Moody's Talks - Inside Economics - Tip-Top Economy, Treasury Threat

Episode Date: January 26, 2024

The Inside Economics team revels in the great economic numbers of the past week. The economy not only avoided a recession in 2023, but it ended the year enjoying robust GDP growth and tame inflation. But there are threats at the start of the new year, including a potential seizing up of the all-important Treasury bond market. Samim Ghamami of the SEC joins the podcast to discuss this threat, its causes and implications, and potential reforms to ensure it doesn’t upend financial markets and the economy.  Today’s guest Samim Ghamami is currently an economist at the U.S. Securities and Exchange Commission, where he works with the SEC senior management on the reform of the US Treasury market and several other capital market initiatives. Ghamami is also a senior researcher and an adjunct professor of finance at New York University, a senior researcher at UC Berkeley Center for Risk Management Research and the Department of Economics, and a senior advisor at SOFR Academy. Ghamami has been a senior economist and a senior vice president at Goldman Sachs. He has been an adjunct associate professor of economics at Columbia University. Ghamami has also been an associate director and a senior economist at the U.S. Department of the Treasury, Office of Financial Research, and an economist at the Board of Governors of the Federal Reserve System.Ghamami’s work has broadly focused on the interplay of finance and macroeconomics, and on financial economics and quantitative finance. His work on banking, asset management, risk management, economic policy, financial stability, financial regulation, and central clearing has been presented and discussed at central banks. He has been an advisor to the Bank for International Settlements and worked as an expert with the Financial Stability Board on post-financial crisis reforms in 2016 and 2017. Ghamami also served on the National Science Foundation panel on Financial Mathematics in 2017 and 2018. Ghamami received his Ph.D. in Mathematical Finance and Operations Research from USC in 2009. His publications have appeared in different journals including Management Science, Journal of Applied Probability, Mathematics of Operations Research, Journal of Financial Intermediation, Journal of Credit Risk, Journal of Derivatives, Quantitative Finance, and Journal of Risk. Follow Mark Zandi @MarkZandi, Cris deRitis @MiddleWayEcon, and Marisa DiNatale on LinkedIn for additional insight. Questions or Comments, please email us at [e-mail]. We would love to hear from you.  To stay informed and follow the insights of Moody's Analytics economists, visit Economic View. Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

Welcome to Inside Economics. I'm Mark Zandi, the chief economist of Moody's Analytics, and I'm joined by my two trusty co-host, Chris DeRides and Marissa Dina Talley. Hi, guys. Hey, Mark. That was the week? Busy, busy, busy. Yeah, very busy. Busier than normal or just busy, busy, busy, usual busy. Usual busy. You too, Marissa? Yeah, January's tough. There's a lot to do in January. So. Yeah. I've been traveling. I've been in South Florida. I had a board meeting and then I had presented to the International Council Shopping Centers and a couple other stops along the way.

One thing, you know, I hadn't been, I've never been, believe it or not, in all my years, I've never been on Brickell Avenue in Miami. Have you guys ever been in Bricle Avenue in Miami? No. It's a happening place, man. It's a happening place. There's towers going up everywhere.

It's just amazing. It's just an amazing place. So is that the Wall Street? of Miami? I guess so. It's kind of near the central business district, yeah, and just a lot of activity. It's really, you know, interesting to see. But we've got an action-packed podcast.

We've got Samim Gamami. He's a SEC Securities and Exchange Commission official, and we're going to talk about, you know, this is a tough topic, but a really important one, liquidity in the Treasury security market. You know, we've been talking about all the things that could do us in. And, you know, the economy is performing well, you know, what could go wrong. And we talk about, you know, stress in the financial system, particularly in the non-bank part of the system and the treasury market's kind of at the top of the list of concerns because there's, you know, issues are, believe it or not, it's a huge market, but there's issues around liquidity that's gotten on everyone's radar screen. And some meme is kind of leading the way in terms of reforms there. So we're going to talk to them about that.

But before we do, we've got a lot of economic data this past week. the headline was GDP, but, you know, a bunch of other stuff. And I'll have to say, and I'm kind of leading the conversation, it was unbelievably good economic news. I mean, on every level, you've got to really stretch. And I know Chris Will stretch to find something that wasn't good. But it, right? Am I wrong?

Mercer? What do you think? I mean, it was a pretty amazing week of data. Yeah. I mean, we got GDP, we got personal income, we've got housing data that looked good, almost universally good. Yeah, I agree. Chris will, and I also agree that Chris will find the one thing that wasn't good. That's my job. That's my contribution. 30,000 foot. Anything at all that doesn't suggest the economy's soft landing and performing well and going to perform well going forward? Anything at all? Not at the moment. No. No.

Right. GDP, PCE, everything is personal. Kind of coming in alignment. Yeah. Jobbo claims rose, but they're still extremely low. Yeah. I mean, the interesting thing, you know, the Bureau of Economic Analysis, they're the folks that put the GDP numbers together.

They, you know, they put on their website these tables. And I first thing I do is, like, I look at the table number one, I guess. And it shows growth rates, you know, for different components of GDP. Not all the gory detail, kind of the top line, you know, consumption, durable service, investment, equipment, structures, information, intellectual property, you know, that kind of level. And when you look, every time you look down that column, you see pluses and minuses, you know, growth and, you know, adding to growth was subtracting from growth. The one thing that struck me about this report, I looked down the column, I didn't see a single negative, nothing. Yeah. It was all positive, right?

Yeah. Mercy, you saw, do you see the same? Motor vehicle production, I think, was. That's one level down, I think. Subtraction from growth. I mean, it's a big economy. There's going to be something that's negative. But kind of, you know, at the higher level of detail, durable, good spending, consumer

spending, which is where motor vehicles are, it was, I think it was a small positive, but it was positive. Nothing. Government spending, trade, inventories, business fixed investment, everything, everything was Even residential fixed investment for the second. Housing. Yeah. Yeah. Right. Small.

But, yeah. Small positive, but positive. Well, of all the numbers this past week, Marissa, which one would you call out as being most representative of the reality of what's going on in the economy? Would it be GDP or would it be something else? It would be GDP and other things in that report, like the personal consumption expenditures index. I mean, that's another big thing.

So we have GDP growth in the fourth quarter at 3.3%. and core PCE at 2%, right? Core PCE being... Yeah, the personal consumption's expenditure, which is the Fed's preferred measure of inflation, stripping out energy and food prices. So this is the overall deflator, 1.7% in the fourth quarter. We got monthly numbers, I think, this morning that I didn't look at.

