00:00After April 7th and the tariff onslaught, we saw a very different market reaction.
00:05It seems to be much more orderly today, even with the threat of massive tariffs on the EU.
00:09Jamie Dimon's comments about sort of a generation of investors that have been conditioned to a bounce is quite apt.
00:17And I think we are seeing that.
00:20When I look at high yield spreads, CDX high yield, for example, around 350 basis points,
00:25you know, while off the tights, when you think about the totality of the circumstances
00:31and the new risks that are currently on the table, a forward implied default rate of about three and a half percent
00:38when the trailing 12 month default rate is closer to four and a half when you include pick restructurings and so forth.
00:45It doesn't seem like that appropriately prices risk.
00:50Tariffs obviously add a degree of uncertainty.
00:53The fiscal setup adds a degree of uncertainty.
00:57And by the way, you know, I think the administration has it right.
01:00We can't afford to continue to run one trillion dollars in interest expense for for eternity.
01:07So fiscal austerity is actually required.
01:10And frankly, Bonnie, I was really interested to see that when the budget, the big, beautiful bill hit and was passed by the House,
01:19that 10 year rates or yields actually rose because I think there was a hope that there would actually be a little bit more fiscal austerity in the bill.
01:28So there's this tension between sort of this long term need for more fiscal austerity and sort of the idea that there will be a bit of a needed detox in the meantime.
01:37And that's our expectation going into into the second half of this year.
01:42And we are going to see a slowdown and that in general, the riskiest asset classes are not pricing that in.
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