Credit Chaos and Fool's Yield: Updating the Thesis (w/ Dan Rasmussen & Greg Obenshain)

Video Transcription:

  Credit Chaos and Fool's Yield: Updating the Thesis (w/ Dan Rasmussen & Greg Obenshain)

DAN RASMUSSEN: I'm Dan Rasmussen, the founder and CIO of Verdad Advisors. And I'm here hosting a conversation on behalf of "Real Vision." We're talking today with Greg Obenshain, who's Verdad Advisors director of credit. Greg has spent the last few years studying the high yield bond and corporate credit market through a quantitative lens building one of the largest quantitative databases of individual corporate bonds ever built and studying what predicts returns within corporate credit and looking at the market through, I think, a very interesting analytical lens. So, I want to start a thank you for joining us today, Greg. GREG OBENSHAIN: Thank you for having me. DAN RASMUSSEN: Greg, can you start by telling us about-- you've written a lot last year and early in 2020 about what was going on in credit markets. Could you talk about your thesis then? GREG OBENSHAIN: Yeah, sure. So, for the last several years, we've been in what we call internally the fool's yield environment, where there's been a substantial reach for yield. And that can be very difficult to define, because what does reach for yield mean? But for us, we actually think it's reaching down into the bottom parts of the high yield market where you think you're going to get a 7% yield, an 8% yield, and you think that you're a smart analyst so you can get this. But in fact, what you end up earning is a 4% or 3% because your base rate of loss is such that it's very hard to do better than what the BB market or the higher quality, high yield market does. So, for the last 12 months, we've been pretty vocal about this Fool's Yield idea, saying that probably the best you could do was a 4% return. And that what we were seeing in private credit markets, what we were seeing in some of the riskier loan markets was not really sustainable behavior-- and especially pension funds, who started to allocate a lot of money to private credit, and particularly sleeves of private credit that were doing deals with very high leverage, in particular, were really engaging in much riskier behavior than they, perhaps, realized. DAN RASMUSSEN: So, Greg, when you say Fool's Yield, I think what you're arguing is that above a certain point, credit risk doesn't pay off. So, if you lend to someone with a 20% yield, the losses are going to outweigh the returns. And I think a lot of folks intuitively understand this-- that a 30% payday loan probably isn't going to yield 30%. You're not going to get the money back. But tell us how you got to the exact number. How do you locate where on the current market spectrum the Fool's Yield is? What's your process? How did you get to that? What was the research that led you there? GREG OBENSHAIN: One of the hardest things to do in credit is to look at a bond-by-bond level analysis of what's happened in the past, right-- to go back and really dig into that. We have index data, that's what everybody has. But really that's a very crude cut of what's going on. So, what I spent many years building was a bond-by-bond database, basically, where you could go back and say, what happened when we bought bonds that traded like they were in the lower half of high yield, right? That traded with the yields that suggested they had risk-- did they actually return their yield or did they return less? And when we stacked all those up, what we saw was that bonds that were trading as if they were riskier actually had lower returns. So, they didn't realize their yields. Whereas bonds that traded as if they were higher quality in the higher part of the high yield market actually did make their returns, and actually a little bit more. What's surprising, I think would be surprising to most people, is that last year, when we could figure out that dividing point of how far you needed to step down, really, the implied credit rating spectrum, where you started to take more losses than you'd gotten gains from taking on more yield, really happened much sooner than most people think. It happened with that BB to B split. And for those of you not familiar with the high yield market, you have really three parts of it-- the BB part, which is the highest quality, the B part, which is the middle, and the CCC part, which is the lower part. And that Fool's Yield dividing line really happened between BB and B over history. That meant that last year, 4% yield was probably the best you were going to do. And I think that is surprising for especially people who are trying to get out and find a 7 and believe they can find a 7 or an 8. It's actually much, much harder-- it was much, much harder than you'd think. DAN RASMUSSEN: So, fundamental analysts, I think-- and, Greg, you began your career as a fundamental analyst-- often think of the way to approach high yield as going to find a high yielding security and then underwrite it to make sure that it'll actually