But, I mean, we're right at the Fed's target. on PCE for the fourth quarter with above potential growth. Right. I mean, I think I looked at the monthly data that came out today. In the last six months of 2023, so if I look at, you know, the second half of the year, June to December and annualized the increase in core consumer expenditure deflator inflation, it was 1.8. I'm going to go to the second significant digit. 1.86% annualized.

That's 1.9. Okay, 1.9. That's below 2. It's still, yeah. I mean, you look at that and you go, whoa, we're, I mean, could it be possible that we're already back to the Fed's target? Is that possible? It feels like it.

Chris? It certainly is moving in that direction, right? Yeah. Even the year-over-year, CorePCE has the two-handle, as my Wall Street friends like to say, 2.9%. That's year-over-year, right? Yeah, year-over-year. So it's, you know, spitting distance. Spitting distance.

That's my phrase. Spitten distance of the target. Now, CPI, consumer price inflation is a little bit higher. It is higher, but that's only by construction, the CPI puts a higher weight on the cost of housing services, than the PCE deflator that the Fed's focused on, and that remains elevated. But that also is coming in pretty quickly here.

So based on the consumer expenditure deflator, it feels like we're already back to the Fed's target. Based on the CPI, we're not quite there, but, as you say, spitting distance, you know, back to the target. Okay. Okay. You know, anything else? I mean, you mentioned UI unemployment insurance claims.

Yeah. Right? So we have solid GDP growth, inflation that's closing in on the Fed's target, and we have a job market that is slowing gracefully with no sign of increased layoffs. It's like everything you want, right? Right. And of course, one of the more interesting things, or there's so many interesting things, but one of the particularly interesting things is the economy is growing so strongly based on GDP, I think fourth quarter of last year compared to fourth quarter of this year, the growth rate was 3.1%.

That's real GDP growth over the year. And in that period, unemployment actually increased a little bit. So that went from, I'm splitting hairs here, but went from, I don't know, 3, 3, 3, 3, 4 to 3637, something like that. Very, very low, but it moved higher, which would suggest that the economy's potential rate of growth is actually north of three. Now, you know, there's a lot of measurement things going on here, and I'm sure that probably overstates the case when we get some revisions to the data, downward revisions. But nonetheless, it suggests that the economy's, the supply side of the economy is rip-orrent here, right? Can you interpret it any other way,

Chris? No. No. No. No. Certainly not. There was no recession in 2023. We can not only was there no recession in 23. It was a fabulous year. Yes. I mean, it was like a really, really good year. No recession, but a really good year. It's just amazing. Yeah, consumers outdid themselves. Yeah, and you kind of look forward and you're going, okay, you know, the forecast is say 2% for 2024, but it feels like if we're going to be wrong, it's going to be stronger than that, not lower, less than that. No, it feels like that. I don't, I don't know we're at a point where we change the forecast, but I don't know. There's a lot of risk out there. Yeah. On the downside? You're saying on the downside. Yeah. And there is more. upside risk to talk about too, but there is a lot of downside risk out there. Okay, we're going to keep this short because we want to get to Samim and talk about the treasury market. But okay, give me your number one worry. What's your number one worry, Murray? Say we are forecasting

GDP growth calendar year 2024 of 2%. You know, you're saying the risk is that it'll be less than that. Why? You know, what's the threat? I'm increasingly concerned about geopolitical risk. It seems to be widening in the Middle East. So this could be, this could end up being a bigger supply chain disruption or increase in oil prices or something like that. That's my main worry right now. And of all geopolitical risk, you put the kind of the turmoil in the Middle East of Israel, Hamas, what the Houthis are doing. The Houthis. Yeah, that seems to be escalating.

That's the Maloney stuff. the link back to us is through oil prices. Yeah. Okay, through trade. Chris? Yeah, I guess along those lines, I see the most immediate threat, some reacceleration of inflation, whether it's through an oil shock, supply chains. I think that's the crux of it.

That's what would cause the Fed perhaps to pivot more cuts or certainly keeping rates higher for more experience. I'm sorry, more rate increases or certainly keeping rates higher for an extended period of time. But I would certainly slow things down here. Geopolitical risk, that seems like the most obvious channel for that reaccelioration of inflation. I certainly Middle East, but I keep an eye on Russia, Ukraine as well. That's certainly lots of tensions in Europe, lots of fears and concern, anxiety there as well.

Yeah, but what you're saying is there's got to be some kind of what I call an exogenous. events, something that, you know, I mean, that you can't really predict. I mean, yeah, maybe in their scenarios and there are darker scenarios, but it's not something that feels endogenous to the economy, something that's going to be internally generated. It's something's got to happen, you know, out there in the external world to create a problem. And even those feel less, I have to say, there's always geopolitical risk. You didn't mention the presidential election here in the U.S. Yeah, that was my hesitation was, am I more worried about that or am I more worried about external forces?

But that also would be an exogenous event. Yeah, it just feels. Events. Yeah, it feels less. The endogenous positive surprise is we get more growth on the supply side of the economy, more labor force, more productivity growth. And we were able to grow more without generating inflation. That's kind of an endogenous positive risk of the forecast. To get to a downside scenario, you've got to come up with a, it feels like an exogenous risk.

It doesn't feel like something within the economy that's going to do us in. Unless there's something in the financial system, which you are very much worried about, right? And we'll lead into our next guest. Just there's a lot of opacity in certain parts of the financial system that have tripped us up before, right, where no one saw something coming. So if there's something in there that's exacerbated by a higher interest rate, environment. For example, that could also be another thing that works us down. Great point. Great point. And that's the guess. And we'll get to them in one second, one last thing I'm going to do with you guys, because we haven't done this in a while. Probability of a recession starting at sometime in calendar year

2024. Marissa, tell me what you are today and where you were the last time we did this. I think I'm still at 20%, maybe moving, maybe the softer side of 20%, but that's, I think, where I was the last time we did this. And the unconditional probability of recession would be about 15, simply defined. So you're almost back to this is going to be. Yeah, slightly elevated. Slightly elevated. Chris?

I think it was at 35 and I would knock it down to 30. 30. So still higher. I think the downside risks outweigh the upside risks here. You know, I was at 25. I'm going to 15. Wow. I'm there.

