YouSaid · the spoken record

Harley Bassman

lines on the record: 78
first: 2022-10-10
most recent: 2022-10-10
sittings or episodes: 1
sources: podcast

Every line below is reproduced as it was said and linked to the record it came from. Nothing here is summarised or generated. Directory · Search · Corrections

“Making no comment on the back end or the stock market, I think the front end of 460, I mean, I I think that's going to be. I think it's going to be because I think the economy goes into a recession in that time frame.”
2022-10-10 · Forward Guidance · The Bond Market Is Already Broken - Stocks and Housing Are Next | Harley Bassman & Joseph Wang · IDENTIFIED FROM THE TRANSCRIPT
“I agree. I don't actually know if they're smart or dumb. I think some people are. I like JPALA. I think he's a smart guy trying to do the right thing. I think he's trying to do the right thing. It's going to be hard because I have confidence in him.”
2022-10-10 · Forward Guidance · The Bond Market Is Already Broken - Stocks and Housing Are Next | Harley Bassman & Joseph Wang · IDENTIFIED FROM THE TRANSCRIPT
“But that's not their gig. Their gig is like, you know, managing the global economy and the dollar is the reserve currency, which by the way is our most important power source in the world. Everyone uses dollars. We control everything. We don't want to give that up.”
2022-10-10 · Forward Guidance · The Bond Market Is Already Broken - Stocks and Housing Are Next | Harley Bassman & Joseph Wang · IDENTIFIED FROM THE TRANSCRIPT
“The helicopter money that the Fed had already printed, and now the barns on fire, and then the Fed shows up. In theory, they're supposed to be there hosing down the haystack before the match comes in. Like that's supposed to be their job. The old expression is taking away the punch bowl when the party is about to get started. They're here late now. Is it their fault? I mean, we had COVID, man. It's like I can't really say that they're dead wrong. It's a little wrong. They should have started cutting rates a year before. They didn't. So now he's on the boat. The boat's going down. What's he going to go and do? I don't know. A lot of people call the Fed dumb or names. I don't believe that the Fed is dumb at all. I think they have a utility function that is very different than ours. We want to go and trade or make money and invest.”
2022-10-10 · Forward Guidance · The Bond Market Is Already Broken - Stocks and Housing Are Next | Harley Bassman & Joseph Wang · IDENTIFIED FROM THE TRANSCRIPT
“A good turn of phrase, by the way. The idea was being that When we went and started QE a dozen years ago in the money printing, lots of us said the Fed's printing money, we're going to get inflation. Were we wrong? No, we're a decade early. I'm you Chicago, man, okay? You print money faster than the economy. You get inflation. What's there too of this whole thing? It's not that hard to figure out. The timing could be rather suspect. It took the Roman Empire four hundred years to collapse. So, I mean, why can't it take us 10, 20 years for it to bleed into the system? But the thing is now this haystack of money was lit by Trump and Biden. They both gave money out. They both gave out tons of money to people during COVID and after. And that money, it got spent finally.”
2022-10-10 · Forward Guidance · The Bond Market Is Already Broken - Stocks and Housing Are Next | Harley Bassman & Joseph Wang · IDENTIFIED FROM THE TRANSCRIPT
“Oh, yeah, no, let's just quarter end usually get a big jump in reverse reboot facility. There's seasonality there. So we're just seeing the unwind. I still think the reverse repo facility trends higher. By the end of the year, it's going to be yielding at all 3-4%, 4% probably. A lot of people are going to move cash to the money market funds who will have nowhere else to go by the Rivers February facility. You can get 4% in a money market fund. That's a pretty good deal. There's no interest rate risk. next day liquidity i think it's an attractive asset”
2022-10-10 · Forward Guidance · The Bond Market Is Already Broken - Stocks and Housing Are Next | Harley Bassman & Joseph Wang · IDENTIFIED FROM THE TRANSCRIPT
“I think Bink's fairly sophisticated. They hedge that. I wouldn't expect to see losses from stuff. There are maybe smaller banks or other financial sector entities who are not as sophisticated or maybe they wanted to take a little bit more risk. But the big banks, I think they're very tightly regulated. They would hedge that. So about bank earnings, you're exactly right that when interest rates go higher, banks, you know, maybe they earn more money. For example, if you have cash on deposit at the Fed, which I'd say JPMorgan has a few hundred billion there, you were earning about zero. Now you might be earning 4% just on that catch at the Fed. So that's one aspect, the interest income. But there are other aspects of banks as well. For example, they have a lot of capital markets and a lot of advisory stuff. So when you have a slowing economy, those businesses, they don't function as well. There's not as many NM&A deals. There's not as many IPOs. So it's not all good. It's not all good for them. It really depends on your business mix.”
