The Great Debate of 2021

in the US hit a record low this month. Investment grade credit spreads are extremely narrow to this ahead of a FED meeting next week, which is possibly, dare I say it, the last big risk event of So what's the outlook for corporate debt as the year comes to a close. We'll discuss. Sorry you're really chinxing us there with the last capitalized, last capitalized risk event of the year. Wow. Wow,

I really hope not. I'm sitting at a completely wooden desk right now, and you can just imagine me knocking on the bottom of it, because I do it was a risk. We'll all know who to blame. We'll all know who to blame. But it's good to have you back. Sarah was off last week. I was I was trolling you a little bit while you were out. It's good to have you back. I'll make you You'll have to go back and uh and listen to that. To be

completely honest, I I didn't have a chance. Uh, But now I'm going to have to go back later this evening and listen in so that I can get right back at you. Mike. Not surprisingly, it was about your proficiency with the craziest things. I was telling Katie Gray felt don't sweat it. Sarah sets a low bar for this stuff. I would imagine that Katie brought it. She she did pretty good. We'll see how our guests this week's do well. Of course, finish the episode with our

tradition the craziest things we saw in markets. But first before that, we're shifting gears a little bit and we want to talk about the credit markets, which, like all markets this year, what a wild sort of round trip for the credit markets, uh, with the pandemic and then some support from the Fed. So to help us wrap our head is around it all. We are very happy to have the head of North American investment grade credit at Aviva Investors. His name is Josh Lomire. Josh, welcome

to the show. Yeah, really really grateful to be on thank you. Yeah. Yeah. So we're Sarah and I are more of the the dummies in the stock market, uh end of things. So bear with us if some of our questions are are credit markets one on one, but I think some of our listeners could could benefit from that as well, Josh. As Sara put it out, the spreads have have really obviously come back in a lot

since the FED stepped up to the plate. You know, I was looking at just the triple A spreads, which I know is not the hugest basket of credit out there, but wow, talk about a dramatic year that the spreads went up to correct me if I'm wrong, something like three thirty or so basis points in March back down about one thirty and change. Now. So I'm gonna ask you a question that's probably unanswerable, but give us your best guests. Where would these spreads be? Do you think

if the SAID hadn't done what it's doing. I think that's the great epiphany we've all had this year or through the experience was you know, a lot people like to talk about economic cycles in terms of years, and we've we've experienced an entire economic cycles worth of volatility

within within less than twelve months. From a spread per perspective, you know, to your point, we peaked in March and then you know, three hundreds well into the three hundreds, and we're officially now through where we started the year. So you wouldn't have thought that we're still in the middle of a pandemic. You wouldn't have thought we're still recovering from a pandemic if you just look at valuations today.

And so from our perspective, what the Fed did, because you know, clearly they haven't really actually bought too many corporate bonds. They've they've only spent about nine billion dollars actually in in corporate bond purchases in a market that's actually issued one point seven five trillion dollars this year. And so we we've broke and every record known to man or woman in supply this year. It's mind boggling.

Talk about getting your nine billions worth. Huh, But yeah, exactly, I guess it's just the notion that they're there and they've got the checkbook at hand if they need to do more, that's exactly right. It's it's a psychological healing that that can't be underestimated the impact and value that it's provided markets. It's knowing that they're willing and able, and they do have a big check book. They were

willing to write a lot more than nine billion. That just happened to be all they needed to do, which which I think is brilliant policy talk, a big game. Spend as little as you have to to calm down markets and make sure they're functioning. And that's what we got, and that's been you know, they've been extremely responsive and

helpful in that regard. So let's stay pretty broad. I mean, you talk about how unbelievably quick this cycle has been, and I find it amazing just to think about the fact that we have record low junk on yield, we have stocks at record highs, and yet we're talking, or we hear strategists investors talking about the fact that we

are at the beginning of a new economic cycle. Yet from these historic levels, from your perspective looking out into the future, and when you think about constructing your own portfolios, how much has the outlook for even been pulled forward into and how much more is there to look forward to? I mean, especially if you do believe in the fact that we are at the beginning of a new economic cycle,

