DoubleLine Deputy CIO Jeffrey Sherman and Portfolio Manager Samuel Lau welcome StoneX Director of Macro Global Strategy Vincent Deluard to The Sherman Show. Mr. Deluard begins the episode by sharing how his passion for collecting actual paper money and coins before getting into his career in finance, working at StoneX and teaching at Saint Mary’s College. Messrs. Sherman, Lau and Deluard then get into, among other topics, Mr. Deluard’s nonconsensus calls including his recession doubts (8:29), why he feels a certain level of inflation is accretive to the economy (12:04), why he thinks the government doesn’t need to balance its books (15:17) and where the 2% target for inflation comes from (20:00). On the topic of the federal government balancing the books, Mr. Deluard says, “I’m not arguing that we should just spend the way like Venezuela or Argentina does, but the notion that we need to balance the books is wrong. At the end of the day, it’s a tradeoff.”

The three also discuss how the Fed’s QE policy led to its current tough talk on inflation (24:50), why Mr. Deluard believes we can sidestep recession in 2023 (28:52), why we should let capitalism work out the banking dilemma (32:33) and Mr. Deluard’s thoughts on allocation (34:46), including commodity positioning (39:07) and lightening up on duration (42:14). This episode was recorded May 22, 2023.

DoubleLine Deputy Chief Investment Officer Jeffrey Sherman and Portfolio Manager Samuel Lau welcome J.P. Morgan Chief U.S. Economist Michael Feroli to The Sherman Show. Mr. Feroli kicks the episode off by recounting his educational transition from philosophy to finance and his employment transition from working at the Federal Reserve Board, when Alan Greenspan was chair and Ben Bernanke was a board governor, to the private sector for J.P. Morgan (2:53). Mr. Feroli then addresses topics including the potential disconnect between financial markets and the real economy (5:42), the lag this cycle between the Fed’s interest rate hikes and their impact on the labor market (10:03), the interplay of financial stability and monetary policy in the Fed’s response to the banking crisis (17:03) and the possibility for immaculate (painless) disinflation (20:09). “Can we get back to 2% without a recession?” Mr. Feroli asks in regard to hitting the Fed’s annual inflation target. “The models would say probably not.”

Messrs. Sherman, Lau and Feroli also discuss, among other topics, what a slowdown in credit could mean for smaller businesses (28:06), fractional reserve and narrow banking systems (32:02), the hunt for a magic regressor signaling recession (41:27) and Mr. Feroli’s concerns over how the debt-ceiling standoff in Washington could go down differently this time – in a bad way (44:32). This episode was recorded May 4, 2023.

Morris Chen, head of DoubleLine’s Commercial Mortgage-Backed Securities (CMBS) and Commercial Real Estate Debt (CRE) team, on April 18, 2023, discusses the merits of his asset class with hosts Jeffrey Sherman and Samuel Lau. He describes CMBS-CRE both as a timely investment in the wake of repricing in 2022 and as a strategic portfolio allocation. With a primary focus on bonds rated A to AAA, Mr. Chen takes listeners behind the news headlines of defaults by commercial mortgage borrowers (2:39). In many cases, he says, these defaults, which began in 1Q2023, represent serious problems, especially in office mortgages, but have obscured healthy fundamentals in other property types. Many of these represent borrowers following necessary protocols to open the process of negotiations with lenders ahead of actual maturities. Often the better outcome for lenders will be maturity extensions and changes to loan covenants rather than foreclosure and property liquidation.

In the wake of the Great Financial Crisis, the capital structures of high-grade CMBS have undergone significant improvement (15:13). For example, Mr. Chen notes in 2007, “AAA bond had essentially had 11% subordination, which means the bond can withstand 11% of losses before that bond is impacted, at least in terms of principal. Today, an 11% subordination level equates to a single A rated security.”

Mr. Chen discusses (19:35) his team’s investment process, which includes research into the borrowers and loans securitized into CMBS; the properties securing those loans, including the tenants, utilization rates, leases and loan-to-value ratios; and bond structure. The discussion then turns to property types (26:53). Mr. Chen is most negative about office buildings. While some shopping malls are dying, other retail properties are doing well, notably grocery-anchored shopping centers. Mr. Chen and his team also are finding investment opportunities in mortgages secured by multifamily (apartments) and industrial properties.