I think the risks are perfectly symmetric now, both on the upside and the downside. I don't think the downside risks are predominant at this point. And I'm very close to declaring victory, soft landing. Not quite there yet, but. Yeah, like when can we stop talking about this? Yeah. Is it, is it, I mean, I think it's mostly inflation-based, right? once the Fed is in a interest rate normalization period,

and once we can confidently say that inflation is back at the Fed's target, and it's staying there, I guess, is when we stop talking about the risk of recession. I think when they cut the first rate cut, boom, that's it. That's when I would declare victory, I think. Yeah, unless it's a rate cut because of recession. Yeah, okay, fair enough. Fair enough. Yeah, fair enough.

Fair enough. Okay. Well, we've got a lot to discuss with regard to the risks to the financial system. And we're going to focus on the treasury market. And with that, let's bring in our guests. Samim Gamami. Hi, Samim. Hi, Mark. Good to see you. Good. You know, I hope I'm not being too forward. But are you Egyptian? What kind of name is Gamami? I'm just really curious. I'm originally from Iran. Oh, geez. Mark. Oh, my gosh. I should know that.

Zandis, of course, Iranian. You know that. You know that. I did not know that. Oh, the mommy is... Yeah, I was born in Iran, yeah. In Tehran. Oh, when did you come to this country?

Almost 20 years ago. Oh, very good. Yeah. It was good to have you. And maybe it's a good place for you just to give us a sense of you. Maybe you can give us a little bit of your background. You're at the SEC now. How'd you get there?

Sure. So, I mean, my background is a mix of working academia, private sector and official sector. I've been affiliated with UC Berkeley and NYU on the official sector side prior to joining the SEC. I work for the Federal Reserve Board as an economist and then at the U.S. Treasury as a senior economist and associate director of research at the Office of Financial Research that I'm sure you know about. And on the private sector side, I've worked for Goldman Sachs and economists. I've also worked for a bisoned firm. And I joined the SEC last year, and I'm working on some of the commission's initiatives and proposals on different parts of the financial market.

And I will just need to mention the usual disclaimer that, I mean, my views obviously are my personal views and not reflected by the commission, commissioners, the SEC, chair, and my colleagues at the SEC. Got it. You know, you seems like you've done an awful lot in 20 years. I can't I couldn't keep up. That's a lot in 20 years. Yeah.

It has been intense. Yeah, very cool. And the OFR Office of Financial Research, that was the group that was set up. I guess it's part of treasury. Is it part of treasury? I'm not sure. Part of treasury after the Dot Frank Act and I mean, officially supporting the mandate of EFSAC. Yeah.

And so OFR kind of scans the financial. landscape to try to identify potential threats and risks. You know, the idea of being we all got to find national stability. Yeah, financial stability. We all got surprised by the financial crisis, you know, where did that come from? And the intent here is to be prepared or more prepared for, you know, the possibility that's something could go wrong in the system. Exactly.

And your job, your work at SEC, so maybe where are you in the kind of the hierarchy there? So I'm an economist working at the division called DERA, Division of Economic and Risk Analysis. Okay, very interesting. And you've been there for a year. And I thought it would be really good to have a conversation because you are focused on one potential problem or threat in the financial system. And that's the way I frame it. And I'll just riff for a minute and then turn it back to you and see you frame it a different way is liquidity in the treasury market. You know, the treasury market, the treasury securities market is a massive market, the largest in the world.

And, you know, based on that, you would think this market has to be really deep and well-functioning. And, you know, there's very little chance that you'd have any trouble with trading in this market. but we have had trouble at different points in time, and we should talk about those points in time. Pandemic, in the teeth of the pandemic is one of the most recent good examples. And liquidity seemingly breaks down or it becomes disconnected, and the market isn't functioning well. And that's a problem, a potential problem,

because the Treasury market is so critical to the well-functioning of the global financial system. It's the benchmark, you know, the 10-year-term. treasury yield is kind of a benchmark interest rate for all other financial securities. Everything gets priced off of that. And if you don't have liquidity in this market and you can't good reasonable pricing, the whole financial system feels like it could be at risk of not functioning properly or well. Do I have that roughly right? Exactly. Exactly. Yes. Exactly. As you pointed out, it's a most important financial market

in the world and I mean for different reasons the Fed's monetary policy gets through treasury markets I mean essentially that's the treasury securities or benchmark securities for pricing almost all assets in the financial markets and of course the Treasury essentially finances activities of the U.S. government through debt issuance. Most of the debt issuance is based on marketable securities. And I mean, the size of treasury market is massive, as you know, marketable securities by the end of 2023 last year where more than $25 trillion. Yeah, almost 100% of GDP, right?

Exactly. Yeah. And it's grown very rapidly. I mean, if you go back before the financial crisis, and I'm speaking from memory, so I may not have this exactly right, but the publicly traded debt to GDP, publicly traded treasury debt to GDP, doubled. Yeah, it was less than 50%.

I think it was closer to 40%. And it had been quite stable for many decades after World War II. And it went up and it went down. depending on conditions, but generally kind of 40, 50% of GDP. And then since the financial crisis, it's ballooned, you know, to 100% of GDP. And all the trend lines don't order well here in the sense that we're going to see significant increases in debt going forward. Unless we change policy dramatically, which doesn't feel like fiscal policy, doesn't feel like that's happening anytime soon. So this market is big.

It's gotten bigger over time. and it feels like it's going to get really big going forward. Exactly. Exactly. Exactly. And I mentioned that, you know, we've had these periods of what I'll call illiquidity where trading between buyers and sellers kind of have broken down. Bit-ass spreads have kind of gapped out, widened, and it's been difficult to trade.

the one that comes to mind is when the pandemic first hit, it felt like we had a bit of a bout of illiquidity. Is that the most recent example of the liquidity or a good example? Exactly. So that's the most recent one and roughly the most intense one in terms of volatility in treasury securities. And like you mentioned, different measures of illiquidity. I mean, I mean, the most basic one, the ones that you just mentioned, BIDAS spread. But before that, I'm sure you know about there was the repo market disruption in September 2019. Before that, it was the flash crash in October 2014. But those two market disruptions were not comparable to what we,

witnessed in March and April of 2020. Yeah, and can you just describe the symptoms of that illiquidity? What happened exactly? Sure. So, I mean, we can, I think, I mean, we can think of illiquidity. I mean, one measure of that we just discussed, Bid and as spreads, as a function of market liquidity in normal, market volatility in normal times. So the COVID shock hit the economy and treasury securities became more volatile.

