DoubleLine Capital Co-Founder & CEO Jeffrey Gundlach Talks Private Credit Risks | Bloomberg Talks

0:00 [music]

0:02 Bloomberg Audio Studios.

0:04 Podcasts, radio, news.

0:07 We're joined by the firm's CEO and CIO, Jeffrey Gundlach.

0:11 Jeffrey, thank you so much for having us here.

0:13 Yeah, it's good to be here.

0:14 I glad you made a house call.

0:16 Just wanted you to do.

0:17 [laughter] Absolutely.

0:18 I mean, we've got this nice rug, these nice chairs, so we couldn't be happier.

0:22 But let's get right to the good stuff here.

0:24 I want to talk about this moment in private credit.

0:26 There's been a ton of different analogies and metaphors used.

0:29 One of the ones that you've used, uh you said on early in early April

0:33 on X that basically we're in 2007 for private credit.

0:37 I want to talk about the potential dominoes effects here

0:41 because you think about any potential crisis in private credit,

0:44 what is the actual read-through into markets more broadly,

0:48 the economy more broadly, and what does that mechanism actually look like?

0:53 I I think the mechanism is already underway,

0:57 and the mechanism is decline or elimination of trust because there's been

1:02 so much reporting that is questionable in terms of the underlying activity.

1:08 The one I when I point out the one that really grabbed

1:12 my attention last fall was there was a fund that was marked at 100,

1:15 and overnight it was marked at 81.

1:18 Mhm.

1:18 Now that is a hard to understand markdown by a not insignificant sponsor,

1:23 one with a good reputation,

1:25 and a very large staff supposedly doing underwriting and due

1:28 diligence and tracking and all that sort of stuff.

1:31 And yet it goes down 19% overnight.

1:34 Now many people don't quite fully understand ramifications of that.

1:41 They think about a stock, you know, that reports and it goes from 100 to 81,

1:44 and that's a big move, but there was a big earnings miss or something.

1:48 These are portfolios of hundreds of loans,

1:50 maybe thousands of loans in some cases.

1:52 And 100 to 81 means either all the loans

1:56 were marked down 19 points, all of them.

1:58 Or say, since I keep being told that everything's largely fine,

2:02 let's say 50% of the loans are absolutely rock solid.

2:05 That means that the other 50% were marked down 38 points.

2:09 What if 75% of the portfolio is absolutely rock solid,

2:13 which is kind of what the the messaging has been,

2:17 that it's mostly all good, no I remember I think one said no red flags,

2:21 no orange no yellow flags, and mostly green flags.

2:25 Mhm.

2:25 Wait a minute, where's the other slice of the pie?

2:27 No red, no yellow, and mostly green.

2:30 What about the not mostly?

2:31 Yeah.

2:32 that type of thing.

2:32 But if 75% of the loans are absolutely rock solid,

2:35 it means the other 25% were marked down to 20 to 24.

2:39 Wow.

2:40 Right?

2:40 So, but what if it's 10% of the loans

2:43 oops they'd have to be marked down to below zero?

2:45 Right.

2:46 Right?

2:46 So, it's clear.

2:47 And when when when we get these markdowns,

2:51 it would be awfully helpful if they would say, "This is how many loans we have.

2:56 This is the dollar amount of loans we have,

2:58 and this is how many were marked down." Right.

3:01 Cuz we know the dollar amount of the markdown, it's the percentage.

3:04 So, how many are there?

3:06 That would really really big issue.

3:07 But I've been saying, this is not just about private credit.

3:11 This is something that is a is endemic to to market cycles.

3:15 This happened in the IPO of dot-coms back in the late '90s.

3:20 They had no Remember they had no revenue, Mhm.

3:23 plan, and they were selling for large large prices.

3:26 Mhm.

3:26 And then of course, in the lead-up to the global financial crisis,

3:30 you had the mortgage market,

3:32 the non-guaranteed mortgage market exploded in size

3:35 to about where the private credit market is today,

3:37 a little less actually,

3:38 for the those those securitized mortgage, about 2 trillion.

3:42 You know, and boom, and of course that that ended up blowing up.

3:47 It's all because the growth is so fast.

3:50 Right.

