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Credit has probably outperformed the equity market on a risk-adjusted basis: Goldman's Karoui - YouTube
Channel: CNBC Television
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good to see you thank you for the time
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this morning pleasure be here thank you
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for having me
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we've been watching uh spreads
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particularly investment grade last week
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you do write though in aggregate both
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households and non-financial corporates
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are well positioned to withstand slower
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growth and rising rates is is it as
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simple as that
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it's obviously a little bit more nuanced
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than that but look the takeaway from the
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first quarter to me at least in credit
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was number one credit spreads have you
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know modestly widened in the face of the
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historic sell-off in rates and going
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into the year i think most investors
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were very nervous about the ability of
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spreads to digest high rates i think it
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worked out fine and then two we've had a
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lot more dispersion in returns once you
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scratch a little bit under the surface
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at the bond level uh you know you
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mentioned the the you know household and
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corporate balance sheets yes we are
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going into this tightening cycle in a
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much better position relative to say
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2016. two examples there that servicing
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capacity is the best we've seen in
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probably three decades i know a lot of
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people are nervous about higher rates
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and what that could do to that servicing
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capacity but we do have plenty
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of cushion and room to absorb that um
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how would you characterize the
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incremental hit from russia ukraine and
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is there a sense that any of that might
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be reversible if theoretically you wound
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up with uh some kind of ceasefire
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i think you know what you've seen after
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the conflict is a swift response by
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policymakers particularly in areas that
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are very close to the epicenter of the
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ukraine russia conflict and that's
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europe
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and so as a result of that i would say
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risk freedom in some of the markets that
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we watch very closely like the sovereign
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bond markets or the corporate bond
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market in europe have held up okay where
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i think the jury is still out is in
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terms of the knock-on effects on supply
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chains and and potential disruptions
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there uh we'll see what the four what
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the first quarter earning seasons bring
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but that's certainly for us will be
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something that we'll watch very quickly
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you know very closely guidance in terms
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of the ability of companies to withstand
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a potential period of prolonged
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disruptions in in supply chains but we
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do live in a world where inventories are
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generally very thin and so it really
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boils down to the ability of companies
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to uh you know potentially
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draw on current inventories or even
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better uh explore uh other sourcing you
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know options for for commodity prices in
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particular yeah laffey it's morgan let's
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talk high yield for a second the hyg
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high yield etfs testing march lows uh
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you've basically seen this divergence in
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recent days between
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uh high yield and and the stock market i
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mean we talk so much to your point you
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talk so much here at cnbc about the
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divergence we've seen within the
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treasury market versus equities but the
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fact that you're seeing this start to
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play out in high yield as well right now
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your take on that
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look i think there's there's two views
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there there's a total term view which
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sort of includes the rates component and
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if you look at that the performance of
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credit high yield and ig has been very
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poor in the four first four months of
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the year but then there's the spread
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view which is really the price of credit
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risk and that's what we care about i
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would say in general credit has probably
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outperformed the equity market on a
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risk-adjusted basis there's a number of
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reasons for that for high-yield
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specifically keep in mind that 20
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percent of the high-yield market is
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actually commodities related sectors its
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energy and metas are mining
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that compares to probably three percent
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in the s p 500 so you do have a sector
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mix
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that works in favor of credit markets
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today
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also keep in mind that liquidity
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positions on balance sheets are the
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strongest we've seen probably ever to be
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honest but the bulk of the death of the
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proceeds from the massive amount of debt
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that was raised in 2020 and 2021 is
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actually still comfortably sitting on
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corporate balance sheets and so that
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acts as a very solid line of defense uh
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in case you know risk sentiment detail
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rates and i think it explains why in
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high yield uh we've had a a a literally
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a collapse in new issue volumes there's
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a debate on how much of that reflects uh
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you know lack of appetite on the
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investor side versus the element
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unwindedness of issuers to come and tap
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the primary market i actually think a
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lot of it reflects the ability of
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issuers to withstand essentially
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episodes of volatility and and afford
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not go into the primary market
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