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for now the Federal Reserve has drawn the line at fallen angels the investment-grade bonds that were downgraded to junk and we've talked about what that has done for the investment-grade market and the Fed is also buying at the moment high-yield ETFs what if Howard the Fed goes further into junk territory what if it decides that it's okay to buy double B's or perhaps even lower rated debt their arsenal has been described as limitless I still believe that it will only work as long as it works and as long as they are actively doing it look Eric what if the Fed said we're going to be the buyer in every transaction every bond transaction every stock transaction we're going to be the buyer the Fed has an unlimited checkbook you know that they are checks never clear so we we're gonna we're gonna buy forever you know this Fed has increased its balance sheet up to 10 trillion there's no limit we'll buy more well in theory they could do that and in theory they if they bought aggressively they could make all the markets rise now everybody would know that that's a Potemkin market that it's a fake and the minute they stopped things would collapse how do these considerations and concerns affect what oaktree is doing affect what oaktree is buying and when oaktree is buying sure we were very active buyer in the public debt markets in mid-march and then on the 23rd or 4th of March the the government and Fed started to talk about what their program would be and around the 26 they announced it and that drove up prices in the public credit markets to the point where we're not buying as aggressively at this point time so it you know it has it has changed the market from what it would have been if they hadn't gotten involved and that has had impact for us and I think that's inescapable do you think investment opportunities are likely to improve from this point forward where you will see the opportunity the the possibility of making elevated returns again or are we sort of here now and here for the time being well you tell me will the will affect the right to be the buyer on every transaction in which case prices don't ever have to go down in theory you know you'll be better said in theory there's no difference between theory and practice but in practice there is but let's let's talk about the future in a serious way so I mentioned that the rating agencies believe and the investment banks that between fifteen and twenty five or so percent of the high-yield bonds outstanding will default that's roughly four hundred billion dollars that's a lot to buy in April I believe there were 19 defaults or bankruptcies and I believe that's the greatest in history greatest single month in history and we're just getting going you know the defaults and bankruptcies largely occur when companies run out of cash and the fact that 19 occurred in the first full month of the crisis and that the crisis has months more to run tells me there'll be more defaults in bankruptcy and there as I mentioned before there are large highly levered companies and investment vehicles that the government and fed rescue program is not likely to reach and take care of so we believe there will be plenty and you know it it boggles the mind to think that we're going to have a crisis of the magnitude of this one and not have fallout and typically we have been able to profit from that fallout so is that to say that while oaktree was buying aggressively in march less so now it may yet become a more aggressive buyer in the months ahead absolutely I mean they you know like they say in in the football game we take what they give us and the greater the the dislocation usually the greater the bargains which means the greater our buying we think that there's a substantial opportunity ahead
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