원문 보기
well good afternoon and welcome to a discussion with Maria bomo and Jeffrey gunlock my name is Ron Rell president of double line so one of my investors did a study and I was grateful to him for sending it to me he said there's a yield curve signal that has a perfect record of uh comparing the 2-year to the 10-year yield uh on recession and that is you just plot it weekly and you do the 30 we moving Aver average and when the two10 de inverts so it goes back above the 30 we moving average of the twoos 10 that has kind of a perfect record at recession that has happened so it's not like we're 18 months you know you you you'll curve inverse and sometimes takes 18 months for trouble to show up we we've got that happening we're we've got that condition fulfilled and finally we we have uh unemployment now unemployment is not a leading indicator at all it's an ant it's a lagging indicator so where are we there well unemp there was a a report out today that spooked people about job openings uh but the uh unemployment rate has crossed this monthly unemployment print has crossed its one-year moving average which is a necessary condition for a recession we've never gotten one without that happening it's almost definitional you got have to have un employment to have a recession but the one that has the perfect record is comparing that monthly unemployment number to its threeyear moving average 36 month moving average and that has no false positives it it has worked every time and that by our work things can change you never know data can can uh surprise we think that's going to cross over in the first quarter of next year and I would believe it' be very probable to be the f the first or second quarter of next year and then you're you're done so one of the so that's kind of where I think I stand macro wise what does this all mean for the banks how much exposure do you think the banks have to some of these shaky situations with regard to the impact of these higher rates I think I think it's no surprise that the US Banks uh over the last two years on the banking index have underperformed by a lot Japanese Banks and they've even underperformed European Banks and I think uh I did I looked at one of my favorite charts is Deutsche Bank uh just because it's so interesting to see how it never makes any progress it's exactly the same price today as it was in 2016 there just there's just nothing there and that's because of negative interest rates well we didn't have negative interest rates here but we did have zero interest rates for 15 years for a long long time and a lot of loans got written in the context of zero interest rates so take mortgages for example mortgages have an average interest rate say just the agency uh guaranteed mortgage Market have an average interest rate of about 3 and A4 per.
that's it and banks cost of funds is 5 a half% if they use the FED funds window fed funds rate that's a massive negative Arbitrage banks will be hemorrhaging money because these mortgages are so underwater they can't sell them the mortgage index I haven't looked at it in last two days uh but it's it you know they issued them at 100 cents on the dollar the marketto market value of these things on average is like 83 and so you can't sell them you have a 17o loss so what do they do well they give them to the Fed so the FED will let you pledge these these held the security assets uh and they'll give you even though they're only worth 83 they'll give you 100 and that sounds like a good deal for the banks but the problem is the reason the banks need the money is perhaps the depositors want it and so they they get 100 from the FED but they have to give the 100 out right to the deposit so it it doesn't really it doesn't really get them anywhere I just think the banks have have a really bad setup when you invert the yield curve it's bad and when you get interest rates with these types of of unrealized losses I'm not I I I just don't I just don't think banks are a good investment at at all under this uh under this moment I think the other thing I'm talking about though is a significant wind for all banks that there you have you have a you have a negative Arbitrage it's just like a hedge fund when when you are buying assets and they yield seven you know let's just say they yield that junk bond trade you know you're getting 5% with that leverage that that really blows up on you when your borrowing cost goes up to 6 and a half% you've got negative 300 basis points this is just a fundamental systemic problem and the one that's going to feel it the next is the US treasury is going to feel it the next because the treasury isn't funding itself exclusively they have too much short-term debt they do that stupidly but intentionally because they didn't want to pay the the higher rates you know but those those those rates are roll are rolling off so right now the treasury rate is at about 3 and a qu% on average in the the total treasury book but these are roll there's a lot of zeros rolling off so already the interest expense that it that is paid on the treasury debt is up by $400 billion this is one of the reasons since since the FED started raising rates and when they roll off it's going to go higher and higher and higher the deficit is nearly 8% of GDP that's nominal GDP isn't even at 8% so if we had actually not run the deficit this year and balance the budget growth would be negative nominal growth would be be negative so we're living off of all this and the the way that the zero interest rates were Mis mismanaged uh for too many years it's created all of these odd decisions so I did