Listen to the Bond Market: Major Risks Remain

Published on
June 24th, 2020
Duration
37 minutes


Listen to the Bond Market: Major Risks Remain

The Expert View ·
Featuring Jeffrey Snider

Published on: June 24th, 2020 • Duration: 37 minutes

While many are focused on making sense of equity markets, attributing daily moves to capricious COVID headlines and an army of retail investors hungry for risk, Jeff Snider of Alhambra Investment Partners is avoiding the noise and focusing on unemployment and the bond market. To him, both of these indicators suggest that V-shaped recovery is not the base case for the businesses and large financial institutions that are most affected by the pandemic. As well, Snider touches on important topics for Real Vision viewers like the effectiveness and consequences of recent Fed stimulus measures, the risks of inflation, and the health of the global dollar system. Filmed on June 19, 2020.

Comments

Transcript

  • PC
    Philip C.
    6 July 2020 @ 12:30
    Can you imagine an interview with Jeff and Zoltan? Oh my GAWD. RV time to follow up on CS compliance.
  • DS
    David S.
    28 June 2020 @ 19:01
    Infrastructure fiscal stimulus will provide banks the ability to lend on a returnable loan. If the government accepts a three year bid to fix a bridge, a bank can reasonably loan to the company who won the contract. Simple concept. Major banks lend to hedge funds for market leverage with daily financial collateral. Not productive. Simple concept. DLS
  • Hv
    Hannah v.
    28 June 2020 @ 00:20
    Jeff is the GOAT for understandability paired with complexity. Please have him on again with Ed or Raoul. Thanks Jeff!
  • PD
    Peter D.
    25 June 2020 @ 01:40
    Snider is one of the most insightful observers around on inflation, eurodollars, USD shortages and Fed monetary policy operations. In short, he deserves to be interviewed by one of RV's top people. Ed Harrison, Raoul Pal (who'd force Snider to speak English...as opposed to Fed-speak) or freelancer Brett Johnson would all do. Having the poor guy, who has been on RV 3-4 times, talk to a screen with voice-overs gives viewers the wrong idea of this guy's importance.
    • JU
      Jonathan U.
      25 June 2020 @ 04:37
      ^^
    • EM
      Eivind M.
      25 June 2020 @ 06:08
      Second this!
    • WM
      Will M.
      27 June 2020 @ 13:59
      I have too agree. Jeff is in my top 5 as an RVT guest.
  • NR
    Nathan R.
    24 June 2020 @ 12:47
    A question for Jeff: You are now the Chairman of the Fed...assuming perfect freedom (yes, ridiculous) how would you restructure the philosophy and tactics of the institution to repair the damage inflicted from Post-Volcker neglect? Thanks
    • tc
      thomas c.
      24 June 2020 @ 15:47
      Yes. I think every guest who comes on and talks about the problems should be ask what's their solution
    • RM
      Roberto M.
      24 June 2020 @ 21:00
      He does tell you. He says in the 1930's governments came up with Bretton Woods, provided stability, but got out of the way and let the economy and market forces take over. From the interview: "Again, that's my point. We don't need the government to get in the way and try to hamper what are inherent and natural economic processes. We need the government to realize that it's limited in what it can do and realize that what it needs to do is essentially its responsibility is to create and foster that stability and therefore let the economy grow, let it breathe, let it let it go."
    • WM
      Will M.
      27 June 2020 @ 13:52
      Roberto, FYI Bretton Woods was actually a 1944 conference & subsequent agreement. I think we all know (at least those of us that read history) that a new system is definitely coming. The problem is that normally it takes a crisis to get politicians to act and when they do they then use the crisis to take unpopular steps "for the good of the nation", even when it was obvious that the system was under threat for a long while. I think Bretton Woods served the world, but particularly the USA, reasonably well for almost 3 decades. What is incredible is that if you look at a suite of statistical data you can clearly see everything starting to go "tits up" once the dollar was effectively decoupled from gold by Nixon.
  • RF
    Ramon F.
    27 June 2020 @ 11:40
    Great insight on bonds and the role of banks in the economy. My take-away: banks are not loaning into the real economy. No risk reward. And CBs cannot do much about it, if not even mess it up further. It looks bad.
  • SN
    SAT N.
    25 June 2020 @ 23:44