So that explains parts of the market illiquidity that we observe in March 2020. But it turned out that the illiquidity was much more intense than could be explained by just market volatility. And that was essentially due to the constraints on the balance sheet and market making capacity of large broker dealers that are mostly subsidiaries of large banks. So one may ask what caused the balance sheet constraints

and constraint on market. Can you stop you before we move forward? So, and I want to get to that in just a few minutes. I just want to flesh this out a little bit. You know, if I go back to that event, you know, in the early part of the pandemic, what we saw was the illiquidity manifested in, as you say, extraordinary volatility and interest rates. Yields are going all over the place.

Yep. And I, you know, and this is just in my mind's eye, and I haven't investigated, but I'm curious, you know, if you observed that the market, the bond market, the treasury market, it feels more volatile than in time. When I say that, you know, in a given day, it feels like the yield on the 10-year treasury bond can move five, 10, even 15 basis points, you know, which if I go back 10 years ago, 15 years ago, it felt like it would move a basis point or two. And that was a big deal.

Now it just can move so fast so quickly. Is that something else or is that a part of the liquidity issue? So that's a very good point, Mark. So that's because of the change in market structure for treasury securities in the past 10, 15, 20 years. So prior to that period of time, most of the interdealer market used to be intermediated by large brokeries. Dealer's that I just mentioned were subsidiaries of large banks. But in the past several years, most of the transactions in the interdealer market is being intermediated by the so-called principal trading firms. And most of the principal trading firms are high-frequency

trading firms. So that has essentially increased the speed of trading. even in the interdealer part of the treasury market. The second segment of the treasury market is the dealer to client part. The dealer to client part can be viewed as essentially the traditional bilateral over-the-counter or OTC market. Most of the trading activity is being done in the inter-dealer market. Now, principal trading firms, high-frequency trading firms, as I just mentioned, play a very important role. And this combination and the presence of GTFs have essentially to some extent increased

the normal volatility that we observe in the treasury. Okay. So to restate that, if you go back 10, 15, 20 years ago, the trading was. done by these large broker dealers that were part, that they're still around and they still are key part of the market, but they were the market back 15, 20 years ago. And these are parts of large banks, like a JP Morgan Chase or Bank of America, that kind of thing.

Exactly. But increasingly over time, the broker dealers, their share of this trading has declined. And in the wake of that, we've seen an increase in, the trading done by principal, as you call them principal trading firms. Right. Which I tell me if I'm wrong, but I call them hedge funds. I mean, not exactly.

Not necessarily. So one example is Citadel securities, right? Citadel. Citadel. The securities, Citadel. Citadel securities is a broker dealer, is a market making, a financial firm. but Citadel itself is a hedge fund. So sometimes, I mean, the distinction can get blurry,

but there are examples like Citadel where Citadel is a market maker, is a broker-dealer, market maker, not a hedge-farm. Okay, okay. So Citadel plays both roles. It plays kind of a broker, traditional broker-dealer, intermediation, but it also has an arm that, you know, it's buying and selling. Two separate, entities, two separate entities, two separate financial firms, sit other securities and sit at the LLC. Okay. But the increase in volatility that I'm feeling and that, you know, I'm observing is real,

volatility that, you know, in any given day or hour, I'm seeing bigger swings in the interest rate on Treasury securities, that is happening and that's partly or more significantly due to this kind of change in the market structure away from broker dealers kind of managing the trading, the intermediation to these principal trading firms. Right. So I'm not fully away from traditional broker dealers. So roughly half of the share in the interdealer market is being done by PTFs, principal trading firms and the other half still buy a bank affiliated broker dealers, but mostly

in electronic trading platforms and mostly in the format of high frequency trading. Okay. Okay. Very good. And would another reason for the increase in volatility be just who the buyers are? So, I mean, if I go, if going back to that pandemic event, you know, in the early part of the pandemic. The way we got out of that isn't, you know, the way market functioning was restored was the Fed stepped in, right? Stept in a big way and bought treasuries. Okay. Exactly.

So, I mean, in the first quarter of 2020, the Fed purchased more than one trillion dollar of treasury securities, mostly because of I mean, what is called a market function purchase program, essentially to calm down the treasury market. Part of that was, you know, because of QE following the COVID shock. But Fed intervened aggressively and massively. Okay. So the QE, the quantitative easing, that was the Fed coming in buying securities in an effort

to get long-term interest rates down. and in so doing, they helped to restore market functioning in this period when there was this liquidity in the market. That's right. Got it. But there is research showing how we can essentially distinguish the QE part of intervention from their market function purchase program. Oh, interesting.

And at least for the first quarter of 2020, most of that was purchases of treasury securities. And as I just mentioned, roughly around or more than $1 trillion. Got it. Got it. And of course, one thing that's now happening is the Fed is no longer queuing. It's QTing. You know, it's letting the Treasury securities on its own. I bought all these Treasury securities when it was queuing to keep.

rates down. Now it's QTing. It's allowing those securities to mature. And if there are mortgage securities, potentially prepay, although I don't think there's much prepayment. And so it's in kind of a very different place with regard to the Treasury market. Instead of providing liquidity and support to the market, it's now pulling away from the market. It's, you know, I don't know what the right way to say it is. It's not adding to the illiquity, but certainly not helping in terms of liquidity. Would that be fair to say? Yes, that's fair to say. But at the same time, I guess I think it's, I mean, one important point is, I mean, there is a tension.

There could be a tension between, like you mentioned, monetary policy and central bank market function purchase program. when the central bank, the Fed wants to tighten monetary policy exactly because of what you pointed out. But the two could be aligned during the time of quantitative easing. And I mean, we can discuss this further, if you're interested, but that in part motivates this discussion on whether it's better to do emergency central bank asset, purchase programs with good design or think about fiscal buyback programs through which Treasury would purchase securities during market stress. Oh, interesting.

Has that ever happened? Has the Treasury ever done that? Yes, in the 90s, but at that time, the U.S. was running budget two-plus, not budget deficit. Yeah, right. At that time was different, but actually this year, the Treasury is designing a buyback program. It hasn't been finalized yet as far as I know. But that won't be an emergency buyback program that is what is often referred to as a regular and predictable buyback program. Got it, got it.