3:50 what really drives it, and it can happen when there's a huge liquidity events,

3:54 that money's pumped in from the government,

3:56 some such thing as it was in during COVID.

3:59 And suddenly that money get has to get deployed.

4:02 And it can be indiscriminate.

4:03 So, it's I I use the analogy of the Wild West.

4:06 Mhm.

4:07 This is where I think really explains it in simple terms.

4:08 You've got a nice town, it's 1840,

4:11 and out on the frontier, you got a little town,

4:13 mostly farmers living off the land, and they're all God-fearing people,

4:17 and they got a sheriff there who's got a heart of gold.

4:20 He's like Gary Cooper in High Noon.

4:22 And there's very little crime.

4:23 You know, every now and then there'll be a murder of passion or something,

4:25 but no one no one even locks their doors.

4:27 Yeah.

4:28 They don't have to worry about it.

4:29 And then something happens,

4:31 and maybe it's there's a discovery of gold 3 miles away.

4:34 And all of a sudden all the fast buck artists and con men and rapscallions,

4:38 they come flooding in.

4:39 Not everybody's a rapscallion,

4:41 but a sufficient fraction of them are rapscallions,

4:44 and they're coming in there to hit it big and then get out.

4:47 And suddenly there's murders.

4:50 You can you have to lock your door, you have to barricade your door.

4:53 The sheriff is completely overwhelmed.

4:54 Well, who's who's going to clean that up this time?

4:56 I mean, who's going to be the Gary Cooper?

4:57 And if I remember at the end of the movie, Gary Cooper

4:59 market will be the Gary Cooper.

5:00 The Gary Cooper The market inflicts the pain.

5:04 Yeah.

5:04 And so, you you'll end up having, you know, sales at lower prices and so forth.

5:09 But the it's the trust problem is pretty significant.

5:13 I mean, it appears that many of the investors in the interval

5:17 funds didn't quite understand what was going on with the gating possibilities.

5:22 I'm sure it's in the documents.

5:24 I'm absolutely positive it's in the documents.

5:26 But the investors are being sold to through intermediaries in many many cases.

5:31 Those intermediaries get paid a very large commission.

5:34 I read reporting that there were billions of dollars paid

5:38 to intermediaries selling private credit by the private credit firms.

5:41 Billions of dollars.

5:42 So, they have a lot of incentive to not not focus exclusively on the negatives.

5:48 Let me put it that way.

5:50 Yeah.

5:49 Mhm.

5:49 And so I have a feeling that some people who are

5:52 in interval funds think and maybe they just didn't read the documents.

5:56 Did you read your mortgage documents when you initialed every page?

6:00 I'm actually going through that right now.

6:03 [laughter] So who knows what's in there.

6:04 You didn't read the fine print.

6:05 Yeah.

6:05 Well, we do we live in a disclosure based society, but you make a good point.

6:09 I mean you think about the fine print.

6:11 Did people read it and how do you make sure that they read it?

6:14 But I want to talk about how this develops because we got through the first

6:17 quarter of redemptions and certainly we saw

6:19 some big headlines and some big numbers there.

6:22 You warned about the Ides of June on CNBC last week.

6:27 I want to talk on Bloomberg about what that means.

6:29 Are you expecting even bigger redemptions

6:31 when we get those second quarter numbers?

6:33 I think if I went in front of a crowd of 2,000

6:36 people who are somewhat familiar with private credit and said show of hands,

6:40 who in this room thinks the redemption requests are going

6:43 to be higher than the in June than redemption requests in March,

6:47 I believe virtually every hand would go up.

6:49 Mhm.

6:52 [snorts] Uh because what it's just human nature.

6:53 When when you can't get out, it makes you want to get out even more.

6:56 And there on the panel that I did at the Milken conference yesterday,

6:59 there was this this statement made by one of the private credit

7:03 people that it's really public credit that's at risk, not private credit.

7:07 Because since they can't get out of the private credit, we don't have to sell.

7:10 See, that's one of the beauties of private credit.

7:13 So obfuscation is now a synonym for beauty.

7:16 But uh you know, they say that because they can't get out of the private credit,

7:20 they're going to sell their public credit.

7:22 They're going to sell stocks.

