Why Anthony Scaramucci says not to sell stocks during a pandemic

That's the Journal story. They said you guys had a terrible month. I've seen it. We were down more than 20% in our major fund because of that. Yep, we were down 22 and a half percent. We liked getting that information out early. I guess the good news about that article, it was very accurate, but we got ahead of it to our clients. But I think that if people really understand what's going on in the structure of credit, Morgan, if you have unrealized losses in your portfolio and those bonds are still going to perform—granted, there may be some more defaults, but you've got a lot of coverage there. You've got agency coverage from Fannie and Freddie, you have mortgage servicing coverage. And I think if you step back and you look at what happened, they changed the capital requirements on the repo desks around the nation's banks, and that caused a cascade of selling of the mortgage rates. And many people in structural credit, some guys were down 40 to 70%, and in one case, a mortgage REIT went to zero. So it was a very painful thing for structured credit. A global pandemic, because it sparks the fear, Scott, that people are going to default on their mortgages. But I want people to step back. It's sort of like a George Bailey moment in It's a Wonderful Life. The pain is already in the marketplace. We're sort of priced for 15 to 20% defaults that didn't happen in 2008, and despite what people are talking about right now, it's not going to happen this time. You've got $12 trillion coming into the market from the government—about $6 trillion if you really study the fiscal stimulus—and of course, the Fed is now up to $6.3 trillion. And just the reason why the market's doing well, you've injected $1.4 trillion of balance sheet capital from the Federal Reserve over the last four weeks. So they're moving at about a 14 and a half times faster clip to repair the markets this time than they did in 2008. And so for those reasons, somebody that studies this stuff, if you look at historical spreads, if they just tighten a little, you'll see a real spring in those securities. So I'm really cautioning people to hold the line here. Do not sell in a pandemic, because what happens is you get out on the bid side and the bids are very, very sloppy. And when the market firms up, you'll be regretting those sales.

You know, that's correct. It's basically a hedge fund vehicle for the mass affluent. Our minimums are between $25,000 and $50,000. We've been doing this for 15 years. We had one bad year, which was in 2008, where the fund was down about 19%. But we rocketed out of that with a 21% and a 17% return in '09 and '10. And so if you look at our 15-year continuum and you just measure it over a market cycle, the product has actually done very well, and it's usually acted as a buffer from other things in the portfolio. This particular instance, a global pandemic, unfortunately, that's struck right at the heart of what we're doing. SkyBridge has a tendency to be very thematic, and we were in structured credit, frankly, because originations are the heartbeat of America, Scott, or at least one of the major heartbeats of America. As Dr. Bernanke said after the last crisis, we need a free-flowing origination market for mortgages and a secondary market, which is why the Fed is always in there providing a backstop. Remember, 60% of the small businesses in America—31 million small businesses—60% are tied to housing. And so for these reasons, the Fed is offering that buffer, and you're seeing a big injection of capital right now. But yes, that's basically what we do. But because we're thematic, and frankly, we were cautious on the market, we were in these sort of cash-flow generative strategies. They're still flowing the cash, but unfortunately, because we're subjected to mark-to-market rules and so forth, we had a position mark ourselves very strictly to where we are right now.

Okay, so that's the part of the Journal article that was actually inaccurate. In the case of each AF, which is mentioned in the article, these guys are brilliant investors, Scott. Manny Friedman has been in the industry for 50 years. We actually love his portfolio. We actually went to Manny Friedman and asked him to suspend, because we don't want him to do it. Let's say he had $1 of assets on March 15th, and that dollar went to 85 cents. And if he gets overwhelmed with sales right here, we don't want him to sell something that we think is worth $1 for 60 cents, getting flushed out in a crisis. And so the opposite is actually true in that case. We did not ask for a redemption there. We actually want to cooperate with him, and we thought it was best for him in the interest of our shareholders and those securities to gate or suspend that fund. And so that was a slight nuance thing wrong in the Journal article. You know, Greg Zuckerman is a very good reporter. He got that thing pretty much 100% accurate.

Well, listen, I mean, the thing I'm the most proud of is the SkyBridge sales force. We've been working 14 hours a day over the last four weeks, and I think we've gotten to 95% of our investors. I'm very proud to say that our redemption totals—and our window, frankly, closed today—our redemption totals are quite low. They're slightly above what we would typically get in a normalized year. And so that's sending a message to people. There's experienced investors in our fund, and those investors know that they shouldn't be selling at a distressed price right now. A lot of this stuff is spring-loaded for success going forward. Additionally, as surprising as this is, we are writing tickets into that fund. The principals, like myself, are adding money, and we've got very seasoned people that are looking at this one as a huge distress-buying opportunity. And to what Josh was saying, if you think the equity market is priced for perfection here, the bond markets are lagging the equity markets. And as we know, 31 years in this business, that doesn't last forever. Warren Buffett always says the markets are a voting machine in the short term—people have voted panic—but they are a weighing machine over long periods of time, and they will weigh the fundamentals on very good, secure cash flows, and we'll see that appreciation going forward.