a little I did a little thought experiment um I said what if interest rates uh stay here and let's just say six let's just say interest six nice round number instead of let's just round to the downside instead of three which is what the treasury is paying now what if they go to six well it would take about 3 years for a lot of that to roll through but if you calculate using the cbo's assumptions which are that the deficit is at 4% even though it's at eight right now they're predicting it's going to be at four uh in the future and they predict certain GDP growth probably around 2% real with no recession well if you use those assumptions but just use the interest rate as it as the bonds roll off and get get repaced at six at six you start to get in the next 5 years or so you start to get about 30% of tax receipts going to debt payment if you assume 9% interest rates which is admittedly pretty high although we're kind of at six today if you're at nine and you get a 12% budget deficit as a percentage of GDP which it it sounds crazy high but it was higher it was higher than that uh very recently and we're already at 8% well it's game over because within basically six years you would be all tax receipts would go to interest expense all of them which I think we can all agree is a really big problem what about high yield bonds and I have good things to say about some parts of credit but we just think about one of the fundamentals for highi bonds is default rates and obviously but when you think about 40 Years of falling interest rates with some corrections of course but many opportunities to refinance debt at lower levels have any junk bonds ever really matured or do they default or just get refinanced a lot of economic stress was bailed out through refinancing refinancing of mortgages refinancing of high yield bonds you can't do that anymore you can't refinance the stuff your bonds your bonds are at 67 cents on the dollar which actually makes them less risky because you don't have to worry so much about defaults when your cost is 67 on 100 cents of power value you can have a lot of bonds default with no recovery rate and still show a profit versus your cost but for the companies themselves I think the default rate is going to be very very high um versus what we think we know and now the one of our favorite phrases at Double L is t- Bill and chill you know six-month bill at 550 and but that's not really my recommendation because first of all you you might reinvest it 6 months from now at 2% who knows so I think you would want something more in a 2-year threeyear type of thing and uh floating rate is is still interesting although it's no longer the layup it used to be so Double B bank loans uh AAA structures and securitized credit which will have no defaults those aaa's they float every 3 months and they yield about 7 and a half to 73 4% they're not going to fall and if you're worried about the FED don't worry about it because if the FED raises your coupon goes up simultaneously but we've entered the the the the region of the forest where it's no longer a slam dunk because your benefit is the company's problem right they they have to pay more so you're happy as as a recipient of that coupon what happens if they start to be they're just paying too much you know there's examples of people that were paying four who are now now paying 12 you know yeah and so can they afford 12 well maybe but for how long you know how many people how many are going to go under if we're higher for longer and that's why we've seen a string of bankes already that's what the the FED is saying higher for longer because they're basically saying you you small business buyer you medium business holder you a revolving borrower we're taking you down they don't they don't use those words but that's what they need need to get unemployment up so risk assets anywhere to hide I mean I like I I again I like the fact that if you if you find the middle part of the capital structure in fixed income so I'm not talking about Triple C I'm not talking about single B minus I'm talking about if you're really risk averse you can do some things I mentioned in AAA categories but if you go to uh fixed rate doubleb type of credit Triple B minus and some of it would be in some securitized products or non-g guaranteed mortgages or even parts of commercial real estate which makes people break out into hives don't buy office if that concerns you you can do multif family or you can do hospitality and Leisure and stuff um if their fixed rate they've suffered from the interest rate increase so they were issued at 100 and now they're down at7 cents on the dollar 75 cents 50 cents kind of depends what you're looking at and it completely changes the credit profile when you buy new issue credit bonds at 100 let's just talk about junk bonds you buy them at 100 a lot of them are callable which means that if rates drop they can refinance and of course they're going to do that so if rates drop you've got let's say you have a coupon of eight and the Investor's happy with that but then something happens and they refinance at six well your bond is gone they they pay you off and if you want to buy if you want to reinvest you get six instead of eight so you don't you don't have much upside so if rates fall it's good for the borrower they refinance it's actually not good for the bond holder in in the credit Market it's good for the treasury holder but not for callable debt like mortgages or or junk bonds but if rates rise you go down like a stone you go down with the same part of the treasury curve with some lack of you know