even seeing financial markets where they are today. Yeah, I think that the great challenge, I think for investors today is to sadly not get too bogged down into the fundamentals. What great advice could have painted some pretty draconian pictures earlier in the year, even in March, after the FED came out and said we were gonna support markets, you aren't really going to know the extent of the true damage in the corporate sector till after third quarter earnings,

really in September. Certain, you know, because even in in June, you know, even the June thirty kind of earning season, you were kind of right in the middle of where the crisis was really ramping up. So the willingness and ability of the market to to price out this virus

and price in a recovery has been spectacular. But but I guess in perfect time site which we're all blessed with, what we've realized is the magnitude and the amount of stimulus that was just thrown at this problem, to the extent that inaggregate wages were actually higher through the crisis. And when you include the stimulus checks and all other things and unemployment, that the economy actually got a boost from a wages perspective, and people were stuck at home

and still able to spend some money. And so I think when you look forward at what's going to happen, and you have more confidence in a in a vaccine, and you have some level measure of confidence that there will be some agreement on stimulus continuing looking forward with potentially you know, Yelling coming into Treasury, working with Powell at the FETE, there's a lot of stars that are aligning to say, we're still gonna do, in any scenario everything we can to try to make sure we're we're

stimulating slash supporting our way into this recovery in twenty one. And so valuations, to your point, have absolutely really started, you know, all year, have really priced in that that

upside outcome for markets. And I think we're in a position now with you know, the things just mentioned that we're probably in a position where the market is going to keep right on pricing into that, uh, that positive outlook around the vaccine and and and things starting to open up, you know, in the let's call it second half of next year. So I feel like, that's what everybody's you know, that's what the momentum and the valuations

are telling us today. You know, Josh, my eyes were popping when I was reading about some of the fund flows into one of the Viva's. One of the funds you manage, the Global Investment Grade Corporate Bond Fund. Ay, you am doubled over the course of twenty I team doubled again in the first half of this year to seven and change billion. I mean, wow, what is going on here? Is it just the proverbial hunt for yield

around the world? And is it? I mean, the sovereign bond market has basically gone away in many respects for some investors with negative yields or you know, in the US tenure yields you know blow one percent? Is it all just that hunt for yield? And is it? Is the i G market kind of playing the role that the sovereign bond market used to play for a lot of investors. Do you think you know, we talk a lot about the sixty Are you guys taking a bigger share of that forty? Do you think? Yeah? I like

that question. It's really important, and it's when we think about a lot and I hope you're right. I hope we are taking a bigger chunk of that forty and kind of would be great. And so yeah, from an a u M growth perspective, I think there's some video syncresies we're doing as a manager in the market that

are that are resonating with clients. But from a broader market demand perspective, you know, when you think about the crisis, what we saw a lot of if clients had a tactical asset allocation where they can where they can quickly move from treasuries to investment grade bonds, they did that or many people did do that, particularly because you know, rates rock bottomed at the same time spreads blue out.

If you believed in the fedback stop, in the potential for for spreads to recover, that was a really nice trade for you at the time. And now that spreads are kind of getting back to the levels we're at today, the debate is now, you know, it's still it's still

the same debate. We're not getting anything from our risk free rate, We're not getting any yield from government bonds, and so right now, you know, if you think about the Royal government bonds place, and this has been the great benefit of sixty forty over the years, it's the ability for government bonds to rally when other risk assets are selling off. And there's still you know, a component of that even at the levels were at for the

thirty year asury. Today you can still rally basis points in an extreme scenario, which is a real positive outcome for those bonds. You're still getting a little bit of that, but you're not getting any carry and so really all you're getting for the most part is a little bit of downside protection and liquidity for a big part of

the market. If if you're a foundation or an endowment and you have calls on your liquidity, you still have to have a big slug of your you know, your asset allocation in the most liquid assets on the market. And so I think what a lot of people are struggling with now, is am I content owning almost zero just to preserve that liquidity? And how much can I push into these other asset classes to generate something of

a return. I want to go ahead and read one of the quotes from the notes that or sent over to us um from you before we actually started discussing on the episode. So you said subdued global growth, continued government and central bank support, and the relative safety of investment grade credit as an asset class may put it in a sweet spot in and I also imagine some of these factors that we've been discussing contribute to that