Well, I'm in Wilson's camp on this thing. I really do think we did get to the low. I know some of the traders on Fast Money were talking that we may retest it. I'm not a seer, so I don't know the answer to that, but it just felt like a March 23rd when the VIX went from like 85 to 44, literally a 50% haircut in the VIX. That felt like full-blown capitulation, Scott, like we saw in March of 2009. Are we overshooting here in the short term? Perhaps. People are anxious to get out of their hole. I sort of am very bullish because when I look at the magnitude of stimulus, I think it's very, very hard to put down the American economy with $12-plus trillion dollars of stimulus going in. The SkyBridge economic team estimated that the lost output, which is basically a 65% shutdown of the economy, is about $3.7 trillion. You are overwhelming that with a green water wall of money from the federal government. And so I wouldn't bet against that. After all, it's about not fighting the Fed. We may be getting a little ahead of ourselves in the stock market, but the bond market clearly is lagging, and I think that's where the opportunity is.

So like I said, I'm not a fortune-teller. You're more experienced on the equity side than me. We've primarily focused on fixed income. I remember those days. I remember that March 9th low in 2009, and so that in fact could happen. But I think the broader point that I'm trying to make, Josh, right here on a relative basis—just give you that example in 2009, the first quarter, U.S. markets were down 10% to get to that low, but the bond market was actually rallying. Our stuff was up about 3% when that stuff was down 10%, and the bond market was probably up 2.5%, 3% during that period of time. So I accept your point. Nobody can predict what's going to happen, but I think if you just step back and you look at the macros with $12 trillion coming in to overwhelm the $3.7 trillion of lost output, I think we've got a fighting chance. One last quick point: this is sort of like a national hurricane. 50 states, everybody's got knocked into their homes. There's been a 9 to 12-week work stoppage. But the very, very good news is when we go to leave our homes, the homes are intact, the water infrastructure is there, the electrical grid is there. You guys were commenting earlier in the show about the banks—they're in pretty good shape. Maybe they have to take a little bit of loss reserves, but it's nowhere like 2008 when the banks were in negative equity. Last thing: no villains this time. This is enabling the Fed and the policy makers and the House and Senate to respond overwhelmingly with very, very big fiscal stimulus. Remember the book Firefighting from two years ago, where Geithner, Bernanke, and Paulson said they wish they could have moved more quickly, but they had a lot of villains in there, and a lot of policy people didn't want to reward bad banking behavior. There's nobody here that we can point the blame to. It's an invisible microbe that declared war on the U.S. economy, and I like the fighting chances of the U.S. economy, and particularly fixed income in the securities we own.

Well, listen, I watched that interview last week with the Social Capital guy, Scott, and he made a lot of very valid points. One of the problems that we all have is that we have to deal with the world the way it is, and unfortunately, we can't have a normative world and deal with the world the way it should be. You know, we can make the argument that monetary policy in some ways has furthered that wealth divide, because people that own the assets—if you have interest rates going lower, everybody on this show knows interest rates are the physical gravity of financial assets. So people that own the assets, they're feeling the wealth effect, and the other people are being left behind. So I agree with him on that. I think we need other types of policy response. Is it a reengineering of the K through 12 public education system? Is it infrastructure? Is it jobs training? I think we need to ask our public servants to take some very hard steps here to use tax and social policy and government spending, or at least government incentives, to try to flatten that gap. I'm not disagreeing with what was being said. And certainly, if the Fed is pumping $6 trillion into the marketplace, taking interest rates to zero, a $4 trillion quantitative easing program, it's going to show up in the markets. You know, one of the things our managers said—they took off a lot of their shorts right now because the TAF program is actually buying this stuff that we were using as a hedge. So I accept what the Social Capital gentleman was saying. I think it's a broader discussion point. We don't want to go into the next decade looking back on what happened here and said, 'Man, the rich got way, way richer and the poor struggled more.' I think that's going to be a setup for more nationalism and more populism that none of us want.

Yeah, so I mean, here's what I would say on that, and I'd be very consistent on this as well. I don't think we should be discriminating against anybody. And so I got in trouble on Stephanie Ruhle's show last week saying that hedge funds should apply for it. My team has looked at it. I don't know if we got ahead of that window or not, but if you're asking me, would I apply for it? I would, because I think it's a responsible thing to do as the managing partner of SkyBridge to protect my employees. I know my investors would look at me and say, 'Of course, he's got to be fiscally prudent and apply for it.' Justice Learned Hand once said in the famous tax case that anything that's available to you from the government, you have the legal right and you should take advantage of it. And so as a fiduciary, particularly something that cares about my employees—and SkyBridge pays 100% of our health insurance, we do the maximum allowable for retirement and so forth in terms of profit sharing, and listen, you know, we serve free lunch at SkyBridge every day as well—so for all those reasons, I want to protect them. I just don't know if we got to the window on time, but I would apply for it. And if people are upset with me for that, what I would say is, you know, Goldman Sachs got $10 billion from TARP, there were certain commercial banks got $25 billion. I don't see why we need to be discriminating and have this sort of class envy. I would just do—and I would recommend to everybody listening—do what you think is the most prudent thing to do for your staff. But I do predict that extra $250 billion, Scott, that they're talking about won't get unleashed into the small business community, and I do think that will provide a big bump. You know, I own a restaurant called Hunt and Fish Club with a group of partners. They did apply, and they're getting eight or so weeks of payroll and money to foot their expenses. They'll be able to open that restaurant and save all those middle-class jobs. So for those reasons, I think that window is open, and people that are able to take advantage of it should.