‘The bond market is pricing a financial apocalypse right now’: Scaramucci

Anthony Scaramucci, SkyBridge Founder and Managing Partner, says, “the bond market is pricing a financial apocalypse right now”. He joins Yahoo Finance's On The Move panel to explain.

Video Transcript

- Joining us now to talk about this and where we go from here is Anthony Scaramucci, the SkyBridge founder and managing partner. And Anthony, all you have to do is hit-- there you go. You are unmuted. What do you think of these historic steps that we see from the Fed as we await Congress to act?

ANTHONY SCARAMUCCI: So you know, I like the steps a great deal. I think that Steven Mnuchin is a very clear headed guy and Jerome Powell. Many people at the Federal Reserve have the experience from the global financial crisis. [? Their ?] prime [? to ?] [? sit ?] at a very good [? summary. ?]

I guess only thing I would tell people is there are agency bonds that are backed by the United States government that are at Fannie Mae or Ginnie Mae bonds-- there's these bonds that help companies, you know, banks issue mortgages. And they're backed by the federal government.

They're trading at $0.70, $0.68 cents right now, Adam. So just want everybody to stop and think about what's going on right now. There's a full blown panic and seizure in the markets.

But clear headed people that can see through to the other side of this, not saying that there won't be a steep recession, not saying that there won't be some residual panic once people are able to leave their homes. It's certainly a different economy today or in six months than it was a few short weeks ago. But if you just step back and you're clear eyed and objective about it and unemotional, this could represent one of the biggest buying opportunities in the last 15 years

And one last point-- I think it's an important one. The bond market is pricing a financial apocalypse right now. Something that's being backed by the United States government trading at a $0.30 discount or a 30% discount is just not logical. And so that's an apocalypse pricing.

The current pricing in the equity market, in my opinion, is a benign recession. So your investors, your listeners, your viewers will do way better in the bond market than the equity market over the forward six to 18 months.

- Hey, Anthony. It's Julie here. It's good to talk to you. And I hope you and your family are well. As you talk about this, potentially, being a buying opportunity in the bond market and you say that stocks are sort of pricing in a benign recession, the forecasts we've been getting, increasingly, from economists are more and more dire, right.

Looking at a drop in GDP this quarter, the second order that is, maybe, unprecedented, and for the full year also seeing decline. Goldman Sachs' David Kostin says, for the full year, we're going to see the drop in S&P 500 earnings, something on the order of, say, 30%. So if you're looking to buy here, I mean, it seems like you're still going to have to have a pretty strong stomach. And you still could be poised for more pain, whether you're looking at bonds or you're looking at stocks, no?

ANTHONY SCARAMUCCI: Well, OK, so let's just sit back for a second. They're going to-- they're going to get this proposal through one way or another. It'll likely happen at the close today or before the opening tomorrow, which is a temporary [? soft. ?]

Remember, when the TARP proposal was voted on, it took six months for the markets to bottom. The markets really didn't bottom until March of 2009. And you're right that the earnings are going to be down.

But there's a very, very different situation than the global financial crisis. You have the entire economy on lockdown. And so those earnings falls would make sense.

But concomitant to that, once people are not on lockdown, you're going to see a surge in earnings. And you're going to see almost like a spring loaded pent up demand. And so remember, the banks are solvent. Their tier one capital is probably better than it's been in 30 years.

There's nothing systemic wrong with the overall financial system. But there is a disease that is ravaging the world. When that disease abates, yes, the economy will be growing slower. People will be more interested in saving. And I agree with you that there'll be a lot of volatility in the stock market.

But I'm telling you right now, if you had the opportunity to buy a US government backed agency bond at $0.70 on the dollar, I am very confident that the United States government will pay [? 100 cents ?] on the dollar on that bond when the dust clears. That's a 45% return right there. And those bonds have a 5% coupon handle on it.

So as I said, the opportunity for the very, very sophisticated investors is in the bond market. And I do agree with you, Julie, that there will be exogenous volatility once this is over. But when it bottoms, it'll be a historic buying opportunity like the March 9, 2009 low.

