that, you know,

if you're talking about mortgages, you're

935

00:39:51,990 --> 00:39:54,690

talking about, you know, commercial real

estate, you're talking about different

936

00:39:54,690 --> 00:39:57,779

things, emerging markets, they're

not really exposed to these risks.

937

00:39:57,779 --> 00:40:01,890

Like, yeah, the tail will wag the dog

at some point, but I think that, you

938

00:40:01,890 --> 00:40:05,674

know, trying to double down on risk in

every asset class, that's the danger.

939

00:40:06,345 --> 00:40:09,945

And so what we try to do with our credit

books is we try to say, okay, if we like

940

00:40:09,945 --> 00:40:11,625

energy, do we want to own that in em?

941

00:40:11,835 --> 00:40:12,825

Do we own that in the us?

942

00:40:12,825 --> 00:40:13,935

Do we want to IG produce?

943

00:40:13,935 --> 00:40:14,805

Do we want a high yield pro?

944

00:40:15,015 --> 00:40:16,455

Where's the best value there?

945

00:40:16,815 --> 00:40:19,815

And so I think that's what people need

to think about on the diversification

946

00:40:19,815 --> 00:40:23,235

too, is that, you know, look,

bonds will work again unless we

947

00:40:23,235 --> 00:40:24,315

have a high inflation environment.

948

00:40:24,675 --> 00:40:27,885

And you know, people will say, well,

2022 just, you know, didn't work.

949

00:40:27,885 --> 00:40:29,115

Bonds are dead forever.

950

00:40:29,355 --> 00:40:30,705

They had to ReRack and reprice.

951

00:40:30,705 --> 00:40:31,130

That's what they did.

952

00:40:31,875 --> 00:40:34,245

And there's been periods of this

in the mid nineties where you had

953

00:40:34,245 --> 00:40:37,214

this, when inflation's a problem that

everybody's gonna point to the seventies.

954

00:40:37,214 --> 00:40:40,065

But in the mid nineties we had

inflation was running in the four or

955

00:40:40,065 --> 00:40:41,924

5% range and bonds didn't do well.

956

00:40:42,404 --> 00:40:45,585

So that's, you need real yields

is what it comes back down to.

957

00:40:45,944 --> 00:40:46,964

And you have that today.

958

00:40:47,234 --> 00:40:51,915

And even if you have this oil price spike,

I don't think that it keeps this pressure

959

00:40:51,915 --> 00:40:53,745

on inflation for the next 12 months.

960

00:40:54,075 --> 00:40:55,484

I think it's gonna be short term.

961

00:40:55,484 --> 00:40:57,134

And the cure for high price is high price.

962

00:40:57,134 --> 00:40:58,875

So bring it all back together.

963

00:40:59,325 --> 00:41:00,524

You probably don't own enough gold.

964

00:41:00,524 --> 00:41:03,404

You didn't own enough today, but you

know, it doesn't feel like the best time.

965

00:41:03,404 --> 00:41:07,335

But I if you're, if you don't, if you

don't love the dollar either, I still

966

00:41:07,335 --> 00:41:09,134

think gold is a very good bet there too.

967

00:41:09,165 --> 00:41:11,325

And so I think that's another

piece of portfolios that

968

00:41:11,325 --> 00:41:12,194

people need to think through.

969

00:41:12,555 --> 00:41:16,125

And especially as the world kind of um,

central banks around the world really

970

00:41:16,125 --> 00:41:18,315

start to restock those positions.

971

00:41:18,675 --> 00:41:19,425

That's been the bid.

972

00:41:19,425 --> 00:41:21,945

This has not been a retail

or wealth management bid.

973

00:41:22,215 --> 00:41:25,485

This has been an institutional bid

and I think that, you know, by the

974

00:41:25,485 --> 00:41:28,725

time this administration's over,

you may see gold double again.

975

00:41:28,935 --> 00:41:29,145

Wow.

976

00:41:29,295 --> 00:41:31,245

Well, just because of the

path of the dollar as well.

977

00:41:31,245 --> 00:41:31,305

Yeah.

978

00:41:31,545 --> 00:41:35,835

And just, there may be some, I don't

want to be wedded to dollars over the

979

00:41:35,835 --> 00:41:40,035

next decade or two, and that, that,

that takes a long time to, to play out.

980

00:41:40,395 --> 00:41:42,585

But it sure feels like that's

been playing out in the last,

981

00:41:42,585 --> 00:41:43,555

you know, 15 to 16 months.

982

00:41:44,280 --> 00:41:47,190

I'm glad you threw that nugget

in about gold, gold nuggets.

983

00:41:47,490 --> 00:41:47,550

Yeah.

984

00:41:47,550 --> 00:41:48,030

See what I did there?

985

00:41:48,090 --> 00:41:48,240

Yeah.

986

00:41:48,240 --> 00:41:49,650

You, you were looking for that hotel.

987

00:41:49,740 --> 00:41:51,120

Is the cold nugget still exists?

988

00:41:51,870 --> 00:41:52,040

I think it does.

989

00:41:52,040 --> 00:41:52,830

It's in downtown Right know.