return that yield. But what you're arguing is that the base rates of return are actually better at lower yields, because those bonds tend to get upgraded, then, to earn their yields, whereas the lower yielding stuff, no matter how good you do your due diligence, something surprising inevitably happens that was, in some ways, priced into that risky security and you don't earn your yield. And I think that's a very fitting segue into what we've seen so far this year, which is a big surprise. I think nobody anticipated exactly what was going to happen-- that we'd have a global pandemic, that we'd be working from home-- everyone would be working from home and what would have happened to credit markets would've happened. I think everyone was fairly bullish in January. In fact, there were a lot of analysts putting out reports that were saying that the biggest opportunity in corporate credit was in the CCC space, because that had lagged the market in '19. So, Greg, tell us what's happened over the past three months in credit markets and where we are today. GREG OBENSHAIN: And it's not even three months, it's really two months. It's been quite rapid. This has been one of the most rapid sell-offs, I think, in credit markets as well as equity markets, as everybody knows. We've really gone from what were on the high yield market a 5.5% yield to a 9% yield on high yield in the course of just over a month. And the high yield spread now is at a level last seen in 2009. And in fact, when you look at historical episodes when we've passed through the spread level where we are right now, or the yield level is the easier way to think about it on the high yield market, the dates are going to be familiar. It was September 2001 and it was September 2008. So, it was 9/11 and Lehman. And when you go and you look at those periods of time, you were at the beginning of-- you'd actually realized a whole lot of the sell-off in the equity market, and you'd actually realized most of the sell-off in the high yield market by that point. So, we're really at recession levels right now in high yield, and there's a whole lot priced in that was not priced in before. DAN RASMUSSEN: So, where do you think-- you were rather bearish, saying that the best people could earn was 4% a few months ago-- I think very vocal about criticizing the private credit markets. Where are you now on the bearish to bullish spectrum on high yield, Greg? GREG OBENSHAIN: I have to say that I've gone from being bearish to I am feeling-- I have to flip to bullish now. The numbers are what they are. We are at high spread levels. You are locking in returns on companies that you've heard of. These are large names in high quality, high yield that are yielding 5%, 6%, 7%. Some of the names are like Levi Strauss, NRG Energy, Netflix, Charter Communications, Match Group. These aren't small names that are giving you 5%, 6%, 7% yields. Where, yes, their numbers are going to be terrible, yes, we know that the environment has dramatically changed, no, we have no idea what's going to happen. But I think if you are a pension fund who is out taking a lot of risk trying to find the 7% or 8%-- or 6, 7, or 8% return you needed, this is a gift. You don't get this opportunity very much. One of the things that we've spent some time doing is going back and looking at those past crisis periods and saying, okay, when you've had a spread widening and an equity sell-off like we've had now, not just in the history and the period of time where we have really good history, but going back also a little earlier to '87 and the recession in 1990, and saying if you had to make a choice about what to buy and you dove right in, what would be the best thing to buy? And the answer isn't equities, because it usually takes equities-- and you can speak to this, and I'd love to have you talk about what you're seeing in equity-- but it usually takes two to three months for the pain to play through in the equity markets, because you usually have more downside from the initial spread widening or equity sell-off. The same is not true for high yield. With the exception of 2008, which was a financial crisis, you, within a month to six months, were already into positive returns, and almost always into positive returns after 12 months. And those returns were substantial-- substantially more than just what the yield said you would earn, because you had spread compression, not even all the way back to where it used to be, but you just had improvement in the underlying spread environment. So, we look at the environment now, and high yield has sold off just as rapidly as equities, except these are contractual assets. They have a maturity date. They have a coupon. A lot of the uncertainty's inherent in equity. What are earnings going to be? Are they going to add more debt to layer you? What's going to happen in equity? Aren't really as difficult to figure out in debt, because, especially if you're sitting below a large equity market cap, it's really just a question of whether they'll pay off or