2022-10-10 · Forward Guidance · The Bond Market Is Already Broken - Stocks and Housing Are Next | Harley Bassman & Joseph Wang · IDENTIFIED FROM THE TRANSCRIPT
“If the Bank of England didn't step in. So to me that suggests that eventually the government was going to have to come in and backstop youth at some certain level to prevent this widespread distress in the financial sector. At what level? I don't know. It seems like the Bank of England has come in and they said this is too fast or the level is too high. And we could see that happen in other markets as well.”
2022-10-10 · Forward Guidance · The Bond Market Is Already Broken - Stocks and Housing Are Next | Harley Bassman & Joseph Wang · IDENTIFIED FROM THE TRANSCRIPT
“Similar to what happened for the mortgage wreaths in 2020, of course. And so what happened was the Bank of England had to step in and stabilize the guilt markets. So I think this example is really good because it shows us what happens when interest rates go higher, not just in the US, but throughout the world. There's a lot of people who hold these sovereign liabilities like treasuries, bonds, guilts, and so forth, and they hold them as liquidity, as safe assets, but they're not actually safe because they can have equity like price volatility when rates go higher. If you're looking at a 10-year treasury or a third year, Jim Bianco has a great, great graph showing how the market value of all this fixed income is going poof. When your safe assets are not actually safe, then you're losing money and maybe eventually you might have some solvency issues, which is what could have happened in the pension.”
2022-10-10 · Forward Guidance · The Bond Market Is Already Broken - Stocks and Housing Are Next | Harley Bassman & Joseph Wang · IDENTIFIED FROM THE TRANSCRIPT
“So I'll tell you I read about this, and this is my sense from what I'm reading. I wasn't there, but it seems like Jack, as you mentioned, there's two things. One is that you had a lot of pension funds who have longer dated liabilities. For example, in the future, someone's going to retire and they need to pay out their retirement benefits. So that's a long-dated liability. And in order to match that liability, one of the things they would do was they would buy longer dated guilts, and they would also get more interest rate exposure through derivatives. So they received fixed and paid floating. So they have some leverage there through their exposure to derivatives.”
2022-10-10 · Forward Guidance · The Bond Market Is Already Broken - Stocks and Housing Are Next | Harley Bassman & Joseph Wang · IDENTIFIED FROM THE TRANSCRIPT
“It depends if you're going to say when I'm in the recession real time or when the referee calls it, which is usually six months later. So usually there's a conference board or whoever it might be, they say the recession started six months ago. Thanks, guys. A little late now. Limberg landed. So it's really a matter of when the actual recession happens, the Fed will start cutting then. But it actually will not be announced until later.”
2022-10-10 · Forward Guidance · The Bond Market Is Already Broken - Stocks and Housing Are Next | Harley Bassman & Joseph Wang · IDENTIFIED FROM THE TRANSCRIPT
“And Harley, what's so perverse is that yield curve inversion, particularly they tend to spread, is a harbinger for recession, yes, but it does not mean that we are in a recession now. Before we go into a recession, the yield curve will re-steepen, maybe because short chain rates collapse, because the Fed pivots, or because long-term rates rise, that is actually when your recition. So that could mean that a recession doesn't start until the summer of 2023, which I think is way more bearish for risk assets or assets of all kinds than if we were already in recession now.”
2022-10-10 · Forward Guidance · The Bond Market Is Already Broken - Stocks and Housing Are Next | Harley Bassman & Joseph Wang · IDENTIFIED FROM THE TRANSCRIPT
“I think I think it's just a static steepener. I think we don't get lower inflation in JanFeb, March. The Fed gets to 460 but then stays there and just stays there. They don't hike, they don't cut. The back end says, uh-oh, we were looking for cuts. We're not getting it, and you get the back end to go up. That's how I think it plays out, but I just don't know. This is why I like owning this whole thing in option form as opposed to direct ownership of a long or a short. I want to have an optionality because I just don't know. Curve this inverted is like a wound up spring. It's got to unwind somehow some way. Use what happens is we go into a recession, stock when it crashes, the fed just pulls the front end down. But as I said, they're kind of stuck with this inflation number where I'm not sure what they're going to do. I mean, if we still have a five inflation handle.”