7:23 It's going to be bad for the stock market.

7:25 They're going to sell uh high yield.

7:27 They're going to sell bank loans.

7:28 They're going to sell corporate bonds.

7:29 And I said, you know,

7:30 there's a certain intellectual attractiveness of that concept.

7:34 The only problem I have with it is it's not happening at all.

7:37 Mhm.

7:38 No, it's just the stock market is not in trouble.

7:40 It's at new highs.

7:41 Not today, but it's it's near the highs.

7:44 The the loan market's not in trouble.

7:47 They're up they're up near par.

7:48 The high yield market isn't in trouble.

7:50 The spreads have tightened right back down to where where

7:52 they where they started from at their lows of the year.

7:54 So, it could happen that that that that logic may apply to the future,

7:59 but it's not happening now and with all

8:00 of the noise and all of the redemptions that weren't met,

8:04 you'd think if there was something to that concept,

8:06 [clears throat] we'd see more evidence of it and that's not happening.

8:09 this play out though?

8:10 Cuz I mean, hearing you talk,

8:11 I'm having flashbacks to kind of like 20 years ago.

8:13 I mean, the same thing,

8:14 people weren't reading and and what was packaged into these into these mortgage

8:18 bond deals and and then once they found out what was in them,

8:21 it was kind of this rush, but it was a slow-moving rush.

8:23 I mean At first, that that that this will be slower, I think,

8:27 because the the the the stresses in the subprime

8:32 market were being tracked by the the ABX indices.

8:36 We could buy an ABX tranche of double B, double A, single A, triple A.

8:41 And the the triple B's started to fall pretty noticeably in early 2007 and they

8:47 got down to about 80 and a lot of people thought it was over.

8:50 That was the end.

8:51 And it was actually a buying opportunity,

8:53 but obviously it wasn't a buying opportunity and but you

8:56 could see it on the screen every day.

8:59 And you and you could also see

9:01 on a monthly basis the delinquency starting to pile up.

9:04 This is more of a quarterly cycle

9:07 with these with these interval funds and so, they get arrested.

9:10 You know, once they once they go through the painful process of gating them,

9:14 they now have, I don't know,

9:16 10 weeks where they have to revisit that topic again.

9:19 So, we know beware the Ides of March is from Shakespeare's Julius Caesar

9:23 and that was about it's about you shouldn't go to the to the the capital,

9:26 you know, the Ides of March was March 15th.

9:29 Turns out the Ides of March is not always the 15th.

9:32 It has to do with them how many It has to do with when the full moon is.

9:36 So, the Ides of June this year, I believe is June 13th.

9:39 I looked it up one time I thought I saw June 23rd I think it's June 13th.

9:42 It doesn't matter which one it is.

9:44 Beware of the Ides of March because that's when

9:46 around when the redemption requests are going to come in.

9:49 Are we going to see true defaults?

9:51 I don't mean like these these kind of shadow

9:52 defaults or whatever the heck we're calling it these days.

9:55 Are we going to see true defaults in any sort of meaningful way?

9:57 In private credit?

9:58 You already are.

9:59 You already are.

10:00 We've seen markdowns from 100 to 81 on a very large private credit fund.

10:04 Yeah.

10:05 They're not calling them defaults.

10:06 Does They believe they're at par if they

10:08 believe they're not on the way to default.

10:11 I've seen statements not by every private credit company by a lot

10:14 of them that they they said that's how they justify the 100 to zero.

10:18 Remember the 100 to zeros that we saw last summer?

10:21 You know, they didn't they one one day had to make a binary

10:26 decision that yesterday we thought there was a chance of this paying off.

10:30 Today we don't think there's a chance of paying off.

10:33 100 to zero.

10:34 It's not going back up.

10:35 It's it's written off.

10:37 And so there's there's there's plenty of write-offs happening.

10:39 I mean as I saw today there was another fund that marked its its NAV down 5%.

10:44 Now that I think is something you're going

10:46 to start seeing more of because it's a lot

10:48 more defensible to mark a fund down 5% three

10:51 times than to mark a fund down 15% overnight.

10:54 You can spread it out over three weeks.

10:57 You know, it's a little easier to wave

10:58 your hands about it rather than 100 to zero overnight.