Before we move on to the things we can do to help improve the liquidity of the market. I know you've done a lot of work here and want to go through that. And before that, we're going to play the game. But I want to continue to explore potentially other reasons why the market feels less liquid and why there's more volatility. And one of the other potential explanations, it was something I alluded to earlier, that hedge funds, while the Federal Reserve has been kind of moving away from the market through QT, hedge funds have been coming into the market.

They're playing their big role in the increasing. recently the role in the market and there's a trade called a basis trade where they're kind of playing the futures market off the cash market. And if there's a little bit of a spread there and they can make money and they can make a ton of money if they're using a lot of leverage to do so. Do I describe that right? And how big a deal is that? Is that something we should be worried about?

So that was something that was of concern in the first quarter of 2020. So exactly, like you mentioned, that's essentially the basis trade has become a popular, long and short investment strategy among hedge funds. that essentially is purchasing or going long treasury securities and selling or going short treasury futures because at least around that time that we have been discussing, treasury securities were cheaper compared to treasury futures in the derivatives markets. And it is well known that, I mean,

When everything is predictable, when markets don't face shock and extreme volatility, this type of long, short strategies would converge, right? And hedge funds used a lot of leverage so they can profit from the small spread associated with this long and short or basis trade. But when the COVID shock hit the financial system, markets became more volatile, and hedge funds had to unwind these positions massively. And that also contributed to a so-called negative demand shock in the treasury market, essentially setting pressure by hedge funds as well. So that's something that I think the artificial sector is closely monitoring, meaning like you mentioned, hedge funds, principal trading firms are essentially now

liquidity providers in the treasury market, but I mean naturally they would take leverage so that they can generate profit for their investors. And sometimes when leverage hedge funds, the leverage, And we know that from the global financial crisis, that could destabilize the financial system. So that is something that is closely being monitored. One cause of the disruption in the treasury market in March 2020. And the other one, and I think the main one is that, like we discussed at the beginning, treasury securities, the amount of treasury securities outstanding is going up because of the fiscal deficit.

And at the same time, because of some bank capital and equity regulation that has made them safer, but it has essentially reduced the market-making capacity of large banks, that was another main cause of the problem. Got it, got it. So just to reiterate, what's happening is the large broker-dealers that were key to this, that are still key, but more instrumental in managing the market and providing liquidity and intermediating between buyers and sellers, they're not keeping up with the growth in the size of the treasury market. And the reason for that, or one of the reasons, or maybe multiple, is capital.

Kind of the capital rules are making it more difficult from an economic perspective for the big banks to grow the size of their broker dealers to keep up with the rapid growth of the size of the treasury market. Is that fair? Exactly. So capital regulation has made the banking sector obviously safe after the global financial crisis. But some of the capital rules we can discuss if you are interested essentially have adversely affected the market-making capacity of bank affiliated broker-dealers, essentially extremely active in treasury markets. Got it, got it. There's one other thing I wanted to bring up.

Shoot. I can't quite remember. It'll come back to me. But maybe at this point, before we move on, I want to play the game next and then come back to reforms and changes. I'll turn the conversation back to Chris and Marissa. This is hard to digest. This is this conversation is we're now deep into the plumbing, which by the way, I think it's critical because it's the stuff that's deep in the plumbing that does you in.

You know, it's, you know, the stuff that's so obvious, that's not the thing that's going to be the problem. The financial system isn't going to seize up on that. And we're not going to be a crisis based on that. It's the stuff that is hard to understand. It's not completely transparent, a little bit more opaque, a little bit more difficult to get your mind around that we'll do you in. So this is very important that we take this dive into. to the plumbing, but nonetheless, it's in the plumbing. It's very complicated. So, Chris, based on the conversation so far, any questions or comments or other questions you'd like to

post to Samin? Sure. I'll perhaps ask a naive, maybe terribly basic question. Just far away, those are good. What about, so just thinking about treasury markets in general, there's been a lot of chatter about foreign investors and foreign central banks pulling back not only, for financial reasons, but exposure to the dollar is a concern, right? So you have some countries that China, Russia certainly concern about dollar exposure, other countries maybe as well fearing that. Do you see that foreign investment playing any role in the Treasury liquidity story? So I don't think so in the sense, I mean, compared to

the market disruption that we observed in March 2020, I don't think that would be a concern. But that's it. I mean, exposure to dollar. But that said, I mean, let's compare the global financial crisis to the 2020 COVID crisis. In 2008, around September 2008, foreigners, both the foreign official sector and foreign investors purchased massively treasury securities, particularly at the longer maturity part of the yield care. But in contrast to that, in 2020, foreigners, both the official sector and foreign investors massively sold treasury securities. Again, the long maturity ones.

But that wasn't because of... currency dominance or currency issues, it was because of the massive holding of Treasury securities by the official sector of foreign countries and, I mean, and the investors. I mean, one could ask what, I mean, what changed the trend when we compared the 2008 and 2020 crisis, COVID crisis, but that's a different issue. Sure. Okay. Marissa, any anything you want to pose? I mean, again, this is a complicated topic, so no naive question.

There are no naive questions. Okay, good. There's been a lot of volatility in interest rates, right, recently. We've seen the 10-year go up, down all over the place. Is any of – certainly we know. that some of that is just based on movements, typical economic news, what the Fed does and says, but it's been very volatile lately. Is any of this related, do you think, to any of this high frequency trading that hedge funds are doing or, you know, any of the liquidity issues in the

treasury market? Can you always tell what is driving that volatility? So that's very good. That's a very good point on question. So I think, I mean, maybe it's helpful to think of, like we discussed before, market, I mean, inequity being a function of market volatility and other factors like the market-making capacity of large banks. Another factor, like you mentioned, is, I mean, the presence of principal trading firms. but you mentioned at the beginning more recently. There are other events. So, for example, we know that volatility in the treasury market increased also around the default of the SVB bank in March 23.

So at that time, so a combination of market events, Federal Reserve, tightening monetary policy to mitigate inflation. So there are many factors in play. But I would just also mention that, I mean, since 2020, particularly last year in 2020, the level of market volatility that we observe in the treasury market is comparable to the level that we observed in the first quarter of 2020. but last year there wasn't any meaningful disruption in the treasury market. So because of that, it's important, I mean, essentially to increase diversify and stabilize the market-making capacity overall in the treasury markets.