The conversation concludes (38:58) with a discussion of the place of high-grade CMBS as a strategic allocation to a diversified fixed income portfolio. Among other factors, Mr. Chen says that investment grade CMBS at present offer attractive yields compared to corporate bonds carrying the equivalent letter-grade credit ratings while providing diversification to investors’ corporate exposures. In addition to the yield pickup, high-grade CMBS is backed by real property as collateral and beneath the subordinated debt is 30-35% equity.

Ken Shinoda, who chairs DoubleLine’s Structured Products Committee and leads the firm’s non-Agency mortgage securities team, discusses his asset class and housing market outlook with Jeffrey Sherman and Samuel Lau on April 10.

Mr. Shinoda discusses his path in asset management, joking that early in his career “my MBA was the Global Financial Crisis,” and his roles at DoubleLine (2:05). He delves (3:47) into the evolution of residential mortgage-backed securities (RMBS), from an asset class in the 1970s and 1980s dominated by Agency RMBS, backed by the principal guarantee of the federal government, and then the growth in the non-Agency or private-label RMBS sector in the 2000s. He then (6:52) describes the roughly $650 billion private-label sector in greater detail and the reasons for investing in it, as opposed to investing in the $7 trillion Agency sector. In exchange for taking that credit risk, he notes, “you can get paid a significant spread over Agencies today. Sometimes it’s more, sometimes it’s less. We’ve found that mixing Agencies and non-Agencies together and weighting more toward credit when spreads are really wide, less toward credit when spreads are really tight. If you actively manage that mix between Agencies and non-Agencies, you’re actually able to generate a better risk-adjusted return through time relative to if you just hold the index.”

The discussion next turns to Mr. Shinoda’s outlook for the U.S. housing market (9:23). Of “the three biggest drivers of single-family home prices,” he notes (1) affordability has worsened due to higher mortgage rates and home prices. But the lack of (2) supply relative to (3) demand is “supportive of housing in the long run.” Home prices, he acknowledges “are down about 5% from the peak” in 2022. “Could we go down a little bit more? Of course. I think there’s probably still some downside pressure nationwide, but you’ve already started seeing some metros flatline, stop going down. On the East Coast especially, there’s places that are still going up in price, if you can believe it. Florida, Buffalo. There’s just a wave of people moving to that southeast area in Florida especially, that is propping up home prices, even though mortgage rates are high.”

In a context of growing signs of economic weakness and recent turbulence in regional banking, Mr. Lau asks Mr. Shinoda to explain his view that the housing market, while undergoing a correction, will avoid a crash of the magnitude that occurred in the Great Financial Crisis (GFC). Noting the GFC was centered around excesses in mortgage underwriting, Mr. Shinoda says (12:51), “the market is now so much safer” because in the wake of that crisis, “there’s a lot more strict rules and regulations around mortgage underwriting” and the fact that borrowers today have significant equity in their homes.

Mr. Shinoda also discusses the post-GFC regulatory landscape for non-Agency RMBS (14:05). He notes for example that risk-retention rules under Dodd Frank require issuers of certain mortgage bonds to retain 5% of the bonds for up to five years. In contrast, before the GFC, investment banks could buy loans from originators, securitize them into RMBS and sell all the exposure into the primary market. Today “through regulation you’ve got skin in the game from the issuers,” he says. “Most people who are doing these deals are keeping the equity, and they don’t want to take losses. I think that’s a second component that makes these bonds safer. Lastly, the rating agencies, the ones that got it so wrong during the GFC that had all these bonds get downgraded, they’ve gotten much stricter on what they require to call a bond investment grade, especially to call a bond AAA.”

