SALT Voices: Troy A. Gayeski, CFA | Partner, Co-CIO & Senior Portfolio Manager, SkyBridge

TL;DR

Troy Gaskey discusses the market bifurcation, with the US consumer showing strong credit quality while corporate America's debt levels are concerning. He also shares insights on the risk of recession and potential investment strategies.

Transcript

this is Natasha D'Souza reporting for salt voices and I'm here at the inaugural salt add with a baby with Troy gaskey the co chief investment officer of skybridge welcome Troy good to have you with it's great to be on good morning it's day two of what's been an amazing you know do two days already of salt we're looking forward now into the programm... Read More

Key Insights

• ☠️ The US consumer has shown improved credit quality and increased savings rate, driving GDP growth and providing a healthy dynamic for the economy.
• 🤑 Corporate America has taken advantage of cheap money, resulting in high debt metrics that could lead to significant losses for investors in the next downturn.
• 😘 There is a one in four chance of a recession in the US within the next 12 months, but the risk is still relatively low.
• 🚀 The expansionary policies of the Fed, including the launch of QE4, have been a powerful driver of asset appreciation and are expected to continue.
• ✋ Skybridge aims to generate mid to high single digit returns with minimal risk of loss by focusing on consumer credit assets and maintaining short positions in high-yield and investment grade bonds.
• 🌍 Europe's monetary stability is hindered by political instability, making it an unattractive investment option.
• 💰 Emerging markets' performance is influenced by the strength of the US dollar, and currently, US equities provide more favorable returns.
• 🥺 The UAE's policies, political stability, and entrepreneurial spirit have led to wealth creation and capital formation, making it an attractive region for investment.

Questions & Answers

Q: What is the market bifurcation that Troy Gaskey discusses?

The market bifurcation refers to the contrasting trends between the US consumer, which has shown improved credit quality and increased savings, and corporate America, which has high debt levels.

Q: What are the potential losses investors might face during the next downturn?

Gaskey explains that even a minor downturn could lead to significant losses for investors in high-yield bonds and investment grade credit due to the excessive debt levels of corporate America.

Q: How does Gaskey quantify the risk of recession in the US?

He mentions a one in four chance of a recession occurring within the next 12 months, but also highlights the three in four chance of avoiding a recession.

Q: What investment strategies does Gaskey suggest?

Gaskey recommends being long on consumer credit assets, particularly US mortgage-backed securities and multi-family CMBS. They also maintain short positions in US high-yield and investment grade bonds to protect their portfolio.

Summary & Key Takeaways

• Troy Gaskey highlights the market bifurcation between the US consumer and corporate America, with the consumer showing improved credit quality and increased savings rate while corporate debt metrics are high.

• He emphasizes the potential significant losses for investors in corporate assets during the next downturn, even without a financial crisis, and explains how their portfolio is protected through short positions in high-yield and investment grade bonds.

• Gaskey discusses the low risk of recession in the US but warns about the potential development of an equity or commercial real estate bubble in 2021 due to factors like the Fed's expansionary policies.