Buy The Dip Is Dead

being called into question. It's not just you, Sarah. Okay, that's good to know. I've got to say I'm exhausted, and I think we all are. I will say very often it is just you, I think in this case, in this case, it's not just you. I think. The craziest thing I saw in markets, I'm just gonna get it out of the way, was everything this week. It

was just there's no avoiding it. But I have to give an extra special thank you to our guests this week for actually making it out into the world during this uh, this craziness we're saying and showing up today for the podcast. Returning to the show, Lauren Goodwin. She's an economist and multi asset portfolio strategist at New York Life Investments, Lauren. If I sneeze, it's allergies. I swear to God, you know what, My allergies are really bad. Every time I have a little tickle in my throat.

I'm worried about the social ramifications of clearing Well. No, seriously, you have to you have to think about if this starts running into hay fever season. I mean, God help us all. So you get judged on the side of the straight now, if you sneeze, if you just look a little bit off, people are judging. Yes, I'm judging you right now, Sarah, I'm judging everyone. You're all a little suspicious to me. Every microphone I sit in front of them like, wait a minute, who is that this?

Before but also joining us on the show, first time guest on the show, market Live's own Creaty Goopta Creaty. Welcome to the show. Thanks for having me. So you're welcome. Learn Let's start with you. Um now, you're a strategist and an economist. I feel like the big question is is a recession pretty much inevitable right now? I mean, is it a done deal by now? Yeah? I think so um there, it's it's interesting the way that you put it. You're a strategist and an economist, but there's

no economy and no strategy to work with right now exactly. Yeah. You know, look, um, I think that, Um. One of the really really interesting things, Um, if we can take a step back from everything that's happening right now, is just how unreliable signal economic data is going to give us upcoming. So recession, no recession, I mean, look around,

it's it's death. It feels almost certain that we will have recession or recession like circumstances here in the US, and even if they're transitory, they could they could be quite severe. What's going to be really interesting is we're not going to be able to tell what the official read on that is. I mean, you look at the economic data that's come in the amazing jobs report for example last week. Who cares it was before the virus.

But also if you can think to the other side of this, because we will come to the other side eventually, we're not going to trust bad data because it was oh, you know, from before things got better, and we might get you know, a really brief, nice big bang of pent up demand, but no one will trust that either, because it's just the pent up demand. So I think it's going to be a year before we get a reliable signal from economic data. Doesn't mean that we won't

still have useful clues. Um, But recession, no recession. I mean, the biggest indicator I'm using right now is my eyes looking what's going on. And I'll give you a statistic. This week, we put out a story, um, and it's just some food for thought. Since the SMP five hundreds inception, there have been thirteen bear markets, So thirteen times when we fell from a record too below as we have this week, and and only two of those experiences did

a recession not come after. Um. So sure markets sell off, we get corrections a lot, but it's pretty rare to actually get this bear market and na see a recession. And with that, Lauren, I saw in your notes that you sent over to us, you had a line and you said, by the dip is dead. And it sure feels that way. Um, We've just had day after day of extreme pressure. But but why do you say that and why do you think we feel that way right now?

I think that one of the really really interesting developments in markets right now is um or changes perhaps is just in the last ten years we've gotten really used to buy the dip, just the idea that if you had a really bad week, UM, that there was always a reason to think positively as long as things weren't going really really badly. Right, We've had monetary policy almost always stepping in when we've hit roadblocks, UM mid cycle slowdowns,

we can always justify markets moving down. Meanwhile, over the course of that ten years, profit conditions have been decelerating, if not deteriorating. We are late cycle, and so when I'm looking at you know, let's say three weeks ago, valuations are really high. All these late cycle dynamics are in play. We've been defensively positioned in our portfolio for six months saying, look, it's probably worth it even if we're a year early, because at some point we'll get

a catalyst. I did not know that coronavirus was going to be the catalyst, but I'm not I'm not a buyer until I see a real reason for durable upside, and you know, case volumes still rising, UM credit markets still figuring this out. I don't that catalyst will certainly come, but it's it's not right now. Well, it was fascinating on Thursday. UM, you know, so much stress has been centered in the dollar funding markets UM, as well as