not. And that's a much more tractable problem. DAN RASMUSSEN: And what have you seen in terms the last few recessions, Greg, about the base rates? About, let's say, you bought BBBs, BBs, Bs, and CCCs right before the recession and held them through? What percent of these things are going bankrupt? And what percent are paying off? Where do you earn your yield and where do you get crushed in credit? GREG OBENSHAIN: In a crisis like now, obviously default rates go up over the next five years. So, Bs are going to default at something like a 30% cumulative default rate. CCCs might even be higher than that. So, companies that were in trouble before or had risky financials before a crisis obviously get whacked. And in BBs it's actually a lot better. It's 10% or even below that will eventually default over a five-year period. DAN RASMUSSEN: And most of those will get downgraded before they default, right? So, if you are rebalancing in BBs, you are basically okay. GREG OBENSHAIN: Yeah, and this is one of the great misconceptions about-- especially let's talk about BBBs, as well because there's been a lot of people bearish on BBBs. And they've actually performed quite well in this downturn relative to lower rated credit. Jump to default is what we call it-- things don't jump to default. They go through restructurings before they file. They get downgraded. It's a process. It's something that takes a long time to come to fruition. And so, you do not have a bond just go from par to zero. That doesn't really happen. It takes a while. And all that time, you're earning your yield or you're earning your coupon. So, when yields are high like they are now, you are getting compensated for a lot of that loss. And whereas we would have said, don't even bother going below BB nine months ago, and did say that, now you can actually reach a little more down into the B and maybe even to some CCCs and have a lot more protection, because you're earning so much on the carry. And so, that's the margin of safety, if you will, that you get in high yield with higher yields right now. DAN RASMUSSEN: Right. So, Greg, we've talked before about this concept of the financial accelerator- - as funding gets cut off, as new lending gets cut off, as refinancing risks like this market volatility starts to scare investors away from pretty much doing anything, that financial accelerator really whipsaws through the market. You've talked about triple-b's. You sound pretty bullish on BBBs. If that financial accelerator hits, where do you think it's going to be hit hardest, what sectors of the market? What is the CMBS explosion of 2008, today? Where do you really see problems emerging if this type of financial accelerator continues to accelerate? GREG OBENSHAIN: Yeah. And we've written about this quite extensively, and it's really in anybody who's taken on a whole lot of leverage and left themselves with no flexibility. Because this is an environment where you need flexibility to get you through. And obviously, private equity funding-- done through private credit and also done through the leveraged loan markets-- is done at very high leverage levels, because it has to be. To win a deal, you need to put a lot of leverage on your deals for the most part, especially for the big mega deals. And so, these companies are in a position where they will probably need to take on new debt or restructure their debt in order to be able to survive this environment. They might not call it default, but it is going to be equivalent of default. And the problem with leverage isn't so much the dollar portion of leverage, it's that you need to service that debt through interest payments. And that diverts your ability or prevents you from reinvesting in your business. And so, one of the, I think, surprising things about companies that are reasonably levered in the higher part of high yield is they have enterprise value to debt coverages of anywhere from two to four in some are ridiculously higher times. And so, it doesn't seem like there's a whole lot. They could easily add more debt. But a lot of these businesses actually reinvest in their business. And that's not something you can do if you put a whole bunch of debt on your balance sheet. You've taken away all your flexibility. It's those companies that have preemptively eliminated their flexibility before a crisis that are going to be in a lot of trouble. DAN RASMUSSEN: So, I think you and I share a similar bearishness on what had been going on in private equity, right, where deal multiples had been going up and up. Those deals multiples were funded by very cheap debt coming from the private credit market, and I think as recently as a few months ago, we were seeing deals that, on a GAAP basis, were probably done at about 16, 15 times EBITDA on average, with seven or eight [indiscernible] of net debt to EBITDA. Greg, from your analysis of individual credits, what is that debt to EBITDA level where you get really worried and say, gee, any recession or market volatility is going to wipe that company