990

00:41:52,830 --> 00:41:57,150

And interesting enough, uh,

Tahoe, it was a hard rock.

991

00:41:57,180 --> 00:41:57,450

Yep.

992

00:41:57,540 --> 00:42:02,070

And then the gold golden nugget took

it over then the past few months.

993

00:42:02,100 --> 00:42:02,280

Yeah.

994

00:42:02,430 --> 00:42:05,340

My, uh, my parents like to go down

there and eat too at, at the Hard Rock.

995

00:42:05,340 --> 00:42:06,810

I, I always kinda enjoyed that place too.

996

00:42:06,810 --> 00:42:07,259

Yeah.

997

00:42:07,320 --> 00:42:09,210

I think it's changed names about, yeah.

998

00:42:09,944 --> 00:42:11,569

Half dozen times in a couple years.

999

00:42:11,609 --> 00:42:13,484

I mean, yeah, those

casinos flip over a lot.

1000

00:42:13,544 --> 00:42:13,814

Oh yeah.

1001

00:42:13,819 --> 00:42:14,115

They, the names.

1002

00:42:14,294 --> 00:42:17,924

So I wish they'd flip over on

the inside and re and remodel

1003

00:42:17,924 --> 00:42:18,975

and clean 'em up a little bit.

1004

00:42:19,035 --> 00:42:19,274

Yeah.

1005

00:42:19,274 --> 00:42:22,450

The, but the Caesars one did, I think

when they changed names and, uh, yeah.

1006

00:42:22,544 --> 00:42:22,754

Yeah.

1007

00:42:22,754 --> 00:42:24,089

But no, it's, it's always, yeah.

1008

00:42:24,134 --> 00:42:24,285

Yeah.

1009

00:42:24,285 --> 00:42:26,174

Tahoe, Tahoe does need some CapEx.

1010

00:42:26,444 --> 00:42:26,685

Yeah.

1011

00:42:26,685 --> 00:42:27,495

They really do.

1012

00:42:27,495 --> 00:42:30,615

They, the, the street,

they need a lot of work.

1013

00:42:30,734 --> 00:42:30,794

Yeah.

1014

00:42:31,649 --> 00:42:33,419

But we'll, we'll take it.

1015

00:42:33,660 --> 00:42:34,620

Yeah, we'll take it.

1016

00:42:34,950 --> 00:42:37,919

Speaking of Tahoe, we, we need to

get you up there that maybe we can

1017

00:42:37,919 --> 00:42:41,790

do the, uh, podcast literally on

the shores, Zephyr Cove, right?

1018

00:42:41,850 --> 00:42:42,149

Yeah.

1019

00:42:42,154 --> 00:42:42,245

Yeah.

1020

00:42:42,870 --> 00:42:43,680

So we were founded.

1021

00:42:43,740 --> 00:42:44,069

I know.

1022

00:42:44,069 --> 00:42:45,000

It's a great launching boat.

1023

00:42:45,000 --> 00:42:46,529

That's a good boat launch deck too.

1024

00:42:46,529 --> 00:42:47,460

Yes, it is.

1025

00:42:47,910 --> 00:42:50,850

Maybe we'll do it, maybe we'll do as

we'll do it from a pontoon boat out there.

1026

00:42:50,879 --> 00:42:51,480

Oh yeah.

1027

00:42:51,484 --> 00:42:51,805

That'd be really cool.

1028

00:42:51,805 --> 00:42:52,109

There we go.

1029

00:42:52,410 --> 00:42:57,419

You know, I often talk, it's like I love

doing the podcast because it typically,

1030

00:42:57,419 --> 00:42:59,430

my conversations are with ski bumps.

1031

00:42:59,790 --> 00:43:01,200

And nothing wrong with ski bumps.

1032

00:43:01,229 --> 00:43:01,290

Yeah.

1033

00:43:01,500 --> 00:43:05,580

But it's nice to have conversations that,

that people are passionate about investing

1034

00:43:05,669 --> 00:43:07,379

and, uh, so I love doing the podcast.

1035

00:43:07,379 --> 00:43:11,939

I feel as if we need to have exchange,

maybe move the conference up there.

1036

00:43:12,240 --> 00:43:12,540

Yeah.

1037

00:43:12,540 --> 00:43:16,799

I mean, um, there's not a big, uh, the

Venn diagram intersection isn't big

1038

00:43:16,799 --> 00:43:18,899

between ski bums and investment folks.

1039

00:43:19,169 --> 00:43:22,620

But I do know one, uh, MEB Faber, I was

just, I was gonna say me Meb is probably

1040

00:43:22,620 --> 00:43:24,000

the quintessential example there, right.

1041

00:43:24,360 --> 00:43:27,570

You know, I almost reached

out to MEB a couple weeks ago.

1042

00:43:27,570 --> 00:43:30,150

Hey, Sherman's gonna be on the podcast.

1043

00:43:30,150 --> 00:43:31,020

We're doing it live.

1044

00:43:31,020 --> 00:43:32,820

Maybe we get MEV on here too.

1045

00:43:32,820 --> 00:43:34,830

And I, I, I love Meb.