the credit markets. But but really a lot of stress in the in the dollar uh you know cruss uh currency basis swap type of thing which don't ask me to even explain them, but I know there's stress there. I can't I've I've have it on good authority that they're stressed there, even though I can't quite explain it. And then you see the FED come out with really this surprise bazooka, a five hundred billion dollars worth of REPO operations UM effective the same day and spread out

across the curve. So we can finally put that is a QI or is it not QI? Debates sort of a bed. I mean, I think this is much more

like QUI than than what they're doing before. And you did see a pop in the smp F. I found it was like six percent off the lows, but then immediately for ten minutes ten minutes, and then you see headlines from Italy with a dramatic increases of cases and deaths and and right back down and I you know, I feel like the government in some ways, that the FED at least is getting a bad rap because there's only so much they can do. I mean, you can't

repair this economic damage with monetary policy right now. I mean, is there you know, and and and the same as to some degree I think true of the federal government. I mean, they're going to throw everything they can at it, presumably that we have this really dysfunctional political situation which might make that impossible. I mean, it's just all hope loss basically as far as the putting a floor under equities with either monetary or fiscal policy, no, no, no, Um,

it might feel that way for another few weeks. And I think that what we will get in the next few weeks is exactly what you're describing policy and and and hopefully in certain cases, really good policy, coordinated policy will reach the market in a way that is positive. And until we see geographic spread and case members of this virus decline, it just won't meet anything. And I think we actually need both of those things, um to

go right to start to put a floor. And again, I think it will take a couple of weeks, if not longer, but but we will. We will get there. All hope is not lost in the short term though. We're playing this market very tactically. Um. It's interesting someone asked me earlier today, you know what's if you're talking to a long term investor, what do you tell them?

And it's just honker down. You know, you gotta you have to take what you got, and what we have for now is is going to be these ebbs and flows, and if you're getting eight percent swings within a day,

that's that's what you have to work with. Now. When we do see that decline in case volume, declining, geographic spread and policy that's meant to sustain that positive outcome, that's when we're we'll get back into the markets, but it'll probably still be in a really targeted way, looking at cyclicals for example, to to capture that upside, and it might not last long. We're just there's so much uncertainty around every element of this market that you've got

to play a day by day. Yeah, everyone's already wondering, well, maybe it will subside a little bit in the summer, but then you have to worry about a reoccurrence in the fall. I guess obviously, you know, events last weekend really accelerated this sell off as far as the this oil price war that we've seen. Um, you know, Saudi Arabia came out over the weekend and drastically lowered their selling prices, said they were gonna, you know, pump a

tremendous amount of oil. Russia kind of responding, Uh, curty, I wanted to ask you about the center you you follow this pretty closely. I mean, to me, this feels like a game of chicken between Saudi Arabia and Russia. Um, is that a good way to look at it? And I gotta say, you know, as we get near the end of the week here, it doesn't seem like anyone's blinking. I mean, is there any sign of when this you know,

tremendous price war in oil could sort of end. Well, this has happened before, and that's what you really need to keep in mind here when you're talking about time frame and the sort of thing. Looking back, when we saw the U S. Shail market really boom, and and these players overseas face the same fears and have to go and try to flood the market and then cut once again to try to eliminate these players. So I

would look to history for that. As far as the time frame goes, it doesn't look like this is going to end anytime soon. Once again, this is that second punch in the one to punch we saw for markets this week. This is really a key as we're going into just kind of an already recessionary period, already seeing a demand really drop anyways, and to see this price war potentially last for two or three months, which is what I'm hearing from strategist and traders, that could change

the game. And it seems like, you know that, as you say, the show patch in the US is just caught in the middle. Um, it doesn't seem like there's anything they can do to punch back. I mean even President Trump politically, Uh, you know, he's got so much else on his plate that how can he push back

at at both Russian and Saudi Arabia. Just seems like, you know, asking too much, even from someone like him who's not afraid to mix it up geo politically, right, And when we were seeing these headlines, I believe this really Our colleague Xavier Blasso around the Energy team actually tweeted this out and said that the real start of this price war was when Energy Minister Novak walked out of the OPEC meeting and said all OPEC producers are

free to pump at will starting April first. I was really when all this sparked, really angered the saudis UH And the original reasoning for all of this was to attack the U S shale market, which has anyway kind of threatened market share and certainly threatened prices as well. So what we're seeing here is not just a term of kind of we need to flush out the US policy market, but there are geopolitics that play in the U. S.