JULIA LA ROCHE: Hey, Anthony. It's Julia La Roche here. I want to get an update based on our last conversation, which was earlier this month at SkyBridge's 15th anniversary where we talked about President Trump. And you said that this could be his Katrina. Where do you stand on that now based on the developments we've seen in the last couple of weeks?

ANTHONY SCARAMUCCI: So, so when we were talking, unfortunately, the president was in denial about what was going on. And there's-- there's advertising going on, on the social media, explaining his public remarks from mid-January until about a week ago. And so when you and I were talking at our 15th anniversary, he was still in the denial mode, still calling it a hoax, saying things like we have 15 cases that are going to go to zero, saying that the warm weather of April was going to take the disease. It was just going to drift away and vanish.

And but about a week ago, he did a 180 degree turn. And so what I don't want to do is be a critic right now. The fact that he is sort of where he needs to be-- although he has Dr. Fauci having to step to the podium every time he opens his mouth about something medicinal or something, you know, that's curving the facts to a reality that doesn't exist.

He is directionally going in the right direction now. And I want to continue to encourage that. The one-- the one thing where-- I think people, when the dust settles, you can call out fake news on things that are subjective. But you can't lie about the science.

And you can't call out fake science because, you know, the president could believe that 2 plus 2 is 7. But the math bears out that it's four. And so this is a very, very different type of crisis, one that he's not used to. The tactics of diversion and all those things that he's deployed in the past wouldn't work in this situation.

So but, you know, listen, I'm an objective guy. You guys asked me, Yahoo asked me, in Davos, if he was going to win the re-election. I said he would not. There was over consensus of people saying that he was going to win.

I'm now at even money because, if they deploy the right stimulus and they get the economy going and they get the economy off the cardiac arrest that it's in right now or the suspended animation, he will be viewed as a wartime president. And his approval ratings-- you know, they could head scratch people that don't like him. But his approval ratings on handling the crisis right now are in the mid 50s.

And that would make sense if you look at prior wartime presidents in terms of people rallying around the flag and trying to help the president. But I will remind your listeners and viewers that Lyndon Johnson, however, when the war looked like it was unwinnable or he wasn't managing it well, he, ultimately, did not run for re-election.

BRIAN CHEUNG: Hey, Anthony. It's Brian Cheung here. So I want to ask you, just in terms of what we saw from the Federal Reserve, it seems like monitory policy has really been trying to take the onus here in carrying the rock while fiscal policy makers just try to get something done. I'm wondering-- you were inside the administration. What does it look like in terms of trying to keep the, you know, line of communication open with the likes of the US treasury and the Federal Reserve and trying to craft something together? And do you have faith that the administration will, ultimately, be able to do something quickly because it seems like it's already almost too late?

ANTHONY SCARAMUCCI: Well, listen, I mean, unfortunately, they act at a slow fuse. If you go back to the 2008 crisis, we had the markets gyrating, you know, 5% to 8%, waiting for them to make the decision. They voted down TARP the first time. Markets went down, I think, about 800 points, which was a much bigger move on a smaller base back then.

And then they got it done. I do think that they will get this done. Again, I'm talking objectively in a non-partisan way. Speaker Pelosi has been through a crisis like this before. Jerome Powell and Steven Mnuchin are a very safe pair of hands in this crisis. And I'm very confident that Steven is talking to our mutual old boss Secretary Paulson about what was going on in that crisis, how this is different, and what they can do.

Something I also like about the proposal is that they are going to helicopter cash into the most needed areas of the country. I'd like it to be more. But once they start helicoptering the cash into lower and middle income families, it will alleviate some of the anxiety that's out there.

Another thing I just want to remind everybody, we're all in the same boat. So when the starting gate opens again for the American economy and the global economy and the dust settles, I think people will realize that they are good people. They're hardworking people. And there will be plenty of jobs available and plenty of opportunity.

And you have to know-- because I'm studying these numbers like you are. [INAUDIBLE] did a very good job summarizing what the Fed is doing. The world is going to be awash in additional liquidity, which are going to help financial assets when this thing is over.

