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I mean I'm just going off what you know technically they suggest 20 off of the low is a bull market we've been having debates almost every day on this network as to whether it's really uh so you're telling me or not so you're telling me so you're telling me pack West stock is in a bull market but your point is well made um so in this environment then you obviously don't like Risk assets if you think that the stock market is at least part of it is in what you're describing to be I don't want to use you know you didn't use the word bubble but it sounds like you're describing something like that in a certain part of the market what what do you like Here and Now again I haven't really changed my game plan for about a year and a half might be even coming out a year and three quarters and that is systematic upgrading in fixed income portfolios uh this is the perfect time to do that because we've had with the stock market going up a pretty nice rebound and a bid that was completely absent uh a few months ago even in Triple C assets which are doing well in the junk bond market but I think this is the time you want to have a barbell portfolio with some risk assets primarily in Bonds in the past we spoke Scott of a 30 60 10 type of portfolio stocks 30 bonds 60 and then something like gold maybe 10 percent that's just a proxy for some sort of real asset take your pick your real asset of choice but now I think you should be 20 stocks uh uh 60 bonds and 20 percent in that real assets the fixed income Market is very cheap compared to the stock market how talked about this you get five percent in a very high grade Bond portfolio with no default risk you can get eight nine ten percent in a well positioned actively managed fixed income portfolio that is taking middle part of the capital structure this juncture Triple C I don't like it all you know even even single B I think is starting to be something you might want to upgrade in away from higher up you can get all these yields and you have all this upside what people don't understand is thanks to the fact that rates went up a lot and the fact that spreads on risk assets and bonds are somewhat elevated they're down from where they were but they're about 450 basis points I mean you're talking about prices that have went from a hundred on these uh credit bonds down to 80 70 60 50.
because of those rate increases and some of the fears when you buy risky credit or moderately risky credit and fixed income at a price of a hundred you've got a really bad proposition because they can't go up very much if the if the prices go up they'll just refinance them because the price is going up means that they can do new issue bonds at lower yields so they'll refinance them and they'll take your coupon away but when you at and you have all that downside if you're at start out at 100 you can go to 80 70 60 50 which is what happened but if you start out with a portfolio of bonds at 60 or 65 cents on the dollar you've got 50 percent upside to par you have stock market like upside maybe even I would I would argue even greater upside than the stock market from these valuations and the downside can't be any worse stocks can easily drop 50 percent we've seen it so many times in my my career and the bonds aren't going down to 32 and a half unless there's a massive default problem if there's a massive default problem stocks are going down more than 50 percent because they're Junior in the capital structure so fixed income right now it has four times the payout of the stock market if you do this kind of barbell I'm talking about and you can hedge it with treasuries because long bonds are not at one percent or two percent ten-year treasury is up near four percent and it could very easily fall to two percent in the wrong type of economic environment for stocks or risky assets that's a 20 gain plus coupon the long Bond could give you a forty percent gain plus coupon that can offset your risk this is an exciting time for the fixed income risk parity if you want to call it that trade because we're back where we were in 2010 and 12 or so where you can get yields and you can and you can risk manage very very uh precisely
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