Is still very much a part of it. When those headlines came out, we were expecting a policy response from the US and and we didn't get much. Lauren, what's the effect of this oil price shock actually on the stock market and on the economy, Because sure, we had the worst day in the oil market since go for But then you think about energy companies a share of the SMP five hundred being at a record low around

three per cent or so. But also at the same time, does don't oil companies make up a pretty large amount of capex spending? Like, how do you think about filtering with oil price shock into examining not just the equity markets, but also the economy at large. Well, we'll start with the economy. This is a net negative for the U S economy period um. I think normally, when you think about oil prices falling, you think about boost to the consumer through lower gas prices, especially in the in the

U S where lots of people drive. But right now, when economic activity is already under stress from the virus, that positive impact can't really make its way through the way it normally would. If if half of us aren't going to work, then you're you don't get that benefit, if you don't have a job, then you then that that's just just such a small impact relative to some

of the bigger picture things going on. Meanwhile, as you're mentioning, we have the energy sector under stress, especially energy services. You and and this, as you mentioned, is such a sector that's already taken such a beating. You know that of of everyone that was struggling before, this energy has had has such had such a hard couple of years.

You don't have the business capex, you have the drag on confidence, and you have this depends on the day but seeming correlation and assets being drawn down that makes the equity market sell offs feel so much worse. It just to me seems like a clear indicator that we won't have the rebound in Q three that people were hoping for, even if the virus does improve a little bit. Yeah, I wanted to ask you about that. That's sort of

odd correlations that we're saying. You know, there's some points during this week where you know, treasure yields actually started rising off the lows. Gold has been really hit hard. I mean, I guess the sort of easy way to to theorize about it is that again it's that dollar funding stress. There's margin calls being made. That's sort of thing. I mean, is it that simple? Do you think? You know? Because it really, in a way it feels like markets

just aren't functioning the way they should be. I think it could be that simple. Hindsight will be on this one. I mean, there's there's there's a lot going on. I think not all of these we talk about cross currents such strong cross currents. Not everything is going to be a one to one. But you have fear, which is of course a big sell off. I think you probably do have some financial deleveraging where investment companies that are under stress or trying to make sales without making a

big deal of things. And and so you're seeing some of what would normally be uncorrelated assets all moved down together. Um. But but for example, in the Wednesday of this week, that was very much the case, like the only things that did. Okay, we're orange juice, you know, in terms of financial assets, um, other days there has been a little bit more of what we would call normal market

activityor normal risk off behavior. I don't know. To me, it seems that that financial de leveraging piece has to be a part of the story, otherwise we would see something consistent across these days. Orange juice, baby vitamin C is. The other one was CoCom which, yeah, maybe you're hungering down and need to feel better, so pretty I'm curious, is you know, you read a lot of the research

and the news in the oil patch. Is anyone predicting sort of what the bottom in oil prices will be or you know, I know a lot depends on where what the sort of break even prices for the Saudi government's budget and the Russian government's budget. I mean, can we depend on those sort of break even levels of the budget to act as a floor. So we've dropped

way past those. And what's key here to note is that the Saudis have been really struggling with this and why this is why they were trying to bring the Russians and and other OPEC members really to the table here, because they need that eighty dollar price level to just balance their budget. Uh and then of course for their RAMCO uh I p O as well, that's a big

part of the story. The Russians can have a little bit more room to play with here because forty is their price limit, forty to forty two, depending on how you calculate. For U shale producers, that number before we hit bankruptcy. And I remember the U S shale patch is a private kind of sector, not necessarily a state owned one. Uh So when you're looking at the U S shale sector, those numbers were forty fifty, were way

past them. And now the strategists and the traders I'm talking to her saying it could go down as low as ten dollars a barrel, which really puts all three players in troubles. So it's a matter of everyone's feeling pain. It's just who can who can who who kind of