2022-10-10 · Forward Guidance · The Bond Market Is Already Broken - Stocks and Housing Are Next | Harley Bassman & Joseph Wang · IDENTIFIED FROM THE TRANSCRIPT
“Zero cost that was because of the forward. My ETF has the same dynamic to it where there's a curve component in there not as big but is a big curved component to it which is it's it's not good or bad it just is what it is and the thing is the curve is massively inverted now. I mean as a chart I have in my last commentary you're like negative 90 on 5s 30s I mean these are numbers that are off the charts They could stay here for a while longer, but they're not staying here for long. This I promise you curves don't stay this inverted for long something will happen because it's just a rather obnoxious thing to manage”
2022-10-10 · Forward Guidance · The Bond Market Is Already Broken - Stocks and Housing Are Next | Harley Bassman & Joseph Wang · IDENTIFIED FROM THE TRANSCRIPT
“I'll help you out. A trade that I had been hammering on for four or five years now was buying long dated options on European equities. The reason why is that the dividend yield, like the coupon on a bond, was like 3, 3.5%. The borrow rate was negative 50 because the Europeans had negative rates, right? That makes the forward price, and I've written about forwards on my commentary. Go to the Maven classroom and look it up about forwards. That makes the forwards really, really funky, because effectively you're earning $3.5 and borrowing money at negative, which is a brilliant idea. And that's why these trades look so fancy. You can go and buy and at the money call, sell a 27% out of the money put for five years.”
2022-10-10 · Forward Guidance · The Bond Market Is Already Broken - Stocks and Housing Are Next | Harley Bassman & Joseph Wang · IDENTIFIED FROM THE TRANSCRIPT
“20 year rate. It's now forty basis points under that rate because of the curve inversion. If the curve had moved parallel this whole time, this ETF would be 20 points higher. That's how much the curve. If we were to get some kind of release where the Fed goes and the back end goes up or the front end comes down, this product will ricochet higher because there's a huge curve bet in this thing. And so it's a wound up spring.”
2022-10-10 · Forward Guidance · The Bond Market Is Already Broken - Stocks and Housing Are Next | Harley Bassman & Joseph Wang · IDENTIFIED FROM THE TRANSCRIPT
“The LDI question in the UK, I'll kick to Joseph as his department. As far as I think the Fed's supposed to see from the yield curve out, which is the opposite of yield curve control, I think everyone's happier in a positive curve. The banks are happier. Pensions, everyone's happier with a positive curve. So if you want to go and release pressure on the markets, they should actually buy the front end and sell the back end. My ETF would be if the yield curve is a yield curve component in this ETF because it's a seven-year option on the 20-year rate seven years from now. And what you've seen happen is that when this product came out a year and a half ago, that forward rate was maybe 35 basis points over the spot.”
2022-10-10 · Forward Guidance · The Bond Market Is Already Broken - Stocks and Housing Are Next | Harley Bassman & Joseph Wang · IDENTIFIED FROM THE TRANSCRIPT
“Like the Bank of England governor from the 1850s or 60s, Walter Bayhot. Never pronounced his name. I guess he said to lend against good collateral and a penalty rate of a central bank.”
2022-10-10 · Forward Guidance · The Bond Market Is Already Broken - Stocks and Housing Are Next | Harley Bassman & Joseph Wang · IDENTIFIED FROM THE TRANSCRIPT
“I don't think the big boys failed, but they could be margin called, which means there'll be a permanent loss of capital to them. If they don't get margin called, we're going to be okay. This will come back. The spreads will tighten back in, and they'll make all the mark-to-market money, the loss they'll make back. And they may even have to cut the coupon because of the rising front-end rate. So be ready for that. If these spreads come from 175 back to 100, there'll be a massive run up in the NAV. We just don't know if they could survive this trough right now and write it out. I mean, this is the classic case of kids used to say, Dad, why don't you go to Vegas, bet on red, if you lose, double it up, you lose double up? The answer is, well, I might run out of money before Muxino does. That is the mortgage problem is can they ride out this drawdown and we don't know.”