with some volatility around that but but largely speaking so you get the prices down and they're are like you know you put a 70 Cent portfolio together that has very very manageable default risk don't assume no defaults but if you buy it 70 cents on the dollar sure the carry uh is is the return is partially the pulled AP par which may not be complete but your carry let's say your coupon was I don't know 5% so you can have a carry of about 6 and a half to 6 and a half% but your credit risk is so small because if your carry is 62% you're earning 6 and A2 and what if 20% of the bonds to fall you get a profit even if you have a zero recovery rate because you bought them at 70 cents say and or 67 cents and you get back 80 we call that a gain so you to to really be worried about that type of portfolio you probably have to have a 50% default rate because you're not going to get a zero recovery but you might get low recoveries but the credit risk just isn't there and and plus the profit potential I mean what if things clear up and what if these prices and this credit profile isn't as scary as it might be under this recessionary scenario well then everything's fine so I I think that's a great place to be I I I and I think though as scared as people are I do think there should be allocation to long-term treasuries simply because they've fallen from a price of 100 to below 50 and I'm not I'm not going to be so optimistic that in the next recession rates are going to drop back to where they were and that Bond goes back to 100 but it can go to 70 MH with rates because I do believe in the next economic weakness period I do believe that there's going to be a bond ra I don't think it's going to last because I think the deficit is going to be so big and the economic response is going to be so extreme so more stimulus of course that's our that's our game plan yeah that's our game plan it's it's more deficit and more stimulus and we're we're basically that's where I go back to this fundamental point the interest expense in the next recession is going to be a nightmare there's there's a lot of people that are getting pretty fed up with the barbell economy of Mega Ultra ultra wealthy people on the in the coastal enclaves ma mega mega mega donors and the and the very poor that are on subsidies and this is a coalition it's a strange marriage you you but the people at the bottom they vote for the the giveaways they shouldn't but they do and the people at the top they've got circular financing schemes going all over the place one what was called the war in Ukraine not no Better Business than blowing up your product to have to make a new one uh and being able to charge whatever you want for it so uh we've got we got a lot of of money that's flowing uh from government activities that goes into the donor bases and gets recycled and I think people are aware of this and I don't think the people in the ever shrinking middle in terms of percentage I don't I think they need to wake up and not keep voting for this ever more polarized income inequality economy but they they haven't done it yet and I when it comes to International investing I really want to see the dollar start falling to to really get excited about foreign investing and it looked like it had a shot it went from I'll just use the Dixie index which is a lot of Euro in there but it went from about 115 down to about 100 and now it's rising again and uh so it's it's not it's not weak and it's a lot has a lot has to do with the FED is the most one of the more aggressive central banks but when the recession comes the dollar is going to fall and I think it's going to fall to new lows and that's when you buy and you s you you go in local currency because that's your big benefit is the prices might fall but might get a very good currency currency translation into your if you're a dollar-based investor I would pay attention to Jay Powell and he's you know he's been a little bit shaky at times but he seems to be pretty clearly messaging these days and it ain't what the market wanted him to say and so I think rat sting at this level is problematic and certainly certainly rates Rising I mean I I think I think if the tenure even goes above and that's not up a lot from where it is today I think that's like a real sticker shock I don't know I I just think the quantitative tightening the level of interest rates the AL the alternatives are now pretty vast versus stock I mean if if if what do people think they're going to get on an S&P that had a 23 PE you know what do you think you're going to get is a longterm return I mean what are your predictions for what what are your predictions for next year's earnings the consens was up 11 that just seems really optimistic to me so the PE is still still above 20 uh I I just think you're better off owning safer assets that have lower volatility where you're actually earning eight or %.
and you can do that in the fixed income Market without taking a ton of risk you can get 8% without a lot of risk I I have a fund which I won't name it I'm not trying I'm not trying to push my funds but we have a fund that's 100% AAA rated floating rate one year average life in the yield of 7 and a half what's wrong with that I mean talk about talk about sleep at night so I I don't I don't I'm not I don't I would think that that getting more than about eight out of the stock market would seem to be kind of implausible over the over the near term on an annualized basis so I think you're better off you're better if you have a known and a half I don't know why I want to roll the dice I'm hoping for an eight
댓글 0