11:02 And so it's pretty clear to me that the trust is starting

11:07 to dissipate because everything's always one

11:09 off and it's always at somebody else.

11:12 It's Lake Wobegon on on steroids.

11:15 Every firm is top decile.

11:18 Well Jeffrey, I'd love to get your thoughts on some

11:20 of the recent efforts we've seen

11:21 to make private credit basically more transparent.

11:25 Here's two different headlines from Bloomberg yesterday.

11:28 One of them is Apollo to start reporting daily prices for private markets

11:32 and then you had JP Morgan creating

11:34 a new index tracking 6,400 private companies.

11:38 So, there is that effort out there.

11:40 I mean, do you think that initiatives like this are helpful?

11:43 It's It's very confusing because they they started out in the early

11:48 days saying this was a positive feature that we're not marking to market,

11:51 which is a strange thing because it's certainly

11:54 my my institutional clients don't feel that way.

11:57 Yesterday I came up with this idea.

11:58 Maybe what I should do is go to my institutional,

12:01 you know, regular investment grade bond clients and say,

12:03 "Why don't we not value your portfolio at every month end

12:08 with the last close of the day for your performance report?

12:11 Why don't we use a one-year moving average?"

12:13 You should try it.

12:14 Why not?

12:14 Because it appears that people find it attractive.

12:17 Isn't That's one of essentially the major selling points for private credit.

12:21 It It has what Sherman has has termed laundered volatility.

12:25 Basically, everybody knows that the prices are moving.

12:28 They say that private credit really earned its stripes during

12:32 the the lockdown the COVID lockdown because it held up.

12:36 Mhm.

12:37 Well, corporate credit bonds would have held

12:39 up too if you didn't mark them down.

12:41 Does anybody really believe they could have sold private credit loans the first

12:45 week of April uh 2020 uh 2025 say during the taper tantrum?

12:50 They could have sold those loans at cost?

12:53 Mhm.

12:53 It's It's absurd.

12:54 Of course they could.

12:55 Nobody thinks that.

12:56 And but instead of saying, "Yes,

12:58 we could have sold them." They say say, "You're missing the point.

13:01 We don't have to sell them." And that's what's so great about it.

13:05 Well, okay, but if I use moving average

13:07 marks on my portfolio of publicly traded bonds,

13:10 I'll probably have three times the sharp ratio.

13:13 It'll be the same return ultimately over the fullness of time,

13:15 but it'll look different because it won't be as bumpy.

13:18 And that's kind of the number one characteristic.

13:20 It was always sold as being lower volatility.

13:23 Right.

13:24 Everything's lower volatility if you don't mark it.

13:26 Nobody thinks that private equity is really lower volatility than public equity.

13:31 It's It's just It's just the vehicle that it's in.

13:34 And then it was sold the second

13:35 The second sales point was the higher historical returns.

13:40 That's almost all born of 2020, particularly through 2022,

13:44 when the public market and corporate bonds went down 15

13:47 to 18 points in price thanks to rising interest rates.

13:51 You don't mark them, you've got 18 points better performance.

13:54 Well, I I'm curious about one thing.

13:55 There's been a lot of talk about sort

13:56 of this new sort of wave of vintages that might be

13:58 coming down the pike and sort of what the what

14:00 the potential yield might be on that that's offered.

14:02 But more importantly,

14:03 the demand it will the demand be there in the same way that we saw,

14:07 you know, 7-8 years ago in the last vintage cycle.

14:09 I I doubt you'll see you'll see a repeat of the glory days when the public

14:14 markets had zero yield and the private markets

14:18 had both of the yield and the hidden volatility.

14:22 You know, if I if I just use moving averages, I'm I'm I'm actually surprised.

14:26 I I might I wonder if I can get get the regulators

14:29 to allow me to do a mutual fund that uses one-year moving average pricing.

14:33 [laughter] I I kind of doubt it, but if I could,

14:34 I mean, I think it would be a a massive success.

14:37 Right.

14:38 Well, I do want to talk a little bit about vehicles here because,

14:40 you know, you mentioned interval funds.

14:42 You think about these non-traded BDCs and you think about the last year.