2022-10-10 · Forward Guidance · The Bond Market Is Already Broken - Stocks and Housing Are Next | Harley Bassman & Joseph Wang · IDENTIFIED FROM THE TRANSCRIPT
“When they take these losses on the spread widening which is unhedgeable, going from seventy five to one hundred seventy five is unhedgeable risk, that spread is not the actual level but the spread, that causes the value of their asset value to shrink. At some point they are only allowed to borrow, let's say, you know, forty cents on the dollar. If that loves losses get big enough, they'll get margin called and be forced to liquidate. This is what happened in March 2020. They were forced to puke out bonds right at the lows, and thus they could not ride the market back up. We don't know how close they are to that. They said that they learned their lessons last time and that they've gotten in and they're doing better work and they're smarter and they've locked up financing and everything else. Maybe they have. We're going to find out in three weeks when they release earnings.”
2022-10-10 · Forward Guidance · The Bond Market Is Already Broken - Stocks and Housing Are Next | Harley Bassman & Joseph Wang · IDENTIFIED FROM THE TRANSCRIPT
“One is rates going higher is bad, but as Joseph said, they hedge that out, and even the convexity, they hedge that out too, so they could manage that. The problem is they can't hedge out the spread widening. So if treasure down by five points, mortgages should be down by four points, let's say instead they're down by seven. They've gotten annihilated on that. The second problem is the financing. They were borrowing at two or one. Now they're borrowing at three or four. That's going to go and cause problems for them. Now right now, that isn't that bad because with mortgage spreads at 175 and financing at 4, the actual spread they're earning is better. So opening a mortgage rate right now is not that bad a ticket. The problem with the mortgage retreats, which you don't know about is this, is they borrow money versus how much money they have.”
2022-10-10 · Forward Guidance · The Bond Market Is Already Broken - Stocks and Housing Are Next | Harley Bassman & Joseph Wang · IDENTIFIED FROM THE TRANSCRIPT
“Stuff right now for suppressing this wide. Now there is a technical glitch which I don't want to go into too much. It has to do with the yield curve and everything else but mortgage bonds are crazy cheap. Now the problem with the REITs is twofold.”
2022-10-10 · Forward Guidance · The Bond Market Is Already Broken - Stocks and Housing Are Next | Harley Bassman & Joseph Wang · IDENTIFIED FROM THE TRANSCRIPT
“Commercial reach are another animal entirely because of the economy overall and the hollow office buildings, which I'm unclear about. Usually a mortgage-backed security will trade, and I have these charts on my latest commentary, will trade like 75 basis points, three quarters of a point over the 10-year. And there's no credit risk in these bonds. They're basically fully guaranteed by the U.S. government. There is convexity risk, callability, similar to the muni bonds, mortgages are callable also because the homeowner, if he takes out a 4% loan, it's going to five, he stays in the house, it goes to three, he refinances and calls your loan from you. So identical process, and you get paid an extra three quarters of a point for that. Right now, mortgage bonds are trading $175 over treasuries. This is like, this is GFC.”
2022-10-10 · Forward Guidance · The Bond Market Is Already Broken - Stocks and Housing Are Next | Harley Bassman & Joseph Wang · IDENTIFIED FROM THE TRANSCRIPT
“Commercial mortgages are also floating too, right? So they're probably fine. For example, I think Blackstone has a mortgage rate that invests in commercial and commercial mortgages are mostly floating, so they benefit from higher rates rather than the agency stuff, the residential retail residential stuff.”
2022-10-10 · Forward Guidance · The Bond Market Is Already Broken - Stocks and Housing Are Next | Harley Bassman & Joseph Wang · IDENTIFIED FROM THE TRANSCRIPT
“I love mortgage. I think mortgage-backed securities, like regular fannie five and a halfs or fives are a great investment right now.”
2022-10-10 · Forward Guidance · The Bond Market Is Already Broken - Stocks and Housing Are Next | Harley Bassman & Joseph Wang · IDENTIFIED FROM THE TRANSCRIPT
“The fine point here is I am not bullish on mortgage reits. I am bullish on mortgage back securities. I have written favorably about Reits in the past, but in the last number of months mortgage Reits have not been a friend. They're probably down forty percent or more for all the reasons you've described. Thank you.”
