Is this connected to the mess that we See in this market over the last few Days So the mess we're seeing in the market Is about liquidity You know i'm willing to put my neck out There and say we've mostly priced Interest rate risk we haven't priced Liquidity risk we haven't priced credit Risk we haven't priced Um Market functioning risk we are still in The process of pricing it but what we Are seeing happening is liquidity risk Liquidity risk is being priced in and People are realizing that the days of Abundant and predictable liquidity are Gone and now you have to manage to a Much different liquidity paradigm and That's why you sold yesterday crypto got Hit just as hard As in fact harder than other assets even Though people are looking everywhere for A diversifier there is no safe haven in This marketplace and that's what you get When you distort financial markets for So long as the fed has done let's go Through what you just said piece by Piece you said rate risk was nicely Priced or fully priced given i know You've told us on this program a few Times now that you think the fed won't Go as far as some people think they will You said that credit risk was not priced
Liquidity was not priced functioning Risk was not priced either can you go me Through go through one by one mohammed Credit liquidity functioning What you use to gauge that and why you Think we're not there yet So credit is a function of what's Happening to the economy what's Happening to corporate demand and there Was a big question mark as to how much Demand destruction are we going to get Right now The marketplace hasn't yet embraced the Possibility that we may see significant Demand destruction i hope we don't see It But that's something to to look for Liquidity risk is the notion that not Only is the fed not pumping liquidity But all the leveraging that happened on The back of that and you see this in Terms of outflows from from bond funds You see this in terms of margin calls People being levered you see this in Terms of people want to get closer back To to their home The home bias is developing and you're Seeing this in terms of risk aversion um Even people who believe that there's Significant value now in certain places Are waiting on the sidelines so we still Have to Navigate through liquidity risk and the One that scares me the most
Is market functioning risk because that One Damages in a way that creates structural Damage so far The pockets of malfunction have been Relatively small but this is you know a Tail risk that you really want to keep On the weight off screen well something You've highlighted is just the Whiffiness these big moves we've seen in The treasury market mohammed that's Where there's meant to be a ton of depth And we're seeing 10 basis point moves in Either direction and sometimes on days Without a catalyst almost out of nowhere Is that evidence of the kind of concerns That you have It's certainly an evidence that you're Getting patchy liquidity in the most Liquid of all markets and that's Important because people have Stretched A liquidity risk And they've gone to places that they Seem to be liquid but they are actually Illiquid in normal times and whether It's emerging market local currency Whether it's emerging market bonds with Certain areas of high yield you're Starting to get liquidity risk being Priced more fairly so yeah it's a big Deal if the most liquid market in the World is subject to the sort of Whipsawing we're seeing on no news
You should be paying attention to that