Jen Wing, Head of Asset Management at GeoWealth, a proprietary technology and turnkey asset management platform (TAMP) to registered investment advisors (RIAs), appears March 28, 2023, with DoubleLine’s Jeffrey Sherman and Samuel Lau. Mr. Sherman asks Ms. Wing (0:59) to begin by discussing her career story in finance and how she came to specialize in due diligence on asset managers and asset manager selection. Ms. Wing then turns to explaining the role of TAMPs in general (7:56), most of which exist to serve broker-dealers, and then discusses the growing sector of registered investment advisors (RIAs) (9:43) and the story of GeoWealth, a TAMP devoted to serving RIAs. The discussion next turns (15:38) to GeoWealth’s suites of portfolio models and relationships with 40 active managers, including DoubleLine, to manage its models.

While investment advisors by necessity must be cost conscious and fee sensitive, Ms. Wing notes (26:42) that by attempting to in-source all their roles, including investment management, can consume time needed to face clients and build their business. “You’ve seen a lot of this data start to come out that out-sourcers during COVID won more business and saved 10 hours on average a week by out-sourcing to investment management and usually had better investing returns.” She also explains that GeoWealth works with individual models with RIA firms to customize models to fit their business practices and then run those models for them, allowing their business to scale up.

DoubleLine Deputy Chief Investment Officer Jeffrey Sherman and Portfolio Manager Samuel Lau welcome Fairlead Strategies Founder and Managing Partner Katie Stockton, the first technical analysis specialist to visit The Sherman Show. Ms. Stockton kicks off the show by recounting what drew her to technical analysis, a discipline she says is best used for risk management; her accreditation as an official Chartered Market Technician; and why she launched Fairlead (2:00). The three then get into what technical analysis is (6:01), the main reason it is useful (10:43) and which asset types its most helpful in application (14:29). “It’s useful for anything that really has a price and liquidity,” Ms. Stockton notes. “It’ll be as useful for GE as it is for one of the altcoins.”

They also discuss, among other topics, how Ms. Stockton works with clients who have more of a fundamental tilt (24:24), her stance on the Elliott Wave (28:02) and what she would say to young technicians getting into the business (29:35). Ms. Stockton encourages people interested in technical analysis to give part of their screen over to tracking a chart. “You’re just going to start seeing things,” she says, “whether it’s price patterns or moving averages or acting as support.” This episode was recorded March 9, 2023.

DoubleLine Deputy Chief Investment Officer Jeffrey Sherman and Portfolio Manager Samuel Lau welcome Ted Seides, founder of Capital Allocators, a podcast ecosystem that includes gatherings, and advisory to managers and allocators. The episode kicks off with Mr. Seides recounting how he got his start in the financial industry working for David Swensen and the Yale Endowment (2:05), what led him to podcasting (11:14) and how that decision grew into a broader enterprise that draws on his diverse experience (12:49). “I didn’t know if they’d be interested in talking,” he says of his initial interest in speaking to CIOs. “Turns out there’s a lot of reasons why they would.”

The three also discuss, among other topics, how Capital Allocators advises both managers and allocators (19:01), what drives the investment decisions of allocators (24:55), new things under the sun in the industry (30:14) and the risks associated with new complex strategies being available today to the average investor (38:14). In discussing what has changed during his 20-plus years in the industry, Mr. Seides notes, “The thing that doesn’t change is an increase and drive for innovation and sophistication. If you looked at the average practitioner today, they are far more sophisticated than the average practitioner when I got started in the business.”

DoubleLine Deputy Chief Investment Officer Jeffrey Sherman and Portfolio Manager Samuel Lau welcome back Nancy Davis, Founder, Managing Partner and Chief Investment Officer of Quadratic Capital Management, to The Sherman Show. Messrs. Sherman and Lau, and Ms. Davis kick things off with a discussion of Quadratic’s IVOL ETF, the strategy behind it and the fund’s TIPS allocation (1:39) before moving to a broad macro discussion. Topics covered include the interest-rate swaps curve (7:30), the benchmark Agg’s composition (12:49), having to use your hands to illustrate the inverted yield curve’s directionality (19:14) and the risk of deflation (20:34). On the division in market investors’ mentality, Ms. Davis notes, “Credit and equities are behaving like maybe things are OK. The yield curve is trading like there are UFOs in the sky, and it’s like the end of the world.”