2022-10-10 · Forward Guidance · The Bond Market Is Already Broken - Stocks and Housing Are Next | Harley Bassman & Joseph Wang · IDENTIFIED FROM THE TRANSCRIPT
“Joseph, when you go in there, comment about the underlying mortgage securities and the REIT, because it's two separate things.”
2022-10-10 · Forward Guidance · The Bond Market Is Already Broken - Stocks and Housing Are Next | Harley Bassman & Joseph Wang · IDENTIFIED FROM THE TRANSCRIPT
“Those bonds easy to buy, hard to sell, so I would not load up on those things with your liquidity money. But if you have 60-40, so you're 40 in bonds, you could take, you know, five or ten of that 40 and put that into munis because you're always going to have some bond allocation. Remember, if you buy it, it'll be expected. It could cost you three or four points to get out of it.”
2022-10-10 · Forward Guidance · The Bond Market Is Already Broken - Stocks and Housing Are Next | Harley Bassman & Joseph Wang · IDENTIFIED FROM THE TRANSCRIPT
“In general I like buying new issue bonds from reputable dealers and so that's fine. If you want to get a little squirrely you can go to like Fidelity, go to their bonds link, type in I want to search Munib bonds and they'll have like 80,000 bonds there and from that you could then sort. You want to look at AA, maybe AA plus don't get into credit problems four percent coupon you can put that in, put your state in that or you can buy a general bond if you want general bonds are tax exempt at the federal level if you buy a bond in your state it's tax free for your state also if you live in Texas or Florida you don't care because there's no state taxes there If you buy those bonds that's fine Just beware that it'll be very hard to get out”
2022-10-10 · Forward Guidance · The Bond Market Is Already Broken - Stocks and Housing Are Next | Harley Bassman & Joseph Wang · IDENTIFIED FROM THE TRANSCRIPT
“Also, I think it's important to note that you suggested, Jack, that the Munity space, it's not like the equity space, there's an exchange and so forth. There's a whole bunch of issuers all throughout the country. You have states, you have cities and so forth. It's a lot messier in this big. You also have the big issuers. Some of them are not good, like New York Transit agency who actually had to borrow from the Fed during 2020. So is there, this might not be something that the readers viewers are as familiar with. Harley, is there a way to access this through a financial product, or would you just go directly to their website and just subscribe to the offering directly?”
2022-10-10 · Forward Guidance · The Bond Market Is Already Broken - Stocks and Housing Are Next | Harley Bassman & Joseph Wang · IDENTIFIED FROM THE TRANSCRIPT
“At a 4% at par at 100%. You buy that bond. If rates go down and prices go up, so which go three percent, they will call that bond back at one hundred and you'll only have gotten four percent for ten years they'll issue a new bond at three percent and now you have to go and reinvest your money in theory at three percent so you lose if rates go up to five you're in that bond for 30 years and they're going to bring they're gonna when they bring new bonds of 5% you're gonna be sad because you're only making four so you lose both ways they do that so they can have optionality for their financing and then we get extra yield for that over a straight you know single maturity bond and there are times when you should take that risk as you shouldn't”
2022-10-10 · Forward Guidance · The Bond Market Is Already Broken - Stocks and Housing Are Next | Harley Bassman & Joseph Wang · IDENTIFIED FROM THE TRANSCRIPT
“Exactly, yes, and Valls are 150 on the move, so that embedded option is trading at a huge premium. Look, I am not always a buyer of Vall. I can sell Vall also, okay? No bad bonds, just bad prices. A price where I will sell insurance, okay, and the move at 150 is a sell. The embedded option in this rate hedge we have is like only 80. So it's a lot lower. So you're kind of barbelling when you're selling up 150 or 120 and you're buying an 80. That's a little too complex. Don't get crazy on me. Immunibom works this way. State of California or Stanford University Medical or LA airport, New York subways. Well, it's kind of rough right now. They'll bring a bond for 30 years callable in 10 years.”