out or put it in a pretty difficult position? And what percent of private equity and private credit would you say today is above that threshold? GREG OBENSHAIN: So, we're talking debt to EBITDA here, which is actually interesting, because it's actually not the greatest metric to use-- free cash flow metrics and other metrics work better, but we'll talk debt to EBITDA, because I think it's a good shorthand for how people think about it. And so, debt to EBITDA- - traditionally, a really good safe loan would be at three times. A stretch would be five times. Almost all private equity deals now are done well above five times. And when you do unadjusted to EBITDA- - so without all the gimmicks-- you're looking at deals that are six, seven, eight times levered in some cases. The truth is, in an environment like this where you have a really substantial hit to cash flow for a lot of businesses, even four or five times is going to be difficult. That's still a lot of leverage. And it's going to cause a lot of pain. And equity holders in the public markets would never fund that business. Those are exactly the businesses in the public equity markets right now that are getting absolutely hammered. If you're a public equity analyst, one of your first questions right now is, how much debt does it have? Well, if you did that for private equity company and actually saw what would happen to their equities if they were traded in the public markets today, it would be brutal. It would be absolutely brutal, because nobody wants companies that have leverage that could bankrupt them. DAN RASMUSSEN: Right. And so, when we're looking at a market, I think it's really interesting-- I think there's a lot of contrarian ideas packed in here. I think one is a relative optimism about BBB and BB credit right now. I think what I'm hearing from you is that historically, buying that type of credit, owning it through the cycle, you've gotten paid-- in fact, it seems like what you're saying is you've actually, in some cases, earned more than their yield, and right now, when the spreads are this wide, walk me through the math of if this recession normalizes, if spreads go back to normal and you buy, say, a 6% or 7% yielding BB bond, what are you looking at from a total return perspective? GREG OBENSHAIN: If you're looking at, say, a 6% bond that you buy, and let's say the treasury component of that is we'll call it 1%, and so your spread is 500-- 500 over treasuries-- well, historically, BBs have really traded in the 250 range, call it. So, you have 150 basis points of tightening potential over two years. Let's call it 75 basis points a year-- just from spread tightening. DAN RASMUSSEN: 250, you mean, sorry-- 500. GREG OBENSHAIN: Yes, so there's 250-- sorry, 125 of spread tightening. DAN RASMUSSEN: In share? GREG OBENSHAIN: In share, yeah. And let's say the average duration in the high yield market is four or five. That's just a measure of sensitivity to change-- we'll call it sensitivity to change in yield. So, in addition to your 6% every year, you're earning an extra 4%. So, you're getting on average 10% returns without anything else happening, potentially. And you can get much higher than that, right? So, when we do the calculations, we'd estimate-- and this is obviously just an estimate-- that you have potential to make teens returns, annualized, on relatively safe credit. And that seems to us to be a very, very good opportunity, whereas if you think about equities, we do the math right now, I think equities do have a lot of upside from recessions. And you can talk about this. But that opportunity doesn't usually present itself for another few months once you've had the initial sell-off. DAN RASMUSSEN: That's right. And I think the other thing that I would note is about valuation levels-- coming into this crisis, we've had a very unusual market-- a market that looks a lot like '99-2000 in some ways, where you had a few corners of the market that were really, really overpriced-- or from my perspective overpriced. You had large growth stocks trading at multiples near all-time highs. The only times we've reached multiples like that in large US growth names were '99 and '73 or so. And yet in contrast, small value and even large value names we're trading at pretty historically average valuations, right-- so very normal while the large growth component was just trading at crazy prices. And then you had international equities trading at a discount of the long term averages-- so just these pockets of the market that were really overvalued-- and of course, private equity, valued like large growth, which is a pretty scary thing, given those are much are smaller companies with a lot more debt. But historically, I think if you look at a 2000 or 2001 scenario, I think a lot of the wisdom of the past decade has been just buy an S&P 500 index fund and you'll be fine. Coming out of that 2000-2001 period, Greg, if you'd started in September of '01, should you've bought the S&P 500? Or should you've bought corporate credit? Where