YouSaid · the spoken record

Lyn Alden

lines on the record: 123
first: 2023-10-05
most recent: 2023-10-05
sittings or episodes: 1
sources: podcast

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“Money in either current oil prices or even if oil prices go down $10 or $20, it's still making money. There's still reasonable valuations. Most of them, especially the larger ones, have good balance sheets. So in many cases in a situation where they've issued a ton of low-rate fixed long-duration debt and they have a decent amount of cash. They've used a lot of the recent profits to build their cash position to let existing debt mature off their balance sheet and not issue as much new debt to cover that. So in many cases they really improve their balance sheets. And then when we eventually get either another liquidity pulse or another PMI receiving some sort of next growth cycle, I don't know if that's going to happen next year or the year after. But when we look deeper into the 2020s, I think they still have a considerable amount of upside. And so I'm still pretty constructive overall on that market. And then aside from that, I'm sticking to.”
2023-10-05 · Forward Guidance · Lyn Alden: The Monetary Order Is Broken · IDENTIFIED FROM THE TRANSCRIPT
“Think it's not surprising answer, but commercial real estate continues to be under pressure. Now, that doesn't mean that it necessarily impacts everyone in the chain. So, for example, if you gave a very low loan to value loan to a commercial real estate company, you could still come out intact or with like a mild haircut compared to the entity that actually owns the equity in that commercial real estate. you know, depending on the severity, it doesn't necessarily blow through everything, but that's obviously an industry that's still pressured. So I think that's probably the worst. The areas I'm still constructive on are energy companies in general. And the way that I look at them is that the upside versus downside ratio, in my opinion, is very strong. I think that, you know, if we do have a bad enough recession to cause some degree of oil demand to go down, these entities are still reasonably priced. They can make”
2023-10-05 · Forward Guidance · Lyn Alden: The Monetary Order Is Broken · IDENTIFIED FROM THE TRANSCRIPT
“In terms of like how high unemployment rate went or how problematic real GDP was, even though you had very significant sales in the equity market, I kind of view this as that type of recession, not necessarily in terms of the equity market, but in terms of in that recession, you did not see oil prices crash. You didn't see a super big spike in unemployment. I think we could see similar types of situations like that where it's a weak environment. It's certainly recessionary for some industries. But I'd be very industry specific rather than just thinking in terms of are most things going to be good or most things going to be bad. I think the difference in industries is going to be larger in this cycle.”
2023-10-05 · Forward Guidance · Lyn Alden: The Monetary Order Is Broken · IDENTIFIED FROM THE TRANSCRIPT
“Differences that grow larger than normal. And so, in an environment, we have such a large fiscal deficit, but then you have such aggressive tightening attempts by the central bank, that becomes very sector specific and balance sheet specific. So anything that has shorter duration debt, a need for refinancing, overall less creditworthiness is likely still going to be in a world of hurt for a while, whereas either”
2023-10-05 · Forward Guidance · Lyn Alden: The Monetary Order Is Broken · IDENTIFIED FROM THE TRANSCRIPT
“So, when you have these unusual fiscal environments, that's where you get kind of emerging market characteristics in developed markets, maybe to a less extreme level, but still kind of in terms of flavor, in terms of direction, that kind of situation. So I don't think that bonds are going to behave and they've already not behaved the way you normally expect in recessionary conditions. Now, as it relates to the probability of recession, largely it will depend on how much the Fed keeps pushing with rates and balance sheet reduction where they are. But I'm thinking of this less in terms of broad-based recession and more just thinking very specifically industry by industry. And you actually see that in emerging market recessions as well. If you have a country with a currency crisis, for example, you'll see many parts that economy is suffering. But for example, companies working in the export sector are often doing quite well in that environment. And so you have very kind of industry specific differences.”