2022-10-10 · Forward Guidance · The Bond Market Is Already Broken - Stocks and Housing Are Next | Harley Bassman & Joseph Wang · IDENTIFIED FROM THE TRANSCRIPT
“Hard, this thing goes basically a three year to a 23 year, and you have your rate hedge against it. And that kind of basically gives you this $375% after tax return and you've taken out most of the rate risk because munity bonds have gotten destroyed. I mean, I live in California. I mean, I'm buying AA high quality bonds, you know, 4% coupon at 97. Like, really? I mean, what's wrong with that? In my bracket, that's over 8%. And 8%, that's an equity return, isn't it? I mean, long term, what's equity? 8%, 9? I'm getting an equity return on a California AA. Now, as California is going to the tank? Maybe, I suppose, but I mean, I think I'd rather own, you know, California munies than Tesla.”
2022-10-10 · Forward Guidance · The Bond Market Is Already Broken - Stocks and Housing Are Next | Harley Bassman & Joseph Wang · IDENTIFIED FROM THE TRANSCRIPT
“Owning it if you have rate risk, and you should own it at five percent of risk. If you have a million dollars, a big number, I'm sorry, but round numbers, a million dollars of rate risk, you'd buy $50,000. So if we're trading at 65, you'd buy fewer shares, 40, you'd buy more shares. You do it by dollars allocated to it. I think the best ticket out there right now is actually buying AA rated 22 year callable muni bonds. And I say 22-year because they were 30-year bonds, but they've now gone through. And the call feature, usually these things are 30 years call protected for 10 years. What I want to do is get bonds that are maybe three or four years to go on the call. So there's a lot of optionality to it. And if rates stay here or go back down again, the bottom get called. But if rates go down.”
2022-10-10 · Forward Guidance · The Bond Market Is Already Broken - Stocks and Housing Are Next | Harley Bassman & Joseph Wang · IDENTIFIED FROM THE TRANSCRIPT
“Generally positively convex. It doesn't mean we're buying options all the time, but they're positively convex. What that means is they go up faster than they go down. So when we give you an ordinary beta of some risk that you want to get, we then fool around with it and make it so it goes up a little faster and down a little slower for very small cost. That's really what you should be doing right now in your portfolios because you want to go and you still want to have, don't go to cash. You want to have the beta. You never know when it's going to happen. But if you go cushion the downside accelerate the upside for a reasonable fee, that's a good deal. And that's why I came out of retirement to join this firm. And that's what we do. We have very clever ideas and we have the unique ability to go to Wall Street to get these products. RETF, the Radio ETF, it's very clever. I highly recommend.”
2022-10-10 · Forward Guidance · The Bond Market Is Already Broken - Stocks and Housing Are Next | Harley Bassman & Joseph Wang · IDENTIFIED FROM THE TRANSCRIPT
“Yep, I mean, people buying gold or commodities or I'm not saying they're bad investments. They're not direct drive interest rate. As a matter of fact, really rates have not been direct drive to inflation. Inflation is much higher than rates are right now. So that's what we did. We devised a product that moved with rates. For plugging my firm simplify, what we do, which is so unique and special, is we have the ability to go to Wall Street and trade with the big boys. We have the documentation to trade all the fun stuff, as I would say, and put it into an ETF and make it available to civilians, ordinary investors, non-professionals. And what we do is these fun little goodies we get are”
2022-10-10 · Forward Guidance · The Bond Market Is Already Broken - Stocks and Housing Are Next | Harley Bassman & Joseph Wang · IDENTIFIED FROM THE TRANSCRIPT
“Let me just explain. So, tips are Treasury Inflation Protected Securities, and they're essentially Treasuries adjusted for inflation, as they sound like. And so the real rates last year were negative 1.5%. So now real rates are positive. So yes, you made money on the inflation, but nominal rates moved up more than inflation expectations. So TIPS, you know, you made you lost less money on tips than you did on regular treasuries, but you still lost money.”
2022-10-10 · Forward Guidance · The Bond Market Is Already Broken - Stocks and Housing Are Next | Harley Bassman & Joseph Wang · IDENTIFIED FROM THE TRANSCRIPT
“I need to take the thin, okay? I give them all the credit for screwing things up. Here's the deal. I designed a product, we designed a product that it was direct drive interest rates. Rates go up, this ETF goes up, rates go down, this ETF goes down. That's it. Everything else out there is kind of blind man touching the elephant, like trying to go and buy something that will move with inflation or with interest rates or something else. Tips for trading at negative 1.5% last year. They were not going up. There was no start. There's no inflation big enough to make them work. You had a negative real rate.”