would you have done better and what played out from there? GREG OBENSHAIN: It really depends on the crisis. But the themes that have come out across all the crises are that the S&P 500 versus the Russell, it's actually the Russell that comes back first. It's actually the smaller stocks that come back first, not the S&P. And especially in the 2000 frame when those valuations were so high, that was the S&P 500 that really took the brunt of it. In all cases, though, it's really the contractual obligations-- the corporate credit obligations-- where it's much easier for investors-- and it makes sense-- it's much easier for investors to wrap their hands around what's going on. You've got a bond in a company, you figure out what it's going to pay. Most of these investors are probably buying it for the yield, right? They're not actually playing for the upside. But because it's an obvious and easier play, it corrects much more quickly. So, it's a much more understandable problem for most investors. And it's also a lower risk way to play the recovery. So, I think it attracts a lot more attention faster. DAN RASMUSSEN: Early on. Yeah. So, Greg, I think one of the issues, and you mentioned earlier, exenergy-- where is high yield ex-energy, which is a question we get a lot. And I know you began your career as an energy analyst. What's your view on US energy and US energy credit? You've been fairly bullish today on BBB or BB credit. Would you be a buyer of BBB or BB energy or US shale credit right now? Where do you see that ending? GREG OBENSHAIN: Yeah, so moving from just overall the valuation levels and then starting to think about individual companies and how I think about individual companies and what I look at, one of the parts of my process is to obviously go through the actual financials of the company. And as you said, I'm a former energy analyst, so I've spent many, many years looking at energy financial statements. And there's been a fundamental problem in the US and in the shale plays, which has been highlighted by a lot of people, that they actually just don't generate cash. So, on the metrics that we look for in credit, which is free cash flow to debt-- real free cash flow to debt after Capex-- and measures of return on assets and other return measures, energy has never scored that well. And the fundamental problem is that they consume more capital than they produce. And this was true in the much higher oil price environment. So, much of the debt that is in high yield and energy is actually not towards global multinationals. It's towards these US shale plays, which really haven't proven to be profitable. So, there was a bigger fundamental issue that was happening within US shale plays before all this happened. The fact that you've had a massive oil sell-off at the same time that you're having a bit of a credit crunch just seems like a onetwo punch for them. But there were more fundamental problems in energy before. So, I wouldn't say I look at the world and say, buy all of high yield, buy energy because it's cheap. That's certainly not the argument at all. In fact, when we go and do our research on what to buy in a crisis in debt, it's really obvious things that actually come to the top. It's buy big companies with high free cash flow to debt with high returns on capital. Buying public companies really helps too, because those were private companies, and actually public companies do better-- obviously, because they have more access to capital. But when you start to go look at what works, the energy companies really don't meet the return on investment and free cash flow metrics that are in that. So, they actually, even quantitatively, would not pass the screen. DAN RASMUSSEN: So, I think that's a nice segue to talking a little bit about what your research has led to, Greg. I think it's a bit of a different way of thinking about high yield and corporate credit than a lot of people are used to, coming from the factor research into US equities-- the factors that Fama and French have identified, which are profitability, investment, size, and value. So, you're looking essentially for small companies that are really cheap, that are not investing, and thus generating free cash flow, and have pretty high profitability basically return on assets metrics. How does that compare to credit? Is what Fama and French found in stocks, does that map directly on to credit? Should I go buy the smallest, highest yielding bond issues? What has your research found generally? And then after that, I'd like to shift to saying, hey, what's different in a crisis? But in a normal market, what have you seen that'd be the big factors that predict corporate credit returns? GREG OBENSHAIN: Yes. When you think about corporate credit, you need to understand that the easiest thing to do would just be-- if you put yield in as a factor, it's going to be highly significant, right? And you'd say, okay, I should just buy the highest yielding thing. And you very quickly find out that that's a bad, bad idea. And