quote unquote sweet spot as well. But really illustrate that for us, what does a sweet spot and investment grade credit these days actually even look like this? Yeah, the sweet spot to me is really an environment where companies

are incredibly motivated still to repair their balance sheet. So, you know a lot of companies weren't infected nearly as much as you know, the sectors in the in the in the companies at the epicenter of the coronavirus, things like you know, airlines and hotels and in various aspects of retail. You know, they're they're still fighting, you know,

fighting to survive in this type of environment. Others actor's might have taken a little bit of a hit, you know, in their ebit down, they're gonna you know, bounce right back up with with the recovery and so. But everybody took down lots of debt to build a cash hoard in that in that environment, and so the great debate of twenty one is gonna be what do they do with that cash? Are they going to pay it back? Are they going to give it to shareholders? Are they

going to do him and A? Are they gonna are they just gonna buy back debt? And so we're in this environment where it's certainly in everyone's best in your interest to stabilize your leverage, stabilize your ratings, and and

behave yourself. So that that's a positive. You know, even though the spreads look incredibly anemic right now, right where we're anywhere between let's call it the low one hundreds on spreads for investment grade, well you're talking about a base of you know, a treasury market that's you know,

tenure treasuries at closet is only at one percent. And so if you're at one thirty on spreads on the index level and you're at one percent, you're still getting you know, your yield on a corporate bond is you know, in some instance as close to of your total yield

is the corporate spread. And so to be in that sweet spot when you think about investment grade still being an asset class with very low default rates and still quite a bit of liquidity in the market, particularly with FED backing to keep the functioning in the liquidity of the market. Then you can see people say, look, I'm willing to take some money out of treasury is I'm willing to put more of my allocation into corporate bonds.

Because of these factors, you're more than doubling your yield, You're still have a very low probability of default, and you're you're getting a much higher you know, spread for your for your money. And you're also in an asset class that's still pretty darn liquid and also uh low probability of default. And so that's what I refer to as kind of the the Goldilocks scenario for corporate bonds, and and that and that behavior, that balance sheet behavior is a big part of that. So how low could

spreads go? Do you do you think? I mean, is it possible? So think of corporate bonds yielding a negative rate of inflation, a negative real real rate or is that? Is that a crazy notion? And at this point in the economic cycle, philosophically and theoretically, it's a crazy notion that may become a reality. Uh it's times yeah, um, And so yeah, did you jump to the crazy question party? Alright, it's kind of specially, it's kind of you know, I

think we can't. We can keep going from here. And and this is where I make that common on fundamentals versus technicals. If if you focus on the fundamentals, we are recovering. The world's not ending, but we probably shouldn't be at these levels based on where we're at from an economic recovery perspective. But when we go back, there's two points I want to make on on why the market has as a significant ability to continue to grind in from here is because we had one point seven

five trillion of new issues last year. That number is definitely going to go down. Not only did we have one point seven five chillion of new money coming in, we actually rallied through twenty nineteen levels with one point seven five trillion a new supply. So when you have a market, yeah, exact, mind boggling. And sir, you can't blame the Robin Hood kids for this either. I don't think. I don't think they're training. I don't know. I know a few of them, and they haven't talked to me

about pedal and state. Um, so yeah, go ahead. Well, so there's always a risk, right, And uh, one thing you mentioned before that I found interesting is M and A. You know, and I assume there must be a bottleneck of M and A that hasn't been done this year because of you know what a crazy year it is.

Do you see the potential for a big M and A boom and you know presumably that that requires company used to lever up and sort of have a little bit of deterioration and credit quality and maybe you'll see some spread widening. Then is that is that a real risk?