2023-10-05 · Forward Guidance · Lyn Alden: The Monetary Order Is Broken · IDENTIFIED FROM THE TRANSCRIPT
“It's not a market that I'm quick to get into because I think that there are more interesting risk reward opportunities elsewhere. And, you know, I think there's two parents being instructive on this. One is, again, my big theme of the 1940s, right? You can have a kind of economic crisis. It's not disinflationary. If you have very, very large fiscal intervention, that's number one. Number two is if you look at emerging markets, a lot of times their recessions are not deflationary, not disinflationary. And that's because their inputs are problematic. So their energy imports or other things like that. Now, they're obviously more prone to have that issue because they have dollar-dominated debt. And so they run into issues at a much lower threshold. But I think a big theme of this decade is that stagflation is in many aspects like what we is normally an emerging market type of issue.”
2023-10-05 · Forward Guidance · Lyn Alden: The Monetary Order Is Broken · IDENTIFIED FROM THE TRANSCRIPT
“And that's contributed to by the fact that when you have a strong dollar, foreign sector is not really buying treasuries. You have the Fed reducing their holdings by letting them mature. You don't see banks buying them anymore. So you had years and years and years of bank holdings of treasuries rising. And now that's rolling over. And so really the only source to absorb all of this is domestic non-bank balance sheets, which has trouble with the amount of absorption that we're having. Even if I think there will be time to where bonds are a tradable on the long side.”
2023-10-05 · Forward Guidance · Lyn Alden: The Monetary Order Is Broken · IDENTIFIED FROM THE TRANSCRIPT
“So, I think that when you have super oversold levels, bonds potentially become tradable if you have views like that. But in general, I think that what makes this, so we've already seen that this cycle is very different than the average cycle for the bond market. Normally, for example, when you have PMIs rolling over, other signs of economic deceleration, even when they're still positive, when they're rolling over, normally you start to get bonds doing quite well. But because the first part of the cycle was stagflationaries, you had decelerating economic period, but rising inflation. So that was bad for the bond market. And then somewhat surprisingly, even when inflation started to roll over and stabilize and you still had a low period of economic growth, you still had bad performance in bond yields, in large part because they were for a while, they were still below the inflation rate. So they still had time to go up. And then now I think it's just largely a supply demand problem. There's just so much supply coming to market.”
2023-10-05 · Forward Guidance · Lyn Alden: The Monetary Order Is Broken · IDENTIFIED FROM THE TRANSCRIPT
“Liquidity, at least for a period of time. So there are a number of either Direct tools or less direct tools, and I think that they would likely be more reticent to use some of the direct tools, especially because that threatens their core credibility. But I think that's the long-term endgame is stuck in these situations where they're unable to reduce their balance sheet. Inflation is doing whether or not inflation is kind of stabilizing or whether or not we get another spike of it, that the balance sheet largely becomes outside of their control if they want to have functioning sovereign bond markets.”
2023-10-05 · Forward Guidance · Lyn Alden: The Monetary Order Is Broken · IDENTIFIED FROM THE TRANSCRIPT
“For a period of time, you could see that type of stepwise intervention where they're not going all out on something expansionary, but they're maybe no longer contributing to the issue. And of course, the other lever that they can pull, not the Fed, but the treasury, is that they could go back to short-term, more short-term issuance. So they still have a very large reverse repo facility of available liquidity that can soak up T-bill issuance. And so right now, T-bills are not the source of the problem. The source of the problem is these longer dated treasuries, which so far there's not been a lot of appetite for. And then in addition, there's agreements you can have that are more subtle in the sense that you can have foreign entities help you intervene, right? You can basically provide liquidity provisions or deals, backdoor deals with other central banks who can then help you with the sovereign bond market.”
2023-10-05 · Forward Guidance · Lyn Alden: The Monetary Order Is Broken · IDENTIFIED FROM THE TRANSCRIPT
“Time when they're trying to hold their credibility on inflation. So I think that they'd be reticent to use that tool, although I do think that that balance sheet tool is probably something they're going to come to before they come to changing rate levels because they can hold rates where they are as long as they're willing to provide liquidity if the treasury market becomes illiquid. We could also see the expansion of other temporary programs like we saw before. And I agree that they're not quite the same thing as QA. Now they're pro when they happen, they're pro liquidity in a similar way as QE. They have similar effects as QE, but because those exchanges are inherently temporary, they're not permanently acquiring the security. There is a fundamental difference between them and the QA. So I think what we have to look for is potentially signs that the Fed would argue that maybe in addition to holding rates flat, they're going to hold their balance sheet flat.”