- Anthony, I got to ask you. There's been some breaking news while you've been talking. First, New York state now confirming 20,875 positive cases of coronavirus. That's up 5,707 cases. But of course, there is much more testing going on right now.

Also Michigan making it official, asking people to stay inside for up to three weeks. And then, of course, you have canceled your SALT conference, May 15. That has been canceled.

So you've taken the kind of steps that a lot of businesses are taking as they hunker down. Do you think this rumor we're getting out of Washington, that, maybe, the president thinks, after two weeks, that the precautions are worse than the actual disease and, maybe, we have people going back to work and congregating at restaurants and in public? Do you think we're going to move in that direction? Or would the president, do you think, do the kinds of things responsible business people are doing, like yourself, shutting down until the virus passes?

ANTHONY SCARAMUCCI: OK, so, you know, listen. [INAUDIBLE] I just want to talk about the SALT conference for a second. That-- the Bellagio is going to be closed. I am a--

And I said this when I announced the closure of my office more than 21 days ago because, you know, we were talking to epidemiologists. And I wanted to make sure my staff was safe. So we closed the office way, way ahead of the NBA and these other people.

I said, in that press release, if I was 100% certain that people would be healthy and safe at that conference, we would have it. If I was 1% certain that they wouldn't be, we would not have it. And so in conjunction with our great partners at the Bellagio and MGM Grand, it's very unlikely that the Casino will be open at that time. So we really didn't have a choice.

But I can tell you this, as a contrarian, I will be back very aggressively with that conference next year. As it relates to the decision to open, I think that will end up becoming a Waterloo. Forget about Katrina.

I'm hoping and praying that people at NIH, CDC that have been silenced by the president. The President wants to curve a scientific reality through his prism to something that isn't factually correct. I'm hoping they don't make that mistake.

If he imposed a 21 day, full blown national quarantine and a five day banking and market holiday, I think that would be a brilliant strategy. And I think that would put a hammer down on that curve that everybody's talking about. At the end of the 21 days, we could have a re-evaluation and, perhaps, go for another 21 days until we flatten out that curve.

If he does what that tweet implied at 11:50 PM and where we are sort of in a half in, half outside phase, where some people are working from home and some people are in the office, and a lot of people are partying on the Florida beaches, I think that's going to be a colossal disaster for the health care system. And I think that's going to turn a lot of people off on the president's decision making.

So I'm hopeful that he will listen to the scientists involved in this thing and be a little bit more aggressive on the containment, a little bit more aggressive on quarantining people or whatever the right words are-- I want to be precise on the right wording-- just getting people to stay at home. And I'm hoping that they're a little bit more aggressive on the financial stimulus. If they do those two things, at the end of this war, this could be 1946 for the United States, where we could enter a great decade of prosperity for the United States.

But if we don't act properly, and we overload the health care system, and we have people in hospital beds in parking lots outside of hospitals, and we're taxing or nurses-- where there are nurses here on Long Island that are threatening to go-- come off the job.

- Right.

ANTHONY SCARAMUCCI: They don't have the right face shields. They don't have the right face masks to deal with COVID-19 patients. I think that would be a catastrophe for the United States.

So I'm doing my part, trying to talk to as many people in the administration that I know to implore them not to make that decision. I understand the president's impulses. I know he wants to win re-election. I know, if he figures-- if he opens the doors and lets everybody out, the healthy people will survive, and the elderly will die.

And you know, we can talk about the morality of that. But I don't think that's how it's going to work because, again, my niece is at Mount Sinai Hospital. And I don't want to disclose any of this because of patient confidentiality. But I'll just say this. The demographics of the disease are not just the elderly.

- We wish your niece the best. We wish you the best, Anthony Scaramucci. And I'm glad you brought up the potential for a bank holiday.

It's not like we haven't done that. FDR ordered a bank holiday in the 1930s. Anthony Scaramucci, SkyBridge founder and managing partner, Thank. You for being here with us at Yahoo Finance.