Okay, so what you're saying is the volatility that we're observing may have nothing to do with any kind of illiquidity in the market. It's just the conditions that are buffeting the market, everything that's else going on. Yeah. Yeah, exactly. One other quick, I'll throw it out as another potential factor. Maybe investors are kind of sort of thinking about credit risk for the first time ever. I mean, you know, debt limit debacle, rating agencies, downgrading.

could that potentially also be certainly part of the volatility, maybe also a concern in the context of liquidity in the market? Where am I stretching? So to be honest with you, I don't know about investors' concern about default risk. That might be hard to judge or analyze at this stage. But, I mean, another way to look at it, I mean, like we discussed before, is because of the, I mean, massive budget deficit at any treasury auction, for example, that happened last November. One could think that, okay, treasury prices went down, heels went up.

That was because of investors' concerns. that they may not want to or may not be absorbed the Treasury securities in the secondary part of the Treasury market. So I'm not sure if we can tie it directly to the default risk, but that's due to the, let's say due to the debt-to-GDP ratio going up. Got it. Okay. All right.

But we're going to come back to what should be done about all this. And there's a lot of good ideas. And I know you've been working on that. We'll come back to it. But before that, let's play the game. the stats game. We each put forward a statistic. The rest of the group tries to figure that out through questions, deductive reasoning clues. The best stat is one that's not so easy. We get it all immediately, not one that's not so hard we never get it. And if it's apropos to the topic at hand,

fantastic. And we'll let Marissa go first. That's tradition. And Samim, you'll see how this is done. So, Marissa, you're up. Okay. My statistic is 1.1 percentage points. 1.1 percentage points. Inflation related? No. Is it related to this topic at hand? No.

Treasury. So it's an economic statistic. It's an economic statistic. GDP related. It is GDP related. Okay. Some component of GDP that grew 1.1%. No, let me give you a hint.

Okay. It's the difference between, two numbers. I think it's the difference between the core piece, the consumer expenditure for later and the CPI. I think that is 1.1% I thought that was one exactly.

Oh, is it 1% of a point on the nose? Okay. So it's a difference between two things in the GDP report? Not GDP and GDI. No. No. That didn't come out. That's a difficult one. That's a difficult one, yeah. Can you give us any other hints without giving it away?

You might not like the statistic. Oh. Oh, doesn't fit the narrative. Oh, I know what it is. I do know what it is. It's the error. Yes. That was a good hit, by the way.

That was a good hint, exactly. Yeah, yeah. You want to explain? Yes, it is the forecast miss. So it's the difference between actual reported fourth quarter GDP. growth, which was 3.3%, and what our forecast was for GDP growth, which was 1.1 percentage points lower than that. And we're not alone in this, right? We were actually closer to the GDP number than consensus was. So... By a lot, I thought the consensus was 1.5. We were 2.2 and the reality

was 3.3. Yeah. There was a universally large miss on the GDP number that came out the other day. Yeah. We missed. because I pay really close attention to those numbers. We missed on trade and inventory, which are particularly hard to forecast because they're lagged. They're very lagged in terms of the monthly data that we have. But I suspect there might be some revision here once we get more data. I knew you were going to say that. Yeah.

This is the first estimate. So we'll get two more revisions in the subsequent months. And yeah, we may see a downgrade. Inventories had contributed a lot to GDP in the third quarter. So we were expecting the change in inventories to be much less and detract from GDP growth. And it was actually a slight positive again for the second quarter in a row. So that was a big miss. That was a good one.

That was really good. Okay, Samim, you're up. You said you were going to play. I don't think I've ever gotten a government official or played the stats game. So congratulations. Thank you. So I mentioned two, I mean, these are not accurate stats, but I mean, average numbers.

Well, hold it. That's not really fair, Samin, if they're not accurate statistics. I mean, I'll tell you later, why not accurate? So one is, and I mean, one, one hint is they both go back to statistics related to Q3 and Q4 up last year. Okay. So one is roughly 6% or 6.2%. And the other one is roughly 5%.

Related to our discussion and other needs. Well, the 5% could that be the 10-year treasury yield, the peak in the 10-year treasury yield? That's right, Mark. But that's actually the average of one-year yield on bills, two-year. note and 10 year. Oh, no, that's interesting. Okay, so you took the average of the yield on the one year that the, on a two year note, two year and the 10 year.

And it was 5%. Yep. Partial credit, Mark. Partial credit. Oh, yeah. Now, why would you do that? Just because that's kind of the blended cost of cost of. I'll tell you after.

Okay, okay. The other one is the key. 6.2%. Is that the off the run yield on treasuries? No. Okay. On the run, one, no. Okay, we don't even have to go down that path.

Because that would be a big spread. That would be way too big spread. Yeah. It's related to the liquidity of the treasury market? No. Oh, okay. I'm glad I asked. Related to GDP.

Oh, related to GDP. Oh, interesting. Is that nominal GDP growth? Exactly. Oh, okay. Okay, got it. Okay, that's interesting. So, okay, so explain what's the mean?

Why did you pick those numbers? And the reason is, I mean, I'm sure you know this debate and discussion about R&G, the nominal growth rate in GDP. and its importance in comparison with the average interest rate, that's essentially a gauge based on which we can see whether the government can roll over its death. When R is below G, that's doable. When R gets close to G or exceeds G, the fiscal deficit may not be sustainable. And five and six were quite close.

So that's a warning sign. Yeah. So if you do kind of the math around the debt, if your growth rate, your nominal growth rate is higher than your cost of borrowing, it gives you a lot of latitude. You know, the debt to GDP won't balloon out. But if your nominal growth rate is less than or, close to what you're borrowing at, you've got a problem.

Then it becomes unsustainable very quickly. Got it. That's very good. That was a really good one. Chris, you're up. Okay. My numbers are not treasury market related. Economic data that came out this week.

My hint is a lot of positive numbers that came out this week, Mark. I'm sure you're going to highlight them. So I had to look for something, you know, bring you back down. 19% and 53.2%. And it's in the economic data that came out this week. Correct. Government-related statistic? Yes.

It's a government statistic. 19% and 52%. 53.2%. In the GDP numbers? No. Okay. Oh, is it? Bankruptcies.

Y'all, bingo. Ah, Marissa, on fire. That's, yeah. Personal bankruptcy filings? Yep, that's the year-over-year increase in personal bankruptcies. It was 19%, 53.5% increase, 53.2% increase in business bankruptcies. All right. So those are big numbers.