    Snider's perspectives are unique and valuable. But I wish someone would ask questions interactively to help him concretely substantiate his claims and observations. I'm sure he has the data to back them up (his website and video series does that often). Few examples: Why is the fiscal stimulus not effective? When Fed buys bonds, what happens to the dollar it creates to buy them? How do those funds travel through the system to inflate risk assets. What exactly is "liquidity"? When Fed buys bonds, bond prices tend to go down and stocks go up. That is, QE is bearish for bonds. Why? Just market psychology? Is QE deflationary? Why? If the Congress is willing to amend the federal reserve act (to bring in MMT), could it succeed in making Fed "central" to the financial system? Like Richard Werner fears. I have gathered some answers to such questions. It would be good if someone poses them to Snider and get him to go a level deeper, but at the same time making sure he uses English and not too many jargons :)
    • GO
      George O.
      27 June 2020 @ 02:15
      I have an idea on what happens when the Fed buys bonds. In the case of the Fed buying government bonds, i.e. QE, it cannot buy the bonds directly from government auctions, but it buys them on the open market as they are sold by the banks. Ultimately those dollars go to government spending, but a portion of them go to the banks that were already buying them. In that case, if banks get more dollars, but they are still too risk averse to be issuing loans, the dollars end up being used by the banks (at their trading desks) to inflate risk assets. At least that is what I think was happening after the GFC. And it is not just banks - it is who-ever buys the bonds at the government auction with the intention of turning around and selling them to the Fed. I don't know how much they make on the turn around. If anyone can point out a flaw in that argument, please say so. I have read things that indicate this is what is happening, but I would be very interested to hear any other ideas. As for the Fed buying the corporate bonds, like they are doing now, naturally those bonds go to keeping corporations afloat. In particular, it keeps insolvent companies from going insolvent, and gives them enough time to try and scratch things together and perhaps sell their smaller company to a larger company. I have heard that some of this has been going on since the stimulus began in March and April. The negative effect that this has is two-fold. First, if insolvent companies would be allowed to go insolvent, then a lot of the top minds at those companies (some of them are really smart but just got caught in this difficult environment) would be out of work. But because they are smart, they would eventually figure out something else to do and would become productive again, possibly employing people again, which would benefit the entire economy. Instead, they end up staying at work at insolvent companies that have laid off most of their workers, keeping only the top management receiving salaries (from Fed funds through junk bond purchases), and working on how to either get out of the hole with the new Fed funds or working on convincing a larger company to buy them. But the labor force remains unemployed for a long time, and the shareholders and bondholders (who were taking a risk by owning shares and bonds) don't end up losing out (even though the company is insolvent), along with company management. So this is the mechanism by which Fed bond purchases perpetuates the wealth gap. This is why it is of such grave moral hazard for the Fed to do this. Eventually the labor class gets fed up with seeing the wealthy get wealthier while they are unemployed and have nothing, and suddenly we have a socialist revolution on our hands.
  • DL
    Dominic L.
    27 June 2020 @ 00:13
    Already looking forward to watching again. Thanks, guys.
  • gj
    gail j.
    26 June 2020 @ 17:48
    I have followed Jeffrey Snider for a few years and feel like I learn something from him. Would really, really like to have him 'in conversation' with Ed or Raoul. Could it happen?
  • NI
    Nate I.
    26 June 2020 @ 05:02
    Can bond market signals be relied upon? What would prevailing interest rates be if central banks weren't buying up bonds of all kinds?
  • TR
    Thomas R.
    25 June 2020 @ 22:29
    Comprehensive, informative, convincing and well timed. Thank you JS & RV.
  • GM
    Gary M.
    25 June 2020 @ 18:50
    Very, very good. Thank you 👏👏
  • AA
    Aaron A.
    25 June 2020 @ 12:34
    He must only be referring to large multinational banks as far as not lending into the real economy. I’m a commercial lender at a regional bank and we are lending into the real economy. Somewhat conservative because of corona, but still putting loans on the books to quality borrowers. Issue with limited money creation is the amount of sub-par companies in the real economy that are not credit worthy for bank debt. They need factoring/mezz/equity capital based on their risk profile.
    • EM
      Eivind M.
      25 June 2020 @ 12:55