You think it's a risk. I wouldn't call it the biggest risk because you know, what we do know is a lot of companies are flush with more cash than they need, and so there has to be a temptation to look at all the different means with which they

can deploy that. And so I think you're going to continue to see what we have seen where if you think about going into the crisis, you know, there were a lot of companies really you know, that was the that was the m oh they they needed to do M and A to grow And that probably hasn't changed, right, And so if anything, it might give companies an opportunity because of the crisis to pick off firms slower to

recovery steel market share when firms are struggling. But you know, the the rally and equity valuation certainly has taken some of that off the table where they're probably not getting, you know, a sweet deal today based on the recovery and value suations at the equity side. But if you're flushed with cash and you've already got it, you've already issued the debt, you've got one variable out of the equation,

you've already locked in very cheap financing. So him and A may very well well be a great place to deploy that capital. I'm curious, you know, in the equity market, the idea there's been a few narratives around the election, and I got admit, it's a shifting narrative and and uh, you know, for a while there looked like everyone was excited about a blue wave. Now everyone's excited about the

idea of a split government. I think that the moral of the story is people are excited about equities regardless, uh what's going on in Washington. But but how's it looked too from a as the perspective of a credit market investor, Is this divided government, this gridlock in Washington a good scenario? You know, it's to remove some of the regulation risks for for certain industries that sort of thing.

Or where how are you you know, are you worried about the election and and the composition of the Congress next year at all? Uh? Thinking about it at all when it comes to credit. Yeah, I mean, if I think about it, I would say a split government is probably the most um will create the least volatility for

from certainly from a regulatory perspective. And if you think about you know, what's driven euphori and risk assets, it's tax cuts, it's you know, less regulation, it's it's all these things that are no longer at risk of being materially disrupted in the short term. And so I think

on the margin, that's a very helpful thing. Uh. And also I think you're also what we're seeing now is you're also gonna gonna hopefully get to a point where cooler heads prevail and people do come together in a bipartisan way and and work on the things that really matter and get some sort of stimulus package out, get some sort of keep moving the things that are really

going to help the economy. And I've always said, even leading into the elections, you know what happens to the Blue Way, what happens with the you know this or that? And I said, look, the one thing we have going for us is that in any scenario, it almost doesn't matter in the very very short term, as long as we know, no matter what the administration is, the sole focus over the next six months is going to be getting us into this recovery. And I think that's still

the case today. Last question before we get two crazy things, because I know Mike is itching over there at his home in New Jersey, but I feel like we cannot have a conversation about financial markets these days without mentioning stimulus. And we've had this unbelievable monetary backstop, We've had this unbelievable fiscal backstop, and now once again we have Capitol Hill and conversation about get another package? Will will it

not get past what for it? Maybe? But even with all this money flowing through the system, it doesn't completely erase bankruptcy risk. So we just want to get a sense of how you still think about bankruptcy risk and if there are certain areas that you would completely steer clear of if there are areas that you like right now and you think companies are going to be able to go ahead and really get through this recovery even

stronger on the other side eventually. Yeah, that's a great question because you know this this gets into what are you actually doing with your money? Right We're talking a lot about you know, momentum and technicals and stimulus impacting demand, but we always have to stay focused on fundamentals that they may not be driving markets for periods small, short periods of time, um, but they will always you know,

get the last laugh, so to speak. And so from a fundamental perspective, you know what I think we we caution people on and this this came through with with you know, the things the Fed and the Treasury did with the corporate bond buying problem program is don't mistake the government's willingness to to roll maturities, extend debt, help you refinance for bailing companies out, because companies can and will still fail if they are bad businesses with very

bleak outlooks, and so defaulting and bankruptcies is still a very real risk, particularly in sectors most impacted and by the coronavirus and facing a much uh steeper hill to climb to get their revenues back up to to kind of let's call it pre pandemic level. So um, the way we think about it is you should never lose sight of following the cash flows. So you know, some people are going to be willing to to buy a company just because the market was willing to extend them debt.

That's a bad idea in some instances unless you really believe cash flows can ramp quite quickly on our recovery. So when we build a portfolio, and when we think about allocating risk, we look at the entire landscape and say where we actually getting paid to take risk today? If that, you know, plenty of things are rich, not very many things are cheap. But let's just set the entire credit market on on a on a level playing field and say relative to each other, where that where

is their value? And I'm going to talk a little bit about how yield too in this answer. And so within the investment grade market, we think the most expensive part is triple B risk inside of five years, and that's because of the FED buying program. You know, if everybody thinks everything inside of five years is safe and can get built out. That's probably caused the inside of five year triple be part of the market to price

extremely rich. So for that part of the investment grade market, we're actually buying a little bit of high quality short duration high yield. You're getting probably uh let's call it an extra two d basis points and or more of of spread to go into high quality, short duration high yield when when historically, fundamentally that relationship should probably be

a lot closer to a hundred. So you're probably getting an extra hunter basis points of additional spread for the fundamental risk to buy some short duration high yield in the front end. Now, when you think about the other places to deploy some some risk in the investment grade market, because the zero to five year has been so bit up and so rich, now we like to push some of our triple b risk out to six, seven and eight years because you're still getting a much steeper spread.