2022-10-10 · Forward Guidance · The Bond Market Is Already Broken - Stocks and Housing Are Next | Harley Bassman & Joseph Wang · IDENTIFIED FROM THE TRANSCRIPT
“And I think also incorporating commodities can be key. I think risk parity stocks, bonds, levered, taking advantage of the correlations, but commodities sometimes can be. So I know some risk parity funds have done pretty well this year because they By the way, what I'm trying to say is congratulations, Harley. You did a very good job.”
2022-10-10 · Forward Guidance · The Bond Market Is Already Broken - Stocks and Housing Are Next | Harley Bassman & Joseph Wang · IDENTIFIED FROM THE TRANSCRIPT
“And that's kind of your PE of sorts. As rates go up, you discount at a higher rate, and therefore the present value of a trillion dollars is less. That's why all these big NASDAQ animals are coming down with bonds. It's not a statement against their businesses or the quality of management. It's just a mathematical function of discounting cash flows thirty years out.”
2022-10-10 · Forward Guidance · The Bond Market Is Already Broken - Stocks and Housing Are Next | Harley Bassman & Joseph Wang · IDENTIFIED FROM THE TRANSCRIPT
“I'm not trying to call it a hedge. I would just say you reduce leverage. That's number one. And number two is you bring in your tail options. So you don't own as much high yield because that's trapdoor to zero. So you go by IG by IG five you're supposed to 10 year papers you bring in the duration and for stocks and bonds you get a more diversified portfolio as opposed to being all NASDAQ. I mean let's remember why does NASDAQ follow the bond market because the big fang stocks are basically 70-year duration bonds. Like we know Amazon or Apple or whatever they're going to make a trillion dollars in 30 years. We know that boom. What we don't know is what if a trillion dollars thirty years from now worth you need a discount factor to bring that trillion back to today?”
2022-10-10 · Forward Guidance · The Bond Market Is Already Broken - Stocks and Housing Are Next | Harley Bassman & Joseph Wang · IDENTIFIED FROM THE TRANSCRIPT
“Everyone's going to be watching that CPR report. My sense from looking at the market is that everyone is still praying for that Fed pivot. So even if we come in just a little bit softer, I think that people will be like, yeah, inflation is going away. Fed's going to pivot. Let's go to the moon. So we'll see. It seems like that's the eternal hope of the markets. I would also add to Harley's comment on housing that from what I read, there's a tremendous amount of supply, new construction that's going to come online, and that's probably going to put further pressure on prices. Housing seems to be a lot like other commodity sectors where prices are high. Everyone goes to build the cure for high prices is high prices. A whole bunch of people build. All that supply comes online at the same time, and poof, prices go lower.”
2022-10-10 · Forward Guidance · The Bond Market Is Already Broken - Stocks and Housing Are Next | Harley Bassman & Joseph Wang · IDENTIFIED FROM THE TRANSCRIPT
“Down. I'm not sure. I think go down. Rates I think go up. I mean, we've kind of gotten to where we're supposed to be on the front end. So now we've got to... We're at the poker table. We're just going to go wait for the next card to get turned over. And everyone wants the answer today, but we're not going to know until we get that Jan Feb CPI report. I mean, right, Joe?”
2022-10-10 · Forward Guidance · The Bond Market Is Already Broken - Stocks and Housing Are Next | Harley Bassman & Joseph Wang · IDENTIFIED FROM THE TRANSCRIPT
“Because if you borrow classic risk parity, you put $70 in stocks, $130 in bonds or some number like that, they offset each other and you get a nice portfolio that's a softer risk. Well, once that correlation flips, they go up together. You have $200 of assets going down on $100 of capital, which means you lose all your money. So you're seeing the unwind of this right now. And we've seen twice before when this has happened and the Fed came to the rescue December 2018 and March of 2020. You saw stocks of monkeys done together and the Fed kind of jumped on in. We haven't jumped in yet, and they're probably not going to. So that makes it more challenging for people to lose on both sides of the equation. So look, how's this going to chill? It's not going to collapse. Stocks are, I think, go down.”