In addition to talking about the pronounced division in market messaging (26:58), the three get a little nerdy over selling vol (33:11) and wonder how so little is said about the Fed’s balance sheet (35:37), and Ms. Davis shares her experience as a business owner (41:05). This episode was recorded Feb. 14, 2023.

DoubleLine Portfolio Manager Jeff Mayberry returns as a guest to share his market and macro outlooks for 2023 with DoubleLine Deputy Chief Investment Officer Jeffrey Sherman and Portfolio Manager Samuel Lau. Noting Mr. Mayberry gave his outlooks a year ago for 2022, Mr. Sherman reviews Mayberry’s score card (1:15) for the year gone by. Among those 2022 calls, one of Mr. Mayberry’s most contrarian forecasts (4:28), which proved to be true, was the Federal Reserve would tighten a lot without weakening the labor market. This episode was recorded Jan. 19, 2023.

Turning to the future, the discussion goes into Mr. Mayberry’s expectations for the Fed’s rate-hiking campaign (4:45). Mr. Sherman (6:51) asks about the divergence between market pricing and the Fed’s forward guidance on the fed funds rate, which leads to Mr. Mayberry sorting out the market mechanism as a “probability machine.” The discussion eventually takes up the idea (13:36) that the Fed follows the bond market, especially the two-year Treasury yield, and to what extent, if any, the Fed can push back against market-priced expectations.

With the December prints of the Personal Consumption Expenditures Deflator due Jan. 27, Samuel Lau notes that Fed Chair Jerome H. Powell’s preferred inflation metric, the Core PCE Deflator, has been falling (15:11). He asks what will the Fed do if that gauge falls below the current fed funds rate? Mr. Sherman asks his guest (20:06) for areas of the fixed income universe where investors are getting paid to take credit risk and areas to avoid. While people are focused on the Fed’s management of the fed funds rate, the discussion notes (30:50) that the Fed has quietly been pursuing another path to tighter financial conditions: balance-sheet reduction, aka quantitative tightening (QT).

Charles Payne, financial author, Fox Business Network anchor and principal of independent research firm Wall Street Strategies, discusses with hosts Jeffrey Sherman and Samuel Lau his career, the power of financial literacy to change people’s lives, his approach to investing, and his outlook for the economy and markets. This podcast was recorded Jan. 4, 2023.

Mr. Payne, host of Making Money With Charles Payne on FBN, starts (0:21) with his “two childhoods,” the first an idyllic experience in a military family, the second in a penniless household after the breakup of his parents. “I was sort of thrust at 12 years old into a position of having to help” the household finances. Growing up in Harlem with his mother and two younger brothers, he self-educated himself about investing to the point where he bought his first mutual fund at 17 and his first stock, a successful investment in telecom MCI, at 18.

After college and a tour in the United States Air Force, including a posting on a nuclear missile base (5:52), Mr. Payne found work in the stock brokerage industry (9:21). But in time, his passion for research and his disillusion (12:13) with the sales-driven focus of the industry led him to found Wall Street Strategies in 1991. Mr. Payne describes the buildup of his firm (13:42), preparing research at night and working as his own salesman by day until the business took off, allowing him to hire staff and open an office on Wall Street.

Mr. Payne describes his guest appearance on CNBC (14:26), a journey that included a moving encounter with former professional boxer Mike Tyson, his growing presence as a market commentator on the networks and the development of his on-air style. He eventually was approached by the then-fledgling FBN. After an initial struggle, he made his regular weekday program into a ratings success.

With Jeffrey Sherman and Samuel Lau, among further topics, Mr. Payne stresses (21:25) the importance of people learning to actively invest over their lifetime and not passively turning their money over to fee-collecting financial professionals. He also discusses the art of interviewing on television and how he chooses guests (25:09).

Turning to markets, among other topics, Mr. Payne discusses his contrarian approach to investing (36:25), grounded on fundamental analysis but also including technical and behavioral work. He criticizes the Federal Reserve’s focus on the dubious metric of “excess reserves” (40:20), the investment opportunities he sees in China (42:12) and his expectation that the Fed will be compelled to cut rates sooner than the central bank expects (47:08).