14:46 I mean, there has been a real push to put retail and open up access to

14:51 the the machine has kind of reached its limits with institutional investors.

14:56 And I've seen it written, which is a little bit concerning to me.

14:59 I don't even know exactly what they mean underneath this, but they say,

15:02 "We need to go to retail to keep making loans."

15:06 It's almost like you have to always add your investor base.

15:09 What does that sound like?

15:11 Well,

15:12 What does that sound like?

15:12 You can't You can't go forward unless you

15:14 get attract more and more and more investors.

15:16 What does that sound like?

15:17 I don't know.

15:18 I think they build Sounds like a social security system.

15:22 Well, I am curious whether or not you think that, you know,

15:24 we're going to see some of that push die down here,

15:27 whether we are going to see demand from retail heading forward here.

15:32 I'm not sure it'll cool.

15:33 I I think there will be for sure heightened redemption requests.

15:39 There may be some people that think that it's it's a buy.

15:43 Mhm.

15:43 Um I would recommend against that because my experience is long and I

15:48 have a very strong memory and I know the way these things work.

15:52 You have the fush first push down and it looks cheap by historical prices.

15:57 Mhm.

15:58 And then some intrepid people decide they're going to take a take

16:02 a punt on it and they buy it and it pushes it up somewhat.

16:05 That's what happened in subprime.

16:07 Like I said, the the triple B ABX went out from 100 to 80

16:11 and then it rallied up to like 92 or something before it went to zero.

16:14 Mhm.

16:14 Uh but but so I I I think there'll be some people that think that it's a buy,

16:20 although there's an inconsistency between everything's fine and our NAV

16:25 was marked down 1% but this is the greatest opportunity.

16:29 You got to buy now because it's down a whole a whole whopping percent.

16:32 So, I think there'll be people that buy it and then sell it lower.

16:36 Yeah.

16:36 I am curious though, if we do end up in a crisis,

16:38 there's been a lot of talk as to what capacity the government

16:40 would have to even bail things out the way they did, uh you know, 20 years ago.

16:44 I I have a really hard time thinking about a government bailout on this one.

16:48 Mhm.

16:49 Okay.

16:49 The last one they were able to wrap it up

16:51 in the little guy on Main Street losing his house.

16:54 Right.

16:54 This is the richest guys in the world making money in the wild west.

17:00 Mhm.

17:00 And so I I They might do it.

17:03 I mean, it might be possible.

17:04 I modified the mortgages that was against

17:07 the law and in violation of prospectuses, so a lot of weird things can happen,

17:11 but I I I don't I think I think you get a government bailout.

17:15 The the pro- the problem would have to grow so

17:18 large that it wouldn't be possible to the It's weird.

17:21 They could do a bailout if it if it was a if it was not that large a problem,

17:24 but then the public would go, "What are you doing?

17:26 You're just wiring wiring money to these billionaires.

17:29 Yeah.

17:30 You've already given your tax breaks to, even though that's largely a myth.

17:34 But, that's the way that's the way the public has been thinking.

17:37 when you look at when you look at the fiscal situation,

17:39 particularly with the interest expense continuing to rise higher than defense,

17:43 I am curious what you think the Treasury Department

17:46 is actually doing right now with regards to its issuance,

17:49 primarily on the shorter end of the curve,

17:51 and what at least from what they've communicated

17:53 is probably going to be their strategy going forward.

17:55 Do you trust in what they're doing?

17:57 Uh well, trust is an interesting word, but I they they um they're already

18:02 issuing the vast majority of Treasury debt short-term.

18:05 Most most people aren't aware of this.

18:07 Over the last year, and it's been the case for the last few years,

18:10 about 85% of all Treasury issuances inside of 1 year.

18:14 Mhm.

18:15 And you know what percentage is longer than 20 years?

18:18 Mhm.

18:18 Under 2%.

18:19 Actually, under 1 and 1/2%.

18:21 Mhm.

18:21 So, it's already it's it's funny the long end gets so much attraction attention,

18:26 but it's really not the area.

18:28 They're already doing it all on the short end.

18:30 The the big mistake was that we didn't go much

18:34 more heavily on the long end when the yield was one.

18:36 Mhm.

18:37 You know, because now the yield's up at five.