It hasn't bit up like been bit up like the five year, So you're getting a higher carry and a higher spread. And over the next eighteen to twenty four months you're going to become a five year bond and you're going to benefit from that price appreciation. So that part of the market, the middle of the belly of the curve for triple b's, is where we like more

of our investment grade risk. And we still like owning more defensive positions in the long end of the curve because spreads are so tight, you're not getting a lot of good let's call it risk adjusted carry to own duration. It doesn't take a big move and spreads or interest rates to eat up all your carry in the longer part. So we like more defensive positions in the long end.

So structurally that allocation makes sense to us. From a sector perspective, you're not going to be able to outperform from here these starting point levels if the market continues to rally by just owning all the safe stuff. So you gotta start to cherry pick where do I actually think I'm getting paid to take some beta risk, some higher beta risk. And so if you think about it, I like some defensive, higher quality corporates in the long end.

But if I talk about sectors now, I still think it makes a lot of sense to own some consensus risk in healthcare, in telecom, and in banks, because they're just in a better place cash flow capital capitalization perspective, they churn off big money and they have interest in behaving from a balance sheet perspective, and you're still getting

reasonable spreads in those sectors. So, but if you're gonna start to take some let's call it coronavirus beta risk, you've got hotels, you've got airlines, you've got energy, you've got retail. There's a lot to choose from it, and add and out of that list, we choose to take our we're choosing to take more of our risky beta

risk in the energy sector. And so to end on, I'll say, why why do we like energy today from a higher beta perspective, Because that's a bit non consensus, although it's starting to become a little bit more consensus. Is because of all the sectors most impacted by economic growth in the coronavirus, energy is one of the few that actually has an oligopoly called OPEC plus working very hard and together to set a floor for oil prices.

So if you've got a stabilizing force to really help keep your base commodity at a level where you're not hemorrhaging cash flows, that's incredibly helpful to buy you time for recovery. And I think after the last modity crisis we've had, coupled in with the coronavirus um crisis, you've seen an industry that's you know, been been slapped on the risk a few times now to say, you know, you've now officially have to learn how to live within your means and behave in a way that's very protective

of your balance sheet. That that's that's really not spending on exploration and production unless you have a very clear line of sight that you're going to be making money off of it. And you're seeing a lot of really strong consolidation of these businesses where they're where they're where they're doing everything they can to clear the runway from a maturity perspective and and and bolster their balance sheets.

And so you've got genuine interest, You've got coil prices that seemingly are stable because of the opequ plus UH supply containment, and those things are helping us get more comfortable with that sector having where you don't need a massive, meaningful economic recovery for that sector to continue to heal in mid stream scenario that we like within there as well, um just because it's always been more insulated from oil prices. So instead of the FED put, we've got the OPAC,

even though it didn't that one time oil prices turned out. Yeah, I mean yeah, And I would say, you know, plus is a is a you know, as a large group of personalities that we can't guarantee will will continue to to to to all agree, uh, you know, at all times. But I think that it's in everyone's bested interest to support that the market and do what's best for the

industry as a whole. And we're seeing that alignment, and you're seeing it in prices, you know, uh, you know, gradually getting up from forty to forty five, you know, even approaching fifty to you know, before we've even hit the true economic growth. It's interesting. So it's it sounds like almost a similar which I guess should not be that surprising, but a similar impulse as the sort of growth to value or mega cap to small cap rotation in the equity markets. Have you seen that sort of

put into effect already has has that rotation? Uh, you know, is it too late to get in on That's that's sort of the sector cyclical rotation in the credit markets. Yeah, I know, I don't think so, because if you look at spreads and you look at relationships of spreads, you know they're there. You know, these sectors most affected by coronavirus certainly haven't recovered to pre pandemic levels like so many other sectors have, So so there's still some upside there.