1046

00:43:34,860 --> 00:43:35,490

I think he's great.

1047

00:43:35,520 --> 00:43:36,030

I think he's great.

1048

00:43:36,035 --> 00:43:36,085

Yeah.

1049

00:43:36,090 --> 00:43:36,210

Yeah.

1050

00:43:36,210 --> 00:43:39,570

He's always, he's always thinking

about, uh, he, he's definitely thinking

1051

00:43:39,570 --> 00:43:40,800

about different stuff out there.

1052

00:43:40,800 --> 00:43:44,220

And I think he's one of, I think the,

the finance world's better for having

1053

00:43:44,370 --> 00:43:45,840

thought, thought leaders like him as well.

1054

00:43:46,290 --> 00:43:47,590

Yeah, you're exactly it.

1055

00:43:47,670 --> 00:43:49,980

It kind of, sometimes they

think it's outside the box.

1056

00:43:49,980 --> 00:43:50,190

Yeah.

1057

00:43:50,190 --> 00:43:53,610

I may get a lot of fanboy emails on that,

that I'm, I'm, I'm a, I'm a me fanboy.

1058

00:43:53,610 --> 00:43:53,880

So.

1059

00:43:54,690 --> 00:43:55,890

Awesome, Jeffrey.

1060

00:43:55,950 --> 00:43:57,240

Great conversation.

1061

00:43:57,360 --> 00:43:57,510

Alright.

1062

00:43:57,510 --> 00:43:59,310

Thank you so much for coming out again.

1063

00:43:59,370 --> 00:44:00,870

Always really enjoy it.

1064

00:44:01,050 --> 00:44:02,130

Uh, all the insight.

1065

00:44:02,160 --> 00:44:04,500

I learn a ton in our conversations.

1066

00:44:04,680 --> 00:44:07,320

Where can our audience get more

information about Double Line?

1067

00:44:07,620 --> 00:44:08,100

Uh, it's easy.

1068

00:44:08,100 --> 00:44:09,030

Double line.com.

1069

00:44:09,120 --> 00:44:11,670

Um, it's the easiest way to

do it, but also, uh, we have

1070

00:44:11,670 --> 00:44:12,570

a lot of YouTube channels.

1071

00:44:12,570 --> 00:44:14,820

We put out a lot of our macro

research and stuff out there.

1072

00:44:15,315 --> 00:44:18,435

Uh, so YouTube, do youtube.com/double

1073

00:44:18,435 --> 00:44:21,075

line capital, you know, so someone

already got the double line.

1074

00:44:21,075 --> 00:44:22,665

We had to add the capital

in there to get that.

1075

00:44:23,234 --> 00:44:26,475

I'm really impressed, Jeffrey,

because obviously we've

1076

00:44:26,475 --> 00:44:27,944

posted podcasts on YouTube.

1077

00:44:27,944 --> 00:44:33,375

I couldn't tell you what my YouTube,

maybe I shouldn't, I need to do that.

1078

00:44:33,375 --> 00:44:35,265

You, you know what, it's, 'cause

I had a podcast with Sunday.

1079

00:44:35,265 --> 00:44:36,585

They beat me over the head with it.

1080

00:44:36,585 --> 00:44:39,705

That you're supposed to announce

this, you gotta announce the date.

1081

00:44:39,705 --> 00:44:40,845

I'm like, this is too complicated.

1082

00:44:40,845 --> 00:44:41,384

I can't do it.

1083

00:44:41,415 --> 00:44:43,065

So anyway, it's, it's

ingrained in my memory.

1084

00:44:43,380 --> 00:44:47,070

Well, you guys, the pie, the

content you guys produce.

1085

00:44:47,070 --> 00:44:48,570

I know it's hard to believe to some.

1086

00:44:48,570 --> 00:44:52,620

I do do a little bit of research

before, uh, having these conversations

1087

00:44:52,620 --> 00:44:54,360

and I go the double line a lot.

1088

00:44:54,540 --> 00:44:55,470

All right, well, appreciate it.

1089

00:44:55,500 --> 00:44:56,280

Well, thanks everybody.

1090

00:44:56,280 --> 00:44:57,960

Thanks for listening and

thanks for having me back on.

1091

00:44:57,960 --> 00:44:58,260

Yes.

1092

00:44:58,260 --> 00:44:59,070

Thank you, Jeffrey.

1093

00:44:59,070 --> 00:45:01,230

Thank you everyone for

listening to this episode.

1094

00:45:01,230 --> 00:45:03,420

Is Zephyr just for Risk podcast.

1095

00:45:03,420 --> 00:45:06,555

You can watch all of our other

episodes on the Zephyr YouTube channel.

1096

00:45:07,410 --> 00:45:11,340

And, uh, Spotify and please be sure

to like, subscribe to those channels

1097

00:45:11,340 --> 00:45:12,750

and give us a follow on LinkedIn.

1098

00:45:13,050 --> 00:45:15,145

Thank you very much and have

a good rest of your week.

1099

00:45:25,590 --> 00:45:26,010

Let's get started.

1100

00:45:54,540 --> 00:45:55,170

Let's go.