the reason is that the market's relatively efficient at pricing things on a relative value basis. If this bond yields 8 and this bond yields 7, most of the time there's a really good reason why. DAN RASMUSSEN: So, in some sense, you're arguing form market efficiency, right-- that no matter what the yield is, the yield should deliver the same return. it should be at that Fool's Yield level between BB and B, right? It's just a flat line. Okay, you can tell me that the yield is this, but if markets are efficient, you're just not going to get anything-- there's a maximum you can get in a credit risk premium. And no matter what that yield is, it doesn't really matter. You're deemphasizing yield, right, which is a very contrarian view, I think. GREG OBENSHAIN: And we're able to do that, because the very first thing we do is say, well, hang on- - before we apply all these factors, let's just figure out how the world works, right? And the observation on how the world works is, wait a minute, there's a whole portion of this market that is incorrectly priced or priced because there's all sorts of reason you can come up with-- efficient market reasons why it's priced that way. But you get your highest returns in one particular segment of the market, which is that segment just below investment grade. So, once you focus there, then you say, okay, what's the way you make money? Well, there's differences in yield, but what really matters is, are the credits getting better? Because if you're getting better, you get that effect that I talked about-- the pricing changes, the spread changes, and you get a move up in price. And then conversely, is the credit getting worse? DAN RASMUSSEN: So, if markets are efficient, the yield is going to be not the best predictor. What you want to say is what gets upgraded, right? What credit improves in quality such that I got a repricing of the yield, even on a relative basis, different tomorrow than what it is today? So, what predicts upgrades? I think you've talked about this Goldilocks area right below BBB. That's the place with the highest percentage of upgrades. But if you're going in and looking at those just below investment grade things that could get upgraded to investment grade, what helps you separate-- what are the factors-- the quantitative factors-- that help separate the stuff that moves up from the stuff that moves down? GREG OBENSHAIN: And this is where you start to see that it actually mimics a little bit what you see in the other markets, but not always. So, let's start with size, because that's different, right? If you have two companies that have the same yield and one's bigger than the other, the other the bigger one is much more likely to get upgraded. It has more options, it's probably been around longer. To get big in the first place, you have to have some level of success. So, it's almost a quality measure. So, when you think about the universe and you say, okay, let's look at everything that has the same yield and then start comparing them, you get some interesting observations. The other thing is profitability does work in credit very, very well. And developing sophisticated measures to measure profitability, not just the traditional ones, and trying to really think deeply about how to measure profitability, gets you very, very far in corporate credit, because companies that are profitable can reinvest in their business. They can grow. They can grow organically. And they improve over time. So, that's very, very important. But one of the other things that we've really spent a lot of time understanding as well is not just where the agencies rate a company, but where they would rate the company if they updated their ratings very frequently, right-- which they don't intentionally. The rating agencies-- by the way, this is not a criticism. Their job is to keep stable ratings over time. So, they're not trying to time the market. But you can see very easily when a company is improving and when those metrics are getting better, and when the actual implied rating by the financials is much higher than what the rating agencies say. And then you can also see where the market prices it. So, when you get a disconnect between any of those three, you can get a good sense of which way the bond should move on average over time. So, that's really a value metric, which is done differently. DAN RASMUSSEN: Right. It's remarkable how commonsensical these rules are, right? I think you think of in everyday life, would I rather lend to the guy with $100 million of assets who owns a tech business that's compounding every year or the person with $100,000 of assets that owns a car rental business, right? And you'd say, well obviously, the bigger guy with the compounding business that's highly profitable, not the guy with the depreciating assets who doesn't have any assets to begin with. And yet you see, it seems like, sometimes in the credit markets, those things are priced at the same yield. Those are two extreme examples, but intuitively, I think it's quite