And I guess the other point is what we think about when we're managing our credit strategies is we never try to guess or time the market, and so we're always rotating our beta and rotating our sectors so that we're we always have the same amount of alatility and

our portfolios at all times. It's just where are we allocating our beta risk and where are we allocating our defensive positions, so that we're doing that delicate tango of always making sure we're in the places we feel most compensated to take risk and moving out of the ones

that that are transitioning. And so we're not we're certainly not stomping on the gas here saying we need to have a long risk position at the portfolio level, but we are transitioning some of this let's call it sleep well at night, you know, less impacted risk into a few more of the more exposed sectors, and and and and maybe playing a little bit deep more defense on the side as well to kind of help balance that out. The delicate tango. I like, that's a nice turn of phrase.

I'm gonna be stealing that one. Josh'sah, that's good. And I think that is our que Sarah for the delicate, delicate tango of crazy things, the delicate tango into the crazy. Yeah, stand clear of the craziest things we sawn markets this week. I'm excited, Sarah, because we have so many offerings from listeners this week that it's a lot of fun. We we love to get offering, so I apologies if we don't get to all of them. I think, um, we were a bit overloaded with our crazy thing uh suggestions

this week, but not a good one. So let's let's try to get through him quickly here and give shout out to everyone who's been listening and offering their crazy things. They why don't you get us started, Sarah with the listeners, all right, I'll get us started. And also just a reminder, we also have our Bloomberg Podcasts hotline, so if you want to give us a call, leave us a message. We can even play it on the show. Here. It from you yourself, and that number is six ft six

three to four three for nine zero. Alright, So I'm just gonna run through a couple of these. I got a direct message on Twitter from a Comma Underscore one on one and she sent me a story from Bloomberg. UM, and the headline of that was oligarch son lost fifty million dollars treating at his university. And I'll just read you the top of this story. The son of a Russian oligarch said fifty million dollars in funds from his father didn't disappear because he was hiding the assets from

his mother. The truth, he said was that he lost the money on quote risky trades while he was at university. UM. So there you go. It's not just your Robin Hood traders, or maybe he was using Robin and who knows, but but pretty unbelievable fifty million dollars. I gotta know what he was trading. How do you lose fifty Wow, that's that's I'd love to know what he was in on. I'll have to I'll have to get his contact information and reach out. That'll be the next saga. Alright, so

moving on to the next one. This comes from at Hindsight Cap l lp uh. He says, here's a crazy thing that happened today, and this is wild. Micro Strategy issued a four hundred million dollar convertible bond to buy bitcoin. The convertible was oversubscribed. They're adding to their seven d eighty million dollar holding in an attempt to become a listed bitcoin vehicle. As if there weren't enough crazy things

into love that. I love that one, Hindsight. I think that's that guy must be a fan of our own. John Authors, who runs an imaginary hedge fund called Hindsight Capital where he reads a year end uh column every every year looking. I guess it's, you know, to show how well you would do if if you could invest with Hindsight at the end of the year. Are you a buyer of a bond that's being issued to buy bitcoin?

I think I know the answer is that investment. Yeah, I mean, I think I think we all know by now. Bond investors are paid to be paranoid, So pretty pretty crazy. And then um one last one at Reality Hurts tweeted at Mike and I and he said um g l s I, which is um Grandwunch Life Sciences UM Internet action is a solid hashtag craziest thing candidate. And I'll just to give you a sense of what happened the

middle of this week Granwich Life Sciences sort. This was on Wednesday, UM and the way that Bloomberg puts it as day traders leap frogged each other to get in on the microcap drug developer socent gain in a single day. I'll take it. I'll take it all right. I got a good one over direct message on Twitter from Sam Kidston and let me get the chain of custody of this crazy thing correct. It was actually an Andrea Felsted column for Bloomberg Opinion that was tweeted by Adam Tuesday

and said to me by Sam Kiston. I want to make sure everyone gets the proper credit or blame for this one. And this is a good one, Sarah, because it's got everything I love about a crazy thing. It's an alternative asset and it allows us to play a little, a little game of prices, right. And the column is about how popular dogs have gotten in the UK during during the quarantine. And I can totally sympathize anyone who's quarantining or locked down without a dog. I don't know

what you're doing. I don't know how your pastners. You know, I can sympathize. I'm one of the dog buyers right right, you were, you were this crazy thing for Soonify. So dog prices have have really shot up in the UK, especially for for pure breads. So here's the prices, right, and you're you're on the hook for this too, Josh. How much do you think pure bred dog prices are up in the UK? Anyone? Sorry? How much do you think?

