The holiday period. Federal reserve chairman Jerome Powell says the central bank will maintain its efforts to support the flow of as americans hunker down from the spokevirus pandemic, he on the nbc today show. We are not going to run out of ammunition. That doesnt happen. ,e set Interest Rates in time what we think is giving the economy the right level of support. If we raised Interest Rates more, it would have been higher than we thought and Economic Growth would have been slower. It would not have mattered in the end. We are always setting our Interest Rates at the level we think is appropriate. Carowell says mortgages and loans are among the areas that the fed can step in. Global news 24 hours a day, on air and at quicktake by bloomberg, powered by more than 2700 journalists and analysts in armorhan 120 countries, ritika gupta. This is bloomberg. I am ritika gupta. This is numbered. Vonnie it is 1 00 p. M. In new york, 5 00 p. M. In london, and want to click a. M. In hong kong. In a few minutes i with be speaking exclusively with the p hisder, Bruce Richards thoughts in the last week on credit markets. Distress, fallen angels, and much more. First lets get a check on the markets, halfway into the trading day. We are seeing a nice rally in equity markets, easing in the credit markets. The s p 500 is up almost 5 as the vote should take place tomorrow which will allow the president to sign this tim lohs package into law. The dollar index to sign the stimulus package into law. Thehe good of sterling and euro for the most part. Boeing is the best performer in the dow, up 13 today. Taylor riggs is with us for more details halfway into the trading day. Taylor you mentioned the s p 500 up about 5 . Let me get you to an intraday price action with the record numbers we got earlier this morning. Youre still on track to have the best three days since 1933. The dow surprisingly managed to climb out of the bear market come up more than 20 or so in the last few days. I want to look at the individual stock basis. A rapid test is available and will be ministered that willered for those be administered. Wegian resumed training halted. After being it was not specifically mentioned in the stimulus bill, but it could fall under the distressed category. Boeing up, some of their suppliers could get up to 60 billion or so as they are categorized as National Security despite all the concerns over share buybacks. Delta up 11 , downgraded to junk by s p earlier this week. You mention some of the falling angels. Upgraded by deutsche bank. An activist investor said they offered to buy deltas 15 term sent stake in a south korean company. Stakeould free up 15 in a cap south korean company. That could free up cash for them. From the iaea, demand could fall 20 Million Barrels a day, so crude certainly not having a good day again. We want to end on a note about the dollar. Take a look. You have the massive strengthening of the dollar. A lot of that has come down in the last three days, perhaps showing some of the funding stress you had been talking about in that introduction has eased a little bit. As the fed steps in, funding pressure perhaps coming off those highs a little bit. Vonnie we shall see in the coming days and weeks. Taylor riggs, thank you for that. Strain on the credit markets this week caused a spectrum of grades and products. Back in december, one guest was saying that wendy that when the that she was seeing fallen angel risk at 300 billionplus. Joining me now on the phone from new york is Bruce Richards, ceo cofounder of the marathon asset management. Take us a little bit through the week in markets for you and where you saw the dislocation most, obviously. Andood to speak with you with your viewers. This is the greatest dislocation in credit we have seen since 2008, no doubt. A shock to the system, large parts of the economy shut down. Goldmans forecast a month ago was 3 for q2, now 24 q2. That is how far we have come. This 2 trillion fiscal stimulus and the feds unlimited buying power will for sure take away some of the risk we have seen and be in underpinning for much of the markets. That is the good news. The i. T. Markets have moved from inside 100 basis points to 400 basis points. They have tightened back into 100 basis points, tighter to around 300. The fed will be buying potentially 3 trillion of grade corporates. That is a 7 trillion marketplace, a huge amount when they begin their buying program. Highyield bonds have moved from 375 basis points to 1100 basis points, currently inside of a thousand. Senior leveraged loans have barely rallied off the lows, but . 75have moved from par to on the dollar. We believe in the market place today there is 1. 2 trillion of distressed situations that exist in the u. S. Alone. That is a staggering amount. That equals the entirety of 2008, 2009 because the markets are so much bigger now compared to then. We have already seen that. Tore is about 100 billion 200 billion of dry powder in the market place. But that overwhelmed the 50 billion coming in because it is now one trillion plus and distressed. Our labor is to buy the performing assets at distressed prices, to buying in the capital structure, above the fulcrum for companies that have more risk so that way we are in the safe part of the structure and will have a recovery from deep discounted prices. ,enerally, the buy highyield that equates when you normalize to a 50 return over a threeyear holding period, which 16. 