calls for mercy first? Right, right? Honestly, the only saving grace that I see in what's going on in the oil sector is that because we've experienced this rapid decline in oil prices so recently, you know, it's only been three or four years since we were experiencing this, we've tested these levels a little bit. We know that shale really starts to hurt before forty below forty five dollars barrel. It's not everybody. The range for u S show is

really right. It's like between seven and eighty or something where companies are solvent, but at forty five level is really sensitive. We also know which countries start to really hurt, and so I think, while that's not good news that those dynamics are coming up again, it is a slightly

more known unknown than the virus. I think if we were experiencing this for the first time like we did through or four years ago, our first times of recent memory, this would this would be even feel even more pandemic pandemonium than it does right now. And then before we get to the craziest thing, I have to ask you, Lauren about the credit markets, because it did feel like that was where we really saw a large change this week.

I mean you think of Boeing drawing down a full amount of its thirteen point eight billion dollar credit line, Hilton drawing down its credit line. Then you have the likes of Blackstone and other firms telling their companies to draw down their credit lines to high old t d X breads jumping. I mean, what's the credit market telling you at this point? Is this at the point where people have to truly start worrying more because we are now seeing some signs of credit stress. I I'd say, so, um,

we're not jumping yet. Um from a portfolio management perspective. And when it comes to are we truly in a credit event, I think we're three to four weeks away. But what we've seen and and this week was the first time we've started to see that pressure in the public markets, but in private credit and private equity markets, deal flow or the pipeline flow has dried up. It's been a couple of weeks. Makes sense, right, You can't

travel to do due diligence. No one's gonna lend in this environment when you're not really sure what's going on. And so I think three to four weeks from now, we'll be looking at companies saying we're not going to be able to do deal flow until the fall. And that's when we start to be much more concerned about the knock on effects of this virus to the economy.

Because if you can keep credit markets stable and secure, and you can and you can keep small busines, this is afloat to sort of wade through a couple of months. You're fine. If we're looking at four months of stress, stress and six months of defaults, that it's a different, different scenario. I love how relaxed you said, Oh, we're three or three or four weeks away from PRIMI major credit. Okay,

but I do wonder. You know, there's been so many reforms put in place in the banking system, and we also you know, in the global financial crisis of of a two eight, the whole credit default swap market was this giant gorilla in the room that had uh grown, you know, way out of proportion to the point there, you know, there was much more default swaps out on certain types of debt than there was actually the debt. You know, it's like ensuring your house for ten times

what it's worth. So I do feel like we've sort of eliminated some of those risks, you know the banking system. Uh, for all the complaints about all the uh, you know, liquidity requirements and reserves they've had to maintain. UM, I do feel like, you know, they're in a better shape to handle a stress. I don't think anyone had ever stress test for exactly what we're being faced with. I mean,

when do we start worrying about the banks? You know, like five or six weeks my my father, My father called and asked me this question this morning, which I think is perhaps telling UM really interesting because you know Dad's and I tend to we were on the same wavelength. Well, that's not what I meant that people laugh at my job. Nobody said, Look, I have X number of months of payroll in the bank. I was feeling really good about that.

Do I need to be really worried about that? And I think because of the regulations that have been put into place, the answer to that question is probably not. I think. I think that the banks are in a really good spot now where what that regulation has done is shift some of that activity into the private credit markets, which is why we're monitoring that space so closely. So UM. Where you did have leverage in the banking system, now you have leverage in in private credit and private equity.

Now that doesn't mean every private equity or private credit provider is in bad shape. Quite the contrary. If you've been investing all along in UM, perhaps you know sectors that are less cyclical or less vulnerable to shocks, or just defineable value creation, then this is probably okay because those aren't going to be the companies that lose all of their cash flow and default in two months. UM companies that were struggling to create that casual in the

first place. That that's where you start to have defaulse rise and so it's not going to be every credit provider out there but that, but that leverage has shifted outside of the banking system to other areas. That's where we need to be focused on from a crisis perspective. Sarah, what is the craziest thing you saw in markets this week? I have to say the craziest thing things that I have seen this week, or just all the trading halls. I mean, I'll get all my my days straight here,

but Sunday night futures go limit down. Monday night futures go limit up. Then we have uh CAST trading circuit breaker on Monday. Then Wednesday night futures go limit down. On Thursday, we have another circuit breaker and cast trading session too, and it's just been NonStop and it's crazy because these huge, huge moves have become such the norm.