18:39 Mhm.

18:39 So, it's up 400 basis points.

18:41 Those bonds those 1% or 30 years, they're still down at 50 cents on the dollar.

18:46 Right.

18:46 Still.

18:46 I mean, they're still on their lows because the yield

18:48 is up within 10 10 basis points of its high.

18:50 But, the market keeps absorbing this.

18:52 Well, maybe maybe it's being manipulated.

18:55 I mean, they talked about yield curve control,

18:57 but you but rates It has the market really been been dealing with it

19:01 because since the Fed started cutting interest

19:04 rates back in September of of 2024, the the long rates are up 100 basis points.

19:11 They They're they're are up and I think they're going

19:14 to continue to go up even if there's a recession.

19:16 In fact, I think if there's a recession,

19:18 they'll go up even faster because people will be worried

19:21 about the management of the interest expense and it will get

19:24 to the point where something has to be done about it

19:27 and it could be that the government does yield curve control.

19:30 Scott Bessent talked about yield curve control Mhm.

19:33 as as a tool and that and we used

19:35 yield curve control after World War for about a decade.

19:39 They did it in Japan for decades.

19:41 So it can be done.

19:43 They've done quantitative easing so they can buy whatever

19:45 bonds they want and they could just buy long bonds

19:48 and bring the the yield down to whatever they want

19:50 it to be as they as they did it in Japan.

19:52 Now, that that didn't work that well from 1945

19:59 to 1955 because once they stopped doing it,

20:02 you went into the a huge bear market and treasury yields went up to 15% Mhm.

20:07 even on long-term treasuries and T-bill rates were taken above 20%.

20:12 So will they do that?

20:13 Possibly.

20:14 That's a that's potential tool.

20:16 I have an idea which I've already acted

20:19 on in in some of my portfolios where it's appropriate.

20:21 Go on.

20:22 Which is um one of the greatest things ever because in investment business,

20:28 if you can eliminate a risk without paying anything, you should do it.

20:34 We can agree on that?

20:34 Done.

20:35 And if you take a risk, you should get paid something for it, right?

20:38 Fair.

20:38 Okay.

20:39 So if you can ever eliminate a risk at zero or no cost, you should do it.

20:43 Mhm.

20:44 So I was thinking, what if they go crazy

20:47 and amplify and implement Scott Bessent's suggestion of late 2024,

20:53 which is we should lower the coupon

20:56 on our foreign treasury holders and extend their maturity.

21:00 Now, how do you know who the foreigners are?

21:03 Foreign investors can hide behind any entities.

21:05 So that's really an implemental implementable idea,

21:10 but it shows a glimpse into the thought process.

21:13 Do you think they'll try that like a ultra long ultra ultra long bond?

21:17 Uh I don't think they'd get many buyers for it.

21:20 I think what they'll do instead is a re

21:26 restructuring of the existing debt holders as possible.

21:29 I'm not saying this is a 30% chance even, but what if they say, "You know what?

21:34 Our interest expense is now $3 trillion.

21:37 We had We had a recession.

21:38 Rates have gone up.

21:40 We're now issuing these 30-year bonds at at 6%.

21:43 We can't afford it.

21:44 You know, we're we're we're drowning here.

21:46 So, what let's just say every maturity bond that's is outstanding same maturity.

21:52 We won't We won't bother extending.

21:53 They could extend them, but you don't want to get people super mad.

21:56 So, you say, "We're not going to extend your maturity,

21:59 but we're going to drop the coupon to the following.

22:01 The lower of the existing coupon and one.

22:04 So, you would take the entire stock of Treasury debt,

22:08 which has a an average coupon about four.

22:10 Right.

22:10 You take it down to be one.

22:12 So, you would bring the interest expense down 75% overnight.

22:15 And so, you would go from $3 trillion, you know, to to 1/4 of that.

22:21 Okay.

22:21 So, you're down at 750.

22:22 And so, you'd be half of where you are now.

22:25 So, that would be the ultimate way of kicking the can down the road.

22:28 We always We always seem to say we're running out of road.

22:30 Well, that would be a new a new road's being paved.

22:33 Right.

22:33 We can We can kick it down.

22:34 Now, what would happen?