2022-10-10 · Forward Guidance · The Bond Market Is Already Broken - Stocks and Housing Are Next | Harley Bassman & Joseph Wang · IDENTIFIED FROM THE TRANSCRIPT
“Not sure why you say relied upon. Historically, if you go back before the Fed came in, your correlation was zero. I mean, for the 70s and 80s and 90s, I mean, that correlation went up and down. I think I have the chart on my last commentary. It's just when the Fed came in, it jammed rates down and put their foot on the market that you got this kind of a positive correlation. So we're kind of going back to the future in many respects. And of course, higher rates was because either inflation or the Fed releasing the market. The biggest problem is leveraged money.”
2022-10-10 · Forward Guidance · The Bond Market Is Already Broken - Stocks and Housing Are Next | Harley Bassman & Joseph Wang · IDENTIFIED FROM THE TRANSCRIPT
“Already happened. It didn't just happen above four, it happened on its way to four. This year, if you had buy, oh, I'm going to buy SPY, SP 500 stocks, and I'm going to hedge it with 10-year treasury notes or TLT, longer duration bonds. That worked historically, but this year it's been absolutely abysmal. And actually, days where the NASDAQ is down the most, there's also days where long duration stuff is down the most. What's the significance of that, Harley? The asset that can be relied upon to provide sort of a positive carry put a natural hedge bonds is no longer there and it's turned from a friend to investors to an enemy.”
2022-10-10 · Forward Guidance · The Bond Market Is Already Broken - Stocks and Housing Are Next | Harley Bassman & Joseph Wang · IDENTIFIED FROM THE TRANSCRIPT
“PE. Now, what I said last show and the show before that is watch out for the correlation of stocks to bonds. For 20 years, we've had stocks and bonds like this, right? A negative correlation of price to price or positive correlation of stock price to bond yield. It gets confusing. I apologize, but we have to do it mathematically, bond yield because we can't use bond price. So any case. I've said that if we get rates above four, you're going to see that correlation flip. So your 60-40 portfolio goes in the tank. Well, here we are at four, and this correlation is more or less flipped, where you're seeing both go down at the same time.”
2022-10-10 · Forward Guidance · The Bond Market Is Already Broken - Stocks and Housing Are Next | Harley Bassman & Joseph Wang · IDENTIFIED FROM THE TRANSCRIPT
“What happens in the process usually is bonds break, stocks break, housing breaks. Housing is like Wiley Coyote. It runs off the cliff and doesn't know that it's in the air until it looks down a little bit later. A lot of reasons for that, primarily because there's just a massive lag in housing. I mean, you're looking for a house, you put in the bid, and it takes three or four months to close the thing. So data we're seeing now is still from four months ago. On top of that, when you get the initial rate rise, you see people rushed to buy a house and to lock in the mortgage rate. So you see it's like a surge in housing. It takes a while for things to cook on through. Housing's already dead. It just doesn't know it yet. Stock market then goes next and it goes next for two reasons. One is higher rates, significantly higher rates will reduce the”
2022-10-10 · Forward Guidance · The Bond Market Is Already Broken - Stocks and Housing Are Next | Harley Bassman & Joseph Wang · IDENTIFIED FROM THE TRANSCRIPT
“We got to move. I mean, the front end is going from 25 cents to foreign change in a year and a quarter. I mean, that's not broken. That's something, man. It's not broken. It's something. So let's just always say rates have already moved, okay? And they're getting to where they're supposed to be.”
2022-10-10 · Forward Guidance · The Bond Market Is Already Broken - Stocks and Housing Are Next | Harley Bassman & Joseph Wang · IDENTIFIED FROM THE TRANSCRIPT
“S&P 500. So from our perspective, we see the S&P 500 down a whole lot since the beginning of the year. But from the Japanese investors' perspective, the yen has also depreciated a lot. So from a yen basis, they are actually not really down any. And you could say the same thing for someone who's from Europe. So even though the U.S. investors are sustaining losses, if you're a foreign investor, the US still makes a pretty good sense because you're making money off the currency dollar appreciation. So that could be supportive of U.S. both bond and stock markets. Not the only thing that matters, but if you have serious geo-political tensions, it could be significant. So, yeah, about the other markets, the labor and the housing market, I'm going to defer to Harley. His thesis makes sense to me.”
2022-10-10 · Forward Guidance · The Bond Market Is Already Broken - Stocks and Housing Are Next | Harley Bassman & Joseph Wang · IDENTIFIED FROM THE TRANSCRIPT