And and for me, I mean over the weekend, the last weekend, I was the one who had to sit around on Saturday and prepare a story just in case futures actually traded limit down, not thinking they actually would. And then Sunday night I was in working and helping cover Asia TV when they did go limit down, and it was just all it was all really just so surreal, um and I think it was just really eye opening

as to what we were truly at for this week. Yeah, I'd say i'd be interesting for someone to study, you know, if these circuit breakers helped in any way. I mean at some point, you know, you know when the market is actually acting rationally irrational response to just a very irrational situation. Uh boy, it's it is a surreal feeling, all right. That's pretty good, Sarah. I'll give you. I'll give you high points for that one. I couldn't avoid it.

Creat how about you? What do you have? So oil has been my my big one, seeing almost at de client in oil prices and then trading sideways and oil for the rest of the week, just on any potential news out of the Saudias, in the Russians despite those kind of limit downs, the limit up news that Sarah was talking about, and of course the FED and all REAP operations. Oil not budging after that massive moved. That's pretty good too. That's pretty good, Lauren. Are you come prepared?

Did I have high hopes? So this has been a week where I'm not I'm not even asking could that number be real? When I flipped through numbers on my iPhone. It's just everything's crazy. Um. One of the things that y'all mentioned on the podcast last week is that, um, you know, look at purel on Amazon or whatever, and it's three Um a white belt just like airs seven seven dollars, seven dollars can be yours. That seems about seven dollars over price, right, That's the craziest thing I've

seen in the market this week, that it costs. So no one wants belts, or maybe more people want white belts. Alla, Luke Cava more than we expect. Yeah, you're so so obviously that belt was priced lower before the podcast, and so you have boosted demand for white belts. Amazing. I think you win the craziest thing of the year with that one. That is you gotta love the paying attention to the podcast and the poor Luke he's not here to defend himself, but that's all right, that's right. This

is going to make his month though. That is fantastic. Guess and uh, sir, remind the people about our hotline if if they've seen something crazy in the markets, they can call us. Do you have that number? I have that number handy is always um. You can always give us a call. That number is six four six three

two four three four zero. And if you you have have seen anything crazy in this last week, because we're all sure that you have, or you have any questions, feel free to leave us a message and maybe we'll played on the show. Absolutely and feel free to call and tell us the craziest thing you saw. Lukawa where too. That's that's acceptable. Let me give you a couple of tweets from some of the listeners about the craziest things they've seen this week one guy at I'm assuming it's

a guy at t J Beller on Twitter. Uh. The craziest thing he saw is that almost two thirds of all high yield energy issues are now trading at a thousand basis points over US treasuries. That is pretty amazing. So two thirds of the of the junk energy complex is trading at a full ten percentage points above treasuries. And then we had a couple of requests, uh from some other long time listeners. The head of the Chris Nag fan club, Eli Panamy, wrote in to say better yet,

what has been saying this week? And then uh, a response came to him from j Y Squall at Twitter. Yeah, maybe this week it would be different to do what went fine good in the market. We got nothing for you, guys. I'm sorry. Don't forget the orange juice. The orange juice that's pretty good. Yeah. I have one one other thing. There's a down Jones long short market neutral portfolio of quality stacks um having its best streaks since two thousand

and nine. That's pretty good. Yeah, so something Yeah, Well, finally the long short hedge funds are having their day, I guess yeah, um yet not not too much great in the market. Hopefully by next week maybe we can share some positive things for you, I hope so yeah. Um but with that, hopefully things are looking up from here. Um. But Lauren Goodwin, pretty Gupta, thanks so much for coming on the show today What Goes Up. We'll be back

next week. Until then, you can find it's on the Blueberg Terminal website and app or ever you get your podcasts. We'd love it if you took the time to rate interview the show on Apple Podcasts so more listeners can find us, and you can find us on Twitter. Follow me at at Sara Ponzack, Mike is a prey anonymous, and Kretty Koopta is at Kretty Kopta News. You can also follow Bloomberg Podcasts at podcasts. What Goes Up is produced by tober Foreheads. The head of Bloomberg podcast is

Francesca Levie. Thanks for listening, See you next time.