I'm going to go ahead and guess they've doubled? So I'll say game, all right, I'm gonna keep my poker face on, Josh. What do you think you're taking the over under on that? I'm going over right, I'm gonna guess triple triple wow. Wow. I might sell you my dog, Josh, if I didn't say I was Mike. Mike's talking about quarantining with the dog. Clearly there's some day I don't just days where i'd sell him at a at a

deep discount. We'll tell you that I've currently paid my oldest daughter to take him out for a walk so he doesn't interrupt the podcast. So that that tells you that, yeah, I'm gong one dogs. I said, maybe maybe I'm a seller at the right dog cats. It's a so I don't know acculding to the prices right laws? Who who? Who triple? John was? But some dogs have tripled in price though, um Cocker spaniels up hunter and seven percent, Jack Russell terriers up a border colleges a hundred nights.

So you're right. So a lot of dogs have tripled in value this year. I don't know what the resell value is. But what are your what are your? I guess and if we can invest in in uh cocker spaniels, uh see if we can get an ETF that invests in cocker spaniels are a convertible or a convertible bond. It converts bitcoin when you go cous. The port of the columns is a lot of these dogs are out performing big poins. No, it's not. So that's a good one.

That's that's a good crazy thing. Courtesy of Sam Kidston on Twitter. But Josh, how about you have you seen anything crazy this week? You know? My crazy thing? And I was looking this up as we uh. You know, as I was preparing for this conversation, and and I think, I'm still this is nothing incredibly new, but I'm still baffled by it. Um Why people don't just put money under their mattress, I don't know. But we have seventeen point eight five chillion dollars of negative yielding debt globally

as we speak, seventeen point eight five chillion. It's hovering very near thirty percent of the global Egg Index. And and so from my perspective, you know, structurally that doesn't make sense. Structurally that doesn't work. You're not you're punishing, even though you're trying to bail out economies, you're punishing

savers with these kinds of raids. And then the other thing I looked up because clearly a lot of that's in the in the developed markets, in in Western Europe, and I and I was like, oh, remember remember the sovereign crisis, uh in Europe a few years ago. Well now, low and behold old places like Spain, Italy, Portugal and even Greece are now having negative yielding debt out to five years. Greece has negative yilding doubt out to five years.

So that's a pretty crazy thing from it. It's mind boggling. YEA patrol ten went negative this week for the first time. I mean, jush. The thing to me though, was how do you ever reverse that? How did the central banks unwind this? I don't see how it's possible. Yeah, I think, uh, I think the only way you you eventually unwind it. And thankfully a lot of this is you know, government's queueing que eating their own debt, so that's helpful. So from some extent you can just let it roll up

and pay back. But you're right like that. That's one of the counter arguments to the what we hear about. You know, the potential for inflation is uh. You know, if you look at Europe, you look at Japan over the last number of decades um, you know, you you can't have of inflation without growth and and so it's you can certainly get rises in yields due to supply and demand fundamentals. If governments have so much paper they're trying to issue and buyers aren't showing up, that can

shoot rates up. You can clearly have some structural inflation impacts. But yeah, you're it's going to be interesting to see how long this persists and whether we an aggregate continue down this path rates continue to get lower, or you know, with a few shocks and blips along the ways most likely outcome. Well, we've got a FED meeting to look forward to next week, and I'm sure we'll get powells take so plenty to look forward to, but we're going to have to leave it there. Uh, Josh Lomier, thank

you so much for joining the show this week. Pleasure was all mine. What Goes Up. We'll be back next week. Until then, you can find us on the Bloomberg Terminal, website and app, or wherever you get your podcasts. We'd love it if you took the time to rate and review the show on Apple Podcasts so more listeners can find us. And you can find us on Twitter, follow me at at Sarah pont Sack, Mike is that Reaganonymous,

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