logical, I'd rather lend to the larger company, the richer person. Yeah, of course it's more credit-worthy. And then I think second, the intuition that the company is the higher return on assets or a higher return on equity, of course, that seems very logical that those are the people you should lend money to, right? Because they've got to earn a higher return on equity or a return of capital than the rate at which you're lending to them. And I think when you talk about shale, what I'm hearing you say is, gee, I'm not convinced that the return on assets or the return on investment in shale is above the cost of debt, right, which is a really, really scary thing. GREG OBENSHAIN: And one way you define high yield in the middle of high yield, actually, people, they have these number ratings and these letter ratings, and it's not very helpful. One of the ways that I think about B and below credit-- the middle of high yield and down below-- is that the cost of interest on your data is in excess of your return on assets. So, if you were to completely debt fund your company, you wouldn't be able to do that. You're slowly liquidating. And so, you see these companies that take on more and more debt with higher and higher interest rates. And you can just see that they're slowly liquidating the company. The equity value is getting smaller and smaller and smaller. And so, a useful mechanism to think about credit is you only want to invest in credit when it's very clear that the company is organically able to return at a rate that is higher than the debt they're taking on. And it sounds very obvious, but it takes quite a lot of work to get there and make that comparison. DAN RASMUSSEN: That's great. Well, let's return, I think, back to the beginning of this conversation, Greg. You've been watching the markets very closely. What's your advice to investors right now at this moment? How do you think they should be positioning their portfolios? How should people be reacting to this market? Is it time to panic? Is it time to sell? Is it time to buy? And then if you are selling or buying, what should you buy? What should you sell? How do you see the lay of the land? What are you thinking about right now? GREG OBENSHAIN: Obviously, I'm watching the high end markets very closely right now. And I think there's enough opportunities now coming up in companies about what you don't need to be that concerned. Even if you cut off cash flows for three months or you think that we're going to fundamentally change how we live based on what's going on right now, there's still plenty of companies out there-- DAN RASMUSSEN: Two of the companies you mentioned, which were Netflix and Match, I can stay safe watching Netflix and doing online dating, even more now that people are working from home. GREG OBENSHAIN: So, I think those are the opportunities where you're seeing decent yields. And I don't think that's a hard investment to make when it wasn't available to you six months ago. There was no place you could go get a really good 5% or 6% return. If I were a pension fund right now and I were thinking about this and said, I have a problem. I know I have these liabilities. I know what I've assumed on my returns. It's still high. I can go lock a lot of this stuff in. I think part of it is just don't wait too long. You're not going to have this particular opportunity. By the way, it might get a lot cheaper. In 2008, it did get cheaper, and would have gone down about another 15% from here. So, there was still downside from where it had fallen to on the high yield market. That's the broad high yield market that went down that much. So, in all of the other crises, though, you would have been fine. And even in 2008, by the end of the year, you would have been flat. So, I think this is an easier place to start. And for investors in this market, I think it's a very difficult market. This is not me predicting this market at all. We have no idea what's going to happen. There's certainly going to be a lot of bad news coming out. I'm not saying it's fully priced. I'm not saying I have any crystal ball. But I do know that, with debt especially, it's a much more tractable problem. Can they pay that off? DAN RASMUSSEN: I think the problem many investors are facing today is this psychological barrier, right? You've got these two contrarian things going on, right? On one hand, you're saying, gee, everything- - the sky is falling, markets are panicking. You're looking at every decision that you've made over the past few years, and virtually all of them, for most people, are looking like bad decisions relative to buying, say, cash or long duration treasuries, right? That works in your portfolio. Whatever perceptions that was, looking great-- everything else probably looks like a mistake right now. You're probably at the low point in your confidence in your own investment decisions as a result of that, and yet at the same time-- at the same time, you know that at any time-- you've ever read that book by Warren Buffett-- Warren