2023-10-05 · Forward Guidance · Lyn Alden: The Monetary Order Is Broken · IDENTIFIED FROM THE TRANSCRIPT
“So, if you look back in 2019 during the repo spike, they had to stop decreasing their balance sheet and start increasing their balance sheet. And they didn't want to call it QE because they were focusing entirely on T-bills. And back then, in many cases, you had the opposite situation as now in the sense that there was too much T-bill oversupply. And so it was a similar fiscal issue at the end of the day, in my opinion, but it was a different part of the curve. There's no problem at all of T-bill oversupply. And it's really about coupon oversupply. So it would be harder for them to expand their balance sheet by buying coupons and say it's not QA this time around. They wouldn't be able to use the same argument as last time. The other way that they can frame it is to say that they're doing it for financial stability purposes rather than stimulus. But at the end of the day, it's the same functionality, right? It's a pro-liquidity movement in the market.”
2023-10-05 · Forward Guidance · Lyn Alden: The Monetary Order Is Broken · IDENTIFIED FROM THE TRANSCRIPT
“I guess there are sort of three ways the Federal Reserve could adjust policy there is doing stopping quantitative tightening and or doing quantitative easing. So actually buying securities or stopping letting them roll off. That's door number one. Door number two is stop raising interest rates or even cut interest rates. And door number three is have a special facility such as the bank term funding program or a repo facility, essentially a lending facility. The Federal Reserve is lending against security. It is not themselves buying it. And central banks have been doing that for hundreds of years, whereas quantitative easing is a pretty new policy. Do you have a view on if the Federal Reserve does intervene to help and assist the Treasury market functioning? Which of those three doors the Federal Reserve would go down? And also, do you have a view on whether the Federal Reserve does something and then there are folks who call it quantitative easing, but then the strict people who say, no, quantitative easing has a strict definition, this is not”
2023-10-05 · Forward Guidance · Lyn Alden: The Monetary Order Is Broken · IDENTIFIED FROM THE TRANSCRIPT
“Key markets that they really can't let break, like the treasure market should have a problem. So I think that's the thing to watch. And until you see signs of that getting disorderly, you should assume that they're watching this, that they're looking at potentially pausing. They're looking at changing their language, but that there's no real reason for them to directly intervene, especially because they already have facilities out there that can be used to take some of the edge off.”
2023-10-05 · Forward Guidance · Lyn Alden: The Monetary Order Is Broken · IDENTIFIED FROM THE TRANSCRIPT
“If you should see either the treasury market or something very adjacent to a break, I think that's where you would have some degree of Federal Reserve intervention. And part of why they intervene back in March of this year was that, you know, one of the release fouls when these banks have troubles is they would have to potentially sell a lot of treasuries and mortgage-backed securities into the market and cause that type of liquidity problem. And so both in, so in September of last year, when you started to have like sovereign bond issues, it was the treasury that more or less intervened. And then when you had the banking crisis early this year, you had the Federal Reserve intervene. And I don't think they're going to intervene based on the stock market going down 5, 10, 20%. That's not something they're going to look at. They're not really going to intervene if you have one rogue bank failure or large commercial property have a problem. They're going to intervene, I think, only when you get to the point where they can't.”
2023-10-05 · Forward Guidance · Lyn Alden: The Monetary Order Is Broken · IDENTIFIED FROM THE TRANSCRIPT
“I think a key thing to watch is the move index in overall treasury liquidity conditions because the one market that they won't let break is the treasury market for at least for very long or anything adjacent to it. So for example, back in 2019, it was the repo rate that broke, but that was a funding source for treasury. So it was like an adjacent market to treasuries.”
2023-10-05 · Forward Guidance · Lyn Alden: The Monetary Order Is Broken · IDENTIFIED FROM THE TRANSCRIPT
“And then these liquidity things can trickle through into other markets. So, for example, if it gets disorderly, part of why it's part of an indicator that it's been orderly so far is it's not really affected the large cap equity market. But we start to see, and I think we're seeing essentially early signs of disruption in the equity market, that's when the disorders are taking over because you can get forced selling of other assets. So I think these are at levels where we should look around and start wondering which kind of smaller banks might be running into trouble again. We should look around and see commercial real estate exposures, all those kind of recurring trouble spots. These levels are now a lot more threatening to them than they were even several months ago.”