5 , 17to around a point 17 are you are. You have beenly, waiting for this kind of event in credit markets, and obviously the human toll of what is happening is very much front and center, for someone like you who manages money, you dive in at a time like this. Take us through what happened at the weekend, and where you have begun making some decisions. Point andyour prior that comment, the priority for all of us is the health and wellbeing of our Global Economy and our Global Community at large. My prayers go out to everyone, those that we hope are going to get through this. As we flatten the corona curve. Relating to this weekend specifically, there is a tremendous vacuum in liquidity old occurred, and so an saying that leverage kills it killed a bunch of parties that use leverage. Lower prices forced even lower pdcs, and so you have that were down 50 , 75 . The biggest sellers were some of the leveraged mortgage players. So the Mortgage Rates are typically leveraged four to eight times, many are now insolvent because prices fell 20 . If you leverage five times and prices fall 20 , you are wiped out. Major Asset Managers with public and private reads now have to contend with his followup. Billions traded over the weekend. We were getting calls with this followup. Billion street it over the weekend. We were getting calls over the weekend. The positions were cleared out on monday, but the deal is providing that financing, had they not come up with the money monday morning, so they sold for next day settlement on sunday at 2 00. Hundreds of millions, and the total number is in excess of 1 billion. But each partys hundreds of millions. We are talking about aaa rated structured trip credit bonds that were trading at 1. 02 a month and a half ago, in the 80 to 83 price range. Just gavert cio who us this morning an allocation of an additional amount, said bruce, give me give them the rope a dope. Be able to buy high quality at low prices, and when the selling stops, you will win because you will be at the top of the capital structure with these best rated bonds at distressed levels. So liquidity is completely broken down. Just in the last few days, we have been hearing reports from thes of Asset Managers and investors that have direct access to the dealer community. That is a bit off the spread, over a point. That is a one percentage spread, which is unheard of. One 32. Ually in ig, highyield and leverage loans and structured credit come as much as 10 points or nobid. Big massivehese Balance Sheets, 250 billion of credit pre2008. Last three years with a volcker rule and those disciplines, collectively on the street, 25 billion. Coming in this week, the balance was zero. They are not taking risks, so what they are serving it as is a very good counterpart to clear, the clearinghouse, as opposed to taking it to the book. That is causing a lot of this dislocation. It is not their fault, it is the rules placed on them. Having said that, it is also the massive selling because the markets have gotten so big. When everyone goes to the exit at the same time, it becomes a bit daunting. In terms of liquidity and what happened this weekend. Vonnie there is something phenomenal in almost every single one of them we could sell, but at the end of everyone, talk to me a little bit more about what entities are now in deep trouble and what kind of prices you were getting. Could you basically sort of just name your price for some of these products . We could. When you have a 10 point bid off spread, you do not want to be lifting offerings. We were getting hit, so lowering prices five points below where we think we would get hit and are getting hit. We are talking about aaa rated securities that are assetbacked , restructured in nature, secure their securitizations, and those bonds were trading again, part of 1. 03 prior to the break, now , 85, 87, those types of price points. We are highly confident that we will be back at par on the back end of this because one when coronavirus clears and everyone is back to work and the markets have settled down, we will be left with a zero federal funds rate. Whenever you have a crisis, a recession, the fed will never tighten. In at least three years subsequent. And 2023, 2021, 2022, the highest level of confidence, or rates are zero, and the fed Balance Sheet has taken us from 4 trillion of treasuries, probably with these deficits to six dollars 26 trillion or or dollars trillion that would look very cheap at par. Vonnie lets talk about some of the debt this week and how long it will take for this to play out, bruce. What industry have you talked about, the Banking Institutions as well, and we are hearing the same thing, that there is going to be some real trouble not in the big ask but maybe the more regional banks and nonfinancial. Can you give us more details and what youre doing . Bruce there are sectors to avoid. The big banks, starting with jp , andn and bank of america other large banks, are healthy. They have come in wellcapitalized. They will be a little less wellcapitalized because all the revolvers have been drawn and there is going to be some loss that comes through in terms of loans when the other Consumer Base and credit cards and auto loans and home loans have some type of forbearance for certain portion of that portfolio. But we think the banks will come through healthy. Behind them there is this in normas backstop this enormous backstop. We do not think the Banking System is at risk or is an issue whatsoever. The bigger risk is some of these Nonbank Financial Companies in industry. Ial so we are avoiding those companies. They are independent, nonbank finance companies. It could be anything from the rate or the industry. Bbc to the finance pictures,at provides simmer find it consumer finance. I would be very cautious. I would also be cautious in anything oil and gas. It should not be funded with that, it should be funded with equity. It will be everything from the fallen angels those that are the strong rest ones that will fall to junk to a lot of the private companies that got funded, and the fractures that just will not be able to make it through the cycle. It is going to be pretty disastrous for the community of houston and for the Energy Sector at large. Discretionary retail will also get hurt, and particularly travel and leisure. Receiving government a lot money is a good thing because it will help them get through. But it will be highly dilutive to equity prices and equity itself, so we think it would look more like aig. It will take them years to work out of it as opposed to just because the government is coming and you think you will make a lot of money going