      Sadly, there are fewer and fewer regional smaller banks around - this is part of the problem. There was HUGE consolidation after 2008, and a lot of signs point to this as one of the key weaknesses of the economy over the last decade.
  • LB
    Lorenzo B.
    25 June 2020 @ 12:50
    Great Guy sign him up on a regular schedule
  • sS
    sille S.
    25 June 2020 @ 06:39
    ...and there was a little war after the 1930 depression, but we don’t wanna be to pessimistic...
  • EM
    Eivind M.
    24 June 2020 @ 13:02
    Awesome, as usual. Love Jeff's take on current situation! More of this please :)
    • FS
      Fernando S.
      24 June 2020 @ 14:35
      Jeff does a great show with Emil Kalinowski on youtube. search eurodollar university
    • EM
      Eivind M.
      25 June 2020 @ 06:14
      Watching every episode the minute it's uploaded :)
  • SW
    Scott W.
    24 June 2020 @ 13:23
    A Jeff Snider-Lacy Hunt conversation would be fantastic.
    • BL
      Brett L.
      24 June 2020 @ 15:06
      Agreed, that would be a great pair to discuss the financial conditions or rules we need for genuine future growth.
    • EM
      Eivind M.
      25 June 2020 @ 06:11
      Yes! Two of my absolute favorite outside the box thinkers!
  • MD
    Matt D.
    25 June 2020 @ 05:54
    Thanks Jeff. A few simple powerful ideas which provide great insights. Great interview, really appreciated it. Thanks again.
  • AT
    Alun T.
    24 June 2020 @ 07:50
    Jeff always great value for money. A good explainer. Please, keep him coming back.
    • JL
      James L.
      24 June 2020 @ 23:44
      Wears shirt and tie at home too. Top man
    • HC
      Hao C.
      25 June 2020 @ 05:02
      No pants tho. Smart man.
  • RG
    Rob G.
    25 June 2020 @ 03:46
    Best interview yet. I like this bloke
  • TS
    Thomas S.
    25 June 2020 @ 03:40
    Great, clear thinking by Jeff. Interesting to compare and contrast opinions of Jeff with Brent Johnson and Lyn Alden. I'll though in the great Lacy Hunt for good measure. It seems clear that the banking system is completely broken. This is where I like Richard Werner's ideas on how to regulate banks: only allow them to make lo make loans on productive assets, not financials assets. Even though I am more and more an Austrian economics fan. Since it is always excess credit creation, debt, and leverage that gets us into trouble
  • ZM
    Zachary M.
    24 June 2020 @ 10:42
    I'm having a problem with the video player on this website and have heard other people with the same problem in the comments here. Sometimes the video doesn't play and an error is displayed on the video player. I think it would be a good improvement to the experience of this service if this was fixed.
    • BS
      Benjamin S.
      24 June 2020 @ 12:45
      If it happens just refresh the browser and then it's fine.
    • KC
      K C.
      24 June 2020 @ 13:57
      I had trouble with audio when the video goes on 2x. Fixed it by downloading the video first.
    • MH
      Michael H.
      25 June 2020 @ 02:39
      When you file a bug report it's only effective when you tell what operating system, browser type and version, and ISP you are using. "It doesn't work. Fix it." isn't really helpful because there are thousands of permutations of software out there.
  • MR
    Michael R.
    25 June 2020 @ 02:06
    Great as always "Snider for Fed. Chair."!!
  • JO
    Jack O.
    25 June 2020 @ 01:39
    Fantastic stuff. Been following Jeff for years and am convinced he is the foremost expert out there on the global dollar system and the economy. I like Brent Johnson a lot too but he doesn't have anywhere near the depth of knowledge that Jeff does. I hope Jeff is brought back soon but next time it needs to be an actual interview. I'd probably pay extra on top of what I do for this subscription just to see an hour + long conversation between Jeff and either Raoul or someone like Lacy Hunt.
  • SA
    Sean A.
    25 June 2020 @ 00:21
    Listening to Jeff for quite some time.. a true expert in his field.. More interviews with Mr. Snider would be greatly appreciated..
  • FH
    Fraser H.
    24 June 2020 @ 23:45
    Snider rules!
  • AS
    Ash S.
    24 June 2020 @ 22:56
    Really enjoyed hearing this perspective.
  • PM
    Phil M.
    24 June 2020 @ 22:26
    Fantastic interview thanks guys
  • ea
    edwin a.
    24 June 2020 @ 20:59
    Jeff Snider has been one of the most insightful experts in this area for years, and I love seeing him on RV. But it can take time to understand his perspective, particularly since he brings knowledge of 100+ years of history to understanding Fed / CB policies, particularly why they can be so ineffective. His thoughts dovetail not only with the dollar discussion among Brent Johnson, Lyn Alden, and Raoul, but also with people like Richard Werner who are really focused on (and worried about) private banks -- how strong they are, what they are doing, and whether CB policies are really having much effect on banking at all, good or bad. What I like most about his view is that, aside from which prices may move up or down in the short term, Snider really cares about the underlying economy, and what it takes to get it working.