2023-10-05 · Forward Guidance · Lyn Alden: The Monetary Order Is Broken · IDENTIFIED FROM THE TRANSCRIPT
“Two things matter both the levels and the speed at which those levels change because if things change gradually it gives entities time to adjust and that's also I think why we're seeing things break at a different level here than they broke at the kind of a similar time of year last year is that balance sheets have had another year of seeing this coming or you know capital accumulation things like that so it's both the level and the speed It's also going to depend on what's happening with, for example, you can have higher rates if the Fed is not also selling their supply into the market. So it's not just necessarily a rate problem. It's not necessarily that entities are looking at this and saying these yields aren't acceptable. It's they're saying these yields are acceptable. We don't have the balance sheet capacity to absorb this rate of new supply. And so it's less about race themselves, although that's a big factor. It's about the speed of change and it's about the overall supply.”
2023-10-05 · Forward Guidance · Lyn Alden: The Monetary Order Is Broken · IDENTIFIED FROM THE TRANSCRIPT
“So the sell off was orderly. It's becoming a little disorderly now as we record in early October. Our tenure yields where they are about 4.8%. Can tenure yield stay there and not threaten financial stability, whether to banks, to the economy, to borrowers? Can they go higher? Can they go to 5.5%, 6% and everything will be fine? Or is we're going to approach a point where there's a risk that something breaks?”
2023-10-05 · Forward Guidance · Lyn Alden: The Monetary Order Is Broken · IDENTIFIED FROM THE TRANSCRIPT
“Either recurring problem or an ongoing problem. But I think that the path dependent to get there is obviously challenging. And that's kind of what we're going through now.”
2023-10-05 · Forward Guidance · Lyn Alden: The Monetary Order Is Broken · IDENTIFIED FROM THE TRANSCRIPT
“Large debt to GDP ratios, very large deficit in many cases, especially the United States, and those are very hard to support when you don't have central bank support. And so I think we're kind of entering back in autumn of 2022, we entered a kind of a spike for period of time. That's when the UK guilt market broke. We also saw that the US treasury market was getting wobbly, the yen was getting in trouble. And we're kind of seeing a lot of those similar things pop up again. And so I think we're going to have to watch in the coming weeks. This is kind of the phase where it goes from a orderly decline, which was happening in the recent weeks and months. And now we're potentially looking at a little bit more disorder and intervention in the market. So I think the long-term outcome here, like the end game, is basically some degree of yield management while you have inflation still being.”
2023-10-05 · Forward Guidance · Lyn Alden: The Monetary Order Is Broken · IDENTIFIED FROM THE TRANSCRIPT
“So, I think we're seeing some degree of what would have happened in the 1940s if there was an yield curve control, if there was basically an attempt to raise rates into that sort of fiscal situation. So far, that's been kind of the one key difference between this period and that period is that period they were kind of ironically quick to acknowledge that they had a fiscal problem, whereas here I think we're still trying to operate under the assumption that we don't have one. And institutions are trying to retain their credibility. And I think that's partially due to the fact that they don't have as good of a catalyst or good of an example now. You know, during the war, you can justify almost anything. Whereas a lot of what we're seeing now is built up over decades of entitlement spending, military spending, obviously the recent COVID stimulus, that kind of stuff like that. And so we're in an environment where monetary authorities are trying to tighten and clamp down on inflation, but you have these governments with very”
2023-10-05 · Forward Guidance · Lyn Alden: The Monetary Order Is Broken · IDENTIFIED FROM THE TRANSCRIPT
“I appreciate you having me back, and I apologize to the audience for my audio quality. I'm on travel right now, so I don't have my normal headset, but we're going to do our best to make this work.”
2023-10-05 · Forward Guidance · Lyn Alden: The Monetary Order Is Broken · IDENTIFIED FROM THE TRANSCRIPT