22:35 Well, of course, bonds the the bond holders would be super mad.

22:39 The ones that owned the sixes that were issued 10 years ago as 30 years,

22:44 they would go down like 70 points.

22:46 And all those bonds would be worth 30.

22:48 And the government would not be allowed to borrow for generations,

22:52 which is the solution to our to our our our our debt addiction.

22:56 Right.

22:56 We We could do that.

22:58 So, what did I do when I thought of this idea some time ago?

23:01 Actually, it's 2 years ago now.

23:03 I said I called up I was on the road

23:04 talking about the potential for this and I said you know,

23:07 you're talking too much and you're not acting enough.

23:10 Uh-huh.

23:10 So, I called up my treasury desk and I said in certain funds,

23:14 including our flagship fund, I said, you know,

23:16 I want you to go through our our treasury book and analyze all the maturities

23:21 and I want to keep every maturity

23:22 the same because we like our yield curve positioning,

23:25 but I want you to take what we own

23:27 and swap it for the lowest coupon existing in that cohort.

23:31 Mhm.

23:31 Now, not only do you not have to pay

23:33 a penalty for that, you pay a little liquidity penalty,

23:35 but our fund is so liquid it's it's it's not an issue for us.

23:39 Um you pay a little bit, but you actually pick up yield.

23:42 You actually pick up yield because the the onezies

23:46 and the one and a halfskis out there, they're off the run.

23:49 The on the runs trade at the lowest yield, so you actually pick up yield.

23:52 So, you're being paid to eliminate a risk and I I

23:55 took uh the coupon in our in our long bucket Mhm.

23:59 of treasury from four and three quarters to one and a half.

24:02 So, if that blows up I'll be a hero to I'll

24:07 be a hero just like I was in the global financial crisis.

24:09 Yeah.

24:09 Because because when you sidestep something and you go and people go I could

24:15 have done that because you're actually not paying a a penalty for doing it.

24:20 right.

24:19 So, we'll see if the onezies and twozies start rallying tomorrow.

24:22 Well, you're going to be the first person we

24:23 call if we do see that sort of restructuring,

24:26 but we only have a few minutes left with you and I do want to talk

24:28 a little bit more about positioning because you

24:30 told our colleagues Joe Weisenthal and Tracy Alloway,

24:33 I believe it was back in November that you would recommend

24:36 a 20% cash position basically to hedge against some sort of market implosion.

24:41 Is that still your recommendation?

24:43 What is the ideal allocation right now?

24:45 I kind of like 20% in cash.

24:47 I've had allocations higher than that at times.

24:49 I just think markets are very very high.

24:52 I mean, yields I think are going to rise.

24:55 I've said that I earlier this year people were betting on two three

24:59 rate cuts this year and I said on national media I said you

25:03 know if you're buying risk assets on the back of only two rate

25:09 cuts is is your high conviction idea you're back in the wrong horse.

25:13 We're not going to get rate cuts this year and now I

25:16 think that narrative has become not uncommon that we're not getting rate cuts

25:20 and they will get a rate hike but cash I think you

25:23 can deploy it lower evaluations risk assets and higher yields on fixed income.

25:29 I've liked commodities for a long time.

25:32 I like about a 20% position.

25:35 I personally have a higher one but for most

25:37 people 20% position in something that's real assets.

25:41 And the Bloomberg commodity index is perfectly fine for that.

25:44 It's doing great.

25:46 It's been super strong.

25:47 It's new high.

25:49 It's It's above all moving averages.

25:51 It's due for a pullback but it's so

25:52 broadly diversified and so many commodities are under upward

25:56 pressure based on the oil prices particularly food

25:59 commodities which haven't really even filtered through three years.

26:03 So I like that.

26:04 I I go on and off on gold.

26:05 I was very big gold bull entering 2025 and I was asked when it was

26:12 at 2970 I was asked on national TV do you think it's going to go above 3000?

26:18 And I said what kind of a forecast is that?

26:20 Is it going to go up a percent?

26:22 I mean come on.

26:23 I said I think it's going to go above 4000 [music]

26:25 by the end of this year 2025 and it went to 5500.

26:28 Jeffrey this has been a wonderful conversation.

26:32 [music]