forward. So avoid some of the Consumer Discretionary if you have a lot of risk that you want to take. Perhaps you can pick bonds and play that for the trade or for the pop, but for the next few years, i think what you will find is this will be very dilutive with the governments coming in in terms of preferred equities, taking those come in is to help them through the cycle. Vonnie are you suggesting we amount of huge bankruptcies in the likes of casino companies, airlines, the operators,leisure even if the economy begins to reopen . Bruce i think the recovery is going to be very long. First we start at the top end. Are massive downgrades coming. You touched upon it moments ago when we opened the discussion. Remember when i was on your show in december and i warned about triple bes and i posted the question come how do you spell bubble . I said it is with three bs. Since 2008, it represents triple bs. 10 of triple bees will since 2t represents triple fall to junk. That is 340 billion in fallen ages. We have not seen 100 billion of fallen angels ever come and now we are talking a realistic assumption, basecase subsumption assumption. Out of 900 billion triple be minuses, one third should already be rated. There is one third coming into debt. Ive times equivalent to a single day. 300 billion already had that. Now that revenues are going down, the numbers soared. So we believe that look last ford was downgraded. We are talking 140 billion in debt. The last auto manufacturer that was downgraded in a big way was General Motors, the biggest fallen angel ever. Within a few months, they fell into bankruptcy. So 11 out of 12 the biggest bankruptcies you have ever seen in the history of the u. S. Were come investment grade, within three years of filing. Ford has a unique problem, they have 70 billion of assetbacked securitization, assetbacked securitization, secured debt. The stock has fallen significantly. The first thing they need to do is cut the dividend to zero and use the towel for program the alf program by the fed. And ensure they can be paid back especially with the 3 million claims we saw this morning. 3. 3 million claims in a week 2008, 2000 nine, the biggest we ever saw was 650,000. So the order of magnitude of this collapse is just stunning. So it would not surprise me, as sad as it is because again, our priority, all of our priority has to be on getting through this together as a community, keeping our economy and families and health intact. It is very sad to see. Ago you hadmonths started initiating work from home procedures and you have been donating masks as well, i should mention that. You said what you dont like you like for the access stage, where would the junk spread need to be . Would it need to be 1200 or more for you to like something . Just on the prior comment on donning masks, donating masks, we have purchased for our own preparation to give our workers safe, these n95 masks. We have a couple hundred left over at the end when we sent everyone home. Hospitals into the new york city. Those are the real heroes, the doctors and nurses on the front line, fighting this battle and saving lives. My hat is off to them. Vonnie theon, answer is, yes, we are buying. We are buying at 1000, 1200, buying value. The first thing we are buying is quality that will recover irrespective of where spirits are. We would touch of where spreads are. Of where spreads are. The first thing we are buying. We can buy that regardless of where highyield spreads rp the second thing we can buy or highyield bonds that will make it through the cycle with no question that it will be restructured. No question of restructuring. It will make it through the cycle and be intact. There are lots of bonds, we have our shopping list, so whether ort is 900 off or 850, we are adding to those types of bonds because you do not find those at 80. You might be able to find them at 70. So you are five or six or 7 coupon at the dollar price, very interesting. The third thing we want to do is be involved with companies that will be restructured, but that is for a later discussion. It is too early to see how that plays out. But if you look at 2008 and this is an important lesson. When General Motors filed for bankruptcy and the cars came in, appointed by geithner or to manage the bankruptcy, the senior and secure bonds were trading in the 20s. Billion or 40t 35 billion, that we are trading around the 25 price. That, thathat was up above that, trading in the low 30s. When the bailout package came from the government, the restructuring was all about the bonds, which was the fulcrum, which exchanged for debt and equity. The bank got right above it in the 1930s, it got taken out at par. That was the security interest above the fulcrum. So marathon distressed analysts and our bankruptcy wars are doing this work on these companies but not paying dividends. We are waiting for the opportunity to unfold in is the above the fulcrum security that we will what to purchase. Of testnot 100 billions 100 billion dollars, but hundreds of billions of paper. This will be less an equity story, and much more about a credit story. Vonnie what will be your top three buys and your bottom three cells. Threeuess your best, top thighs. Number one, topical capital structure will lead to Securities Trading at huge discounts. Ve the fulcrum to secure above the fulcrum securities. We will replenish the tills with the banks from 1 trillion to 2 trillion in terms of nonperforming loans. In terms of what to avoid, i would avoid anything energy. Gas or any type of Service Company do not want to touch it. For right now from a credit perspective, i would not want to buy anything inkind if a travel and leisure. It is too early for that. But once the government has stabilize the company, from an Equity Perspective and a stability perspective, because they will come in like General Motors and force bankruptcy. They have put capital in the firm with his attacks. They have been bruised for equity. I am anat optimist, and speaking to some leading medical scientists and so forth,