Buffett's letters or the biography of Warren Buffett, it always says, buy when there is a crisis. Once in a decade opportunities, be greedy when others are fearful. And you're looking around and saying, everyone's fearful now, I know I should buy, but I just can't do it. I can't pull the trigger. And I think what I like about your argument, Greg, is that pulling the trigger on high quality, high yield bonds just feels a lot easier right now than waiting for the equity market and the amount of uncertainty that we're feeling. And I think that that's, I think, a really good way to start saying, hey, it's time to ease my way into the market. Let's start by doing something that I really couldn't do for a long time, which is build an income portfolio, right? I think that was virtually impossible for the past few years to build a reasonably attractive income portfolio. That's no longer true, right? And I think now is the time where you don't have to go into private credit and do dodgy lending to private equity funds to get a 6% or a 7% or an 8% yield. You can do it in Netflix or Match Group or other pretty high quality corporates. So, I think it's a great thing for folks to be thinking about as they consider what to do with their investments and how to react to this volatile market. Now we're going to start a portion of our chat called "The Intersection," where I'll ask you a series of questions which we ask all guests on "Real Vision." Greg, is there one person dead or living that you would want to interview more than anyone? If so, who and why? GREG OBENSHAIN: It'd be Harry Truman, only because he was forced to make so many difficult decisions while he was in the White House and had so much impact. And I'd just love to talk to him about what that was like. DAN RASMUSSEN: Which decisions in particular come to mind, Greg? GREG OBENSHAIN: Well, I think especially the decisions to engage in, really, beginning of the Cold War with Russia and what that was like and what a change in geopolitics that represented. Obviously, dropping the bomb was an incredibly difficult decision. And I always wondered whether it would be something that he questioned or not, given what was going on at the time. DAN RASMUSSEN: What is a book or books that change how you view the world? And how so? GREG OBENSHAIN: Sure. There's a book, actually, "Nonzero," by Robert Wright. It's really about game theory applied to human evolution. But really, I read it many, many years ago when I was much younger, and it was my first real exposure to positive and negative-sum some games-- and in particular, positive and negative-sum games in human interaction. And there's one anecdote in there about how to play, the right way to play a repeated prisoner's dilemma game. And the answer and the winning algorithm is really to cooperate first always. And then if somebody doesn't cooperate with you at first, never cooperate with them again. And it seems simple and harsh. DAN RASMUSSEN: see in the private credit and private equity markets. It's cooperate, cooperate, cooperate until we see a flip. We'll see if the COVID-19 virus causes a sea change in lender-borrower relations. As an individual and as a leader in your field, how do you stay engaged and relevant in a world that's moving so quickly? GREG OBENSHAIN: I think, like everybody, I read a lot. I think I'm going to potentially devalue that by saying I've gotten a tremendous amount of value from Twitter that I never expected to get. I think Fin Twit has exposed me to a huge amount of thought and research that I hadn't seen before and has a filtering mechanism for identifying stuff that's amazing-- but really reading and researching. And actually, the research process of going and writing articles has really helped a lot in making me think deeply about topics. DAN RASMUSSEN: Some of our guests and tie their success to a key breakthrough. Did you experience the tipping point in your career? GREG OBENSHAIN: I don't know if I have anything that dramatic. I will say that several years ago the decision to learn how to code and build databases opened up the ability to answer questions that I had for a very long time in corporate credit specifically, but also the ability to now manipulate data very, very quickly has really changed how I approach my investing and how I am able to solve problems. DAN RASMUSSEN: Who is a person you admire and why? GREG OBENSHAIN: I'm going to give the pad answer-- my father and my mother because they were great parents. DAN RASMUSSEN: You have a few kids of your own, Greg, so hopefully one day they'll grow up to say the same thing about you. What view do you hold that is most controversial in your professional life? GREG OBENSHAIN: That there are diminishing returns for risk in markets. DAN RASMUSSEN: Excellent-- a fitting end to our conversation. Thank you, Greg. JUSTINE: If you're ready to go beyond the interview, make sure you visit realvision.com where you can try real vision plus for 30 days for just $1. We'll see you next time right here on real vision.