Yeah. You know, certainly raises some eyebrows. I saw a number of financial analysts on T-Bancers. on TV talking about them, that there's real concern about the rise in bankruptcies. And certainly there is, however, little context needed. We're still well below what we, the level of bankruptcy that we had in 2019, right? Personal bankruptcies are about 35, close to 40 percent below 2019 level. So, you know, little context there, even and business bankruptcies as well are still below that 2019 level.

So at this point seems more like normalization than, you know, a real concern, but something to certainly keep an eye on. I guess I'd also point out business formations have been extraordinary. They have, right? I mean, if you have formations, you're going to have failure, right, by almost by definition, right? Yeah. Yeah. Yeah.

That doesn't, not enough to bring it back down. Nah, no. But anyway, okay, here's mine. Three numbers, all related to the topic at hand. 98%, 115% and 181% and 181%

bet to GDP. That to GDP ratio over time. Very good. Oh, that was boy. You guys were good. Exactly. But okay, you got to give me

the years. So 10 years from now, 115% 10 years from now. Yeah. And the last one, 181, I think 30 years from now. Oh my gosh, you guys are fantastic.

Yeah, that's cool. I mean, you can play this game anytime. Yeah, the actual publicly traded debt to GDP as of 2023. I think it's fiscal years. This is data from the Congressional Budget Office was 98%. We talked a little bit about that earlier. No policy changes, you know, assuming no change in policy, 10 years from now is going to be 115%. And 30 years from now in 253, 181%.

I think that's when the CBO ends its forecast, but I think you could do your own forecast after that. And at some point, R is going to be above G, you know, in that kind of scenario. And that's just not sustainable. But that brings it back to the conversation at hand. You know, I suspect we will see some policy changes here on the other side of the election that might change that trajectory a little bit. But it's going to be hard to change it a whole lot. and the size of the treasury market is going to continue to grow. And because of the constraints on the broker-dealer market that we discussed,

you know, the kind of capital rules are not, I don't think we're going to change. I don't think the regulator is going to change those. That leaves us with, you know, the treasury market is vulnerable to illiquidity now. It's going to be even more vulnerable going forward unless we make some reforms. And Samim, let me turn it back to you. I know there's been a lot of work here. you're kind of been doing a lot of work here. And I should say the good news here is that

this concern about the treasury market is not something that others aren't thinking about. You know, at Jackson Hall, for example, that's the confab that the Fed holds every year. They had Daryl Duffy. By the way, Darryl Duffy, he used to be on the board of directors of Moody's. He was a Stanford professor. He gave a speech on this issue and put forth in proposals. So this is not new news. We know this is an issue, but let me turn it back to you. So I mean, like at the top of the list of things that we could do, what would you do to address this problem? Sure.

So I would mention, Mark, some of the well-known proposed reforms. Some of them put forward by Daryl Duffy and the group of 30. So one is going back to the beginning of our discussion. One is, I mean, improving bank capital and liquidity regulation. So a quick example is, as you know, I mean, before the global financial crisis, bank capital was almost always risk-based, meaning if I have a risky loan, on the asset side of my balance sheet, I would need to hold more equity capital against that as a buffer. And if I have a U.S. Treasury security on the asset side of my balance sheet,

I can be penalized less and hold less equity capital. So one of the major part of bank capital regulation reform after the GFC was having a backstop to these risk-based capital rules, which are sized-based rules, as you know, these are called leverage requirements. So in my example, if the leverage requirement binds for a launch bank, then the Treasury security on the balance sheet would be penalized in a similar way, as in the case of a risky loan. So one proposed reform has been improving and realigning risk-based capital requirements and leverage ratio requirements. For example, one idea is to exempt treasury securities from the leverage ratio requirement.

And in fact, the Fed Asset Purchase Program went through really successfully by the end of the first quarter of 2020, when the Federal Reserve essentially when Treasury Securities became exempted from the so-called supplementary leverage ratio. Right. So that's that's one category of reforms. I mean, re-aligning. That seems like a pretty straightforward slam dunk kind of thing to do. What's the, why wouldn't we do that? Is there any good reason why? I mean, what's the downside to exempt the treasuries from the liquidity requirements? So I think at this, sure, so I think at this stage, based on what we have observed, since the global financial crisis, there is no good reason.

But, I mean, proponents of the leverage ratio requirement would always point to the fact that right before the global financial crisis, I mean, respace capital, I mean, ratios at large banks, you know, were all good. So that didn't signal any stress in the financial system. Another argument is risk-based capital requirements are very, very complex. They can be gained. But, I mean, setting that side, I think the experience of the COVID crisis showed that it makes sense to think about some type of exemption, permanent or temporary. for, I mean, reserves and treasuries from the leverage ratio requirement.

Yeah, I mean, it makes sense to have a leverage, I think it makes sense to have a leverage ratio requirement. You'd be careful how you said it relative to your risk-based capital standards. Exactly. It's about the calibration of leverage ratio. Yeah, but not to, it seems like you should exempt treasury security. If we're going to exempt treasury securities, that seems like a pretty straightforward, from that leverger,

that seems like a pretty straightforward thing to do. That's right. Yeah, okay. That's right. Sounds good. Okay, second on your list. So the second one is, I mean, broader central clearing for treasury securities. So if you remember when we discussed the market structure for treasuries, I mentioned, for example, the client to dealer segment of the treasury securities market is essentially an OTC market being gone mostly bilaterally. even in the inter-dealer market between bank-affiliated broker-deals and principal trading firms, I mean, more, I mean, it's only around 20% of trades being cleared to central counterparties or CCPs.

So, and, I mean, the benefits of central clearing are well known. I mean, the obvious one is it would bring more transparency to the financial system. It could make the financial system less interconnected. The less obvious one probably is it could, under some conditions, mitigate counterparty credit risk. So the second category of reform, the main proposed reform has been, as I said, a broader central care. mandate in the treasury market. And actually, the SEC, I mean, adopted its final rule last December, and it will hopefully get implemented fully by mid-20206. Got it, got it. So we've got the current system is these broker dealers and

others are kind of making the market. And there's a lot of. bespoke trading and bilateral trading. Let's just put it all in a central platform, clearinghouse, to make the trades. Okay, so that seems also like a slam dunk thing to do. Why haven't we done that? Who's against that idea? Maybe the broker dealers themselves don't want that to happen? I mean, why wouldn't we do that?