    • mi
      mitchell i.
      24 June 2020 @ 21:30
      "Jeff Snider has been one of the most insightful experts..." agreed
  • MT
    Mark T.
    24 June 2020 @ 20:53
    This was a great interview. I agree with just about everything he said. This always worries me though because I want to be mindful of confirmation bias, but like someone said, if it walks like a duck and quacks like a duck....
  • ar
    andrew r.
    24 June 2020 @ 19:53
    JS is always great. A non-Keynesian? (Gasp!) ;)
  • TS
    Tim S.
    24 June 2020 @ 19:16
    Bring back Jeff to talk with Lyn on the dollar. I like Brent Johnson but Jeff is the true reigning heavyweight champion.
  • TS
    Tim S.
    24 June 2020 @ 19:13
    "gamesmanshit" - Must have been a freudian slip
  • AT
    ALAN T.
    24 June 2020 @ 19:01
    great
  • DS
    David S.
    24 June 2020 @ 18:42
    I always like to hear from Mr. Snider. IMO the reason banks are not lending to the productive economy is simply pandemic, pandemic, pandemic. Small and medium size banks loan money to the real economy when banks can predict repayment of the loan with interest. With the pandemic in the early innings and the economy opening with thousands of new cases, who can predict any cash flows. Corporations and individuals are borrowing to maintain cash balances through the summer of 2021.; not to invest. New and old investors poured any free cash into a bubble market hoping to get out before reality sets in. All the systems were set up to keep the US voters happy until the election. Mortgage deferrals, rent deferrals, stimulus checks, excess unemployment checks have added to the unbridled Fed liquidity. The Fed and the government cannot solve the problem. Better treatments and vaccines will help remove the pandemic's effect on the economy. Make no mistake, however, it will take a long time to recover and the economy will not look the same. Be careful with your assets. DLS
  • BN
    Barrett N.
    24 June 2020 @ 15:47
    JS views are always extremely bright and insightful. Would love to know what he would consider “Meaningful Changes” to get us out of his base scenario. More lending to mom and Pop/Main street and what others? Excellent interview. Thanks RV and JS. B
    • MW
      Max W. | Real Vision
      24 June 2020 @ 18:40
      I don't want to speak for Jeff, but having conducted a few interviews with him now and knowing his keen focus on issues surrounding collateral I'd lean that way. It is also briefly discussed in this interview with Steen Jakobson and Roger Hirst: https://www.realvision.com/shows/the-interview/videos/the-next-waves-of-the-financial-crisis I think both Jeff and Steen would agree that if a history of success and a solid business model isn't enough to get a loan we will always be constrained by the supply of what is considered to be sufficiently safe/liquid collateral and that credit will find its way to those that have collateral and not those who have the best ideas.
  • TG
    Terry G.
    24 June 2020 @ 15:26
    Fantastic, bring him back more often.
  • SS
    Stephen S.
    24 June 2020 @ 15:15
    Yes, I’m totally onboard with his recommendations.
  • TJ
    Terry J.
    24 June 2020 @ 13:53
    I just love listening to Jeff talk about the bond and eurodollar markets, He and Dr Lacy Hunt are the real bond kings in my opinion! Thank you RV,
  • RM
    Rick M.
    24 June 2020 @ 12:06
    Yes, the risk/reward in equities is upside down in 2020. Glad to hear optimism for the later 2020s. What happens if swap lines go to infinity? Will the global debt levels reach a more quiescent state?
  • MC
    Michael C.
    24 June 2020 @ 11:41
    Jeff is a key subject matter expert to have on RV as a recurring guest. His knowledge of the plumbing of the financial system and his understanding of financial history is thorough and extensive. What's better is that he has made his extensive work available to anyone who has the inclination and time to read and listen to it. He is clearly a Fed and Central Bank critic but he backs up his opinions with a truck load of analysis and facts. In fact his work is unique and eye opening in the way he lifts the veil on central bank smoke and mirrors. You wont find him on Twitter being sensationalist or talking up his book (if he has one). If anything structural changes in the financial system I am sure he will be one of the first to spot it and call it out.
  • SS
    Shanthi S.
    24 June 2020 @ 10:08
    Thank you.