I mean, cost and benefit analysis for this particular proposal, broader central peer, hasn't been easy. One reason is in the bilateral part of the treasury market that we just discussed, I mean, essentially, I mean, most of the time, there is no margin requirement. So if you and I trade the treasurer's security or a repo transaction, get into a repo transaction, you are not required to post marginal collateral, exchange marginal collateral. And what I mean in the CCP words, in the world of central counterparties, I mean, having solid collateral requirement, I mean, is necessary because essentially at the end of the day, the CCP would pool and concentrate almost all the counterparty credit risk in the financial system. And counterparty credit risk, in our case, treasure securities would mostly materialize in the form of settlement failures.

But so there is a cost factor. And I mean, if you put yourself in the position of buy side or sell side firms, I mean, in the current regime, they are trading relatively in an opaque way, relatively with minimum margin. So in an alternative market configuration, where most of the trades would be clear through CCPs, margin requirements, collateral requirements, most likely be in place. So that would increase the cost.

It seems like to me that feels like we should be doing that. And I can understand why the current players might have some. I like the way this works now because it's opaque, and so forth and so on, but from a, you know, from a regulatory perspective, from a financial system stability perspective, it feels like a central clearing mechanism makes a whole lot of sense. Exactly. Okay.

All right. Fair enough. Hopefully that I think some of the- We need to make sure that CCPs are risk-managed well as well. And they're going to be SIFI. Wouldn't they be systemically important, too? I mean, wouldn't they be probably? They are.

They are. And therefore, you know, higher regulatory scrutiny, maybe some. Exactly. Yeah, okay. Go ahead, Chris, sorry. I was just going to say, I think some of the criticism what I've heard or read is just some debate about the timing of the transition. How these are pretty large market, right?

So how quickly do you transition it for time? If you try to compress it, that could be highly disruptive. Yeah, exactly. Exactly, Chris. And I think because of that, I mean, the final SEC rule, you know, has designed a careful stage transition. So almost 2.5 years from now until the implementation of the broader central

clearing mandate would go through. So there is time. Okay, so adjust the leverage ratio requirement, exclude treasuries, establish a central clearing platform mechanism for trading. What's third on the list? So actually, this should have been the first on the list. Oh, first on the list.

This should have been the first on the list. Yeah. I mean, standing repo facility, very broad access to not just a few primary dealers that are trading counter parties of the Federal Reserve Bank of New York, but also it would open up, it would be open up to other market parties. for example, large asset management firms as well. So that was the first recommendation of the group of 30. And as you know, the Federal Reserve developed a standing group of facility in 2021.

But it is essentially open to only primary dealers, which are, I think, 22 or 21. and these are, as I just said, the trading counterparties of the New York Fed. So the concern, I mean, rightly has been that if we open up this facility to hedge funds, large asset management, firms, and et cetera, that could create moral hazard because the standing ripple facility is there, and that could incentivize the build up of more leverage in the financial system. But, for example, under a broader central clearing mandate, and because of the margin requirements that we just discussed, I mean, well-designed margin requirements could somehow, in a way, to some extent, control the build-up of leverage in the financial system. So for example, if the Federal Reserve becomes a counterparty to the CCP,

that would clear the Treasury Securities Market, then by-side and saleside firms would face the CCP and not directly the Fed and everything would happen in the presence of margin requirements. that could control to some extent the leverage and the subsequent, mitigate the subsequent moral hazard problem. Got it. So if you run the, you run access to this repo facility through the CCP, the central clearing platform,

that would help to mitigate this concern about moral hazard that might be created by giving access to this repo facility. Exactly. If the CCP and if its structure, its collateral requirements are very, very well designed, that could happen. Yeah. Okay. Okay.

Anything, we're getting a little long in the tooth here. And I don't want to keep you too much longer. I know you've got a job to do. You've got to go save the treasury market. You know, it was funny. I was listening. I was traveling yesterday in a car a little bit. I was listening to NPR and they had this guy on talking about all the trash in the atmosphere,

around the earth, you know, because we've sent up all these satellites and rockets and there's a lot of debris up there. And his main concern and worry is that, you know, that debris, some of that debris hits a critical satellite and, you know, knocks out communication for the Northeast Corridor or something like that. You know, that's his concern. You feel like that kind of guy to me for the Treasury Market. It's like, you know there's all these problems out there. So how? And so the interviewer and NPR asked the guy, how worried are you?

Do you stay up at night thinking the satellite's going to get knocked out? And the guy goes, I am really very nervous that this is going to happen. So my question to you, how nervous are you that, you know, the Treasury market is going to, before we make these changes that we just discussed, that we're going to have an event or maybe it's we have to have the event to generate the will to actually make these changes. I don't know. So how worried should we be about this? Samim, is it a big deal or a small deal or you know, what's the deal? I think, Mark, I think it's a big deal because of the fiscal outlook. mostly because of the fiscal outlook.

But I think the recommendations and proposed reforms that we just discussed, I mean, they could be in place in two years. And I mean, on top of that, we know that the Federal Reserve may start cutting rates. I mean, this year, next year, and in 2026. So that would essentially make Federal Reserve also a buyer of Treasury securities, narrowly viewing when the Treasury would issue more depth, whether there are entities that can absorb that. So, I mean, I think it's a big deal.

It's a main concern. But hopefully in the next two, three years, we're not going to see events similar to what we observe in 20. between. Got it. You're saying we got all this debris flowing or, you know, flying around. If we don't do something, something's going to happen. But we've got a little bit of a window here, you know, next couple, three years because the interest rates are coming in. Market conditions are going to ease. Therefore, it's less likely we're going to, a debris is going to hit a satellite. But nonetheless, if we don't make these reforms at some point down the road, we're going to take out a

satellite. That's right. Because most, because of the fiscal out. Yeah, the fiscal outlaw. Got it. Okay, very good. Well, you know, I want to thank you for walking us through this because this is a very, again, difficult topic, but you did a great job. I really appreciate it.

Thank you, Mark. I know you're really worried, but I feel less worried because you're really worried. I know that sounds weird. But the fact that you're really worried, I'm less worried. So keep at it. Thanks, Mark. Yeah, keep at it. Thanks so much.

Thanks for inviting me. Anything else? Just thank you. That was really enlightening. Thank you. Very enlightening. Thank you, Greece. Marisa. Thank you. Thank you, Samim. Thank you, dear listener.

Appreciate your listening in. And we'll talk to you next week. Take care now.