Good morning everyone and thank you for joining us today for what would be a very relevant and hopefully informative discussion. My name is Steve Carter. I'm responsible for Northern Trust Asset Management's liquidity sales business in a mere. For those of you that are Newton or then we're a trillion dollar global asset manager with 250 billion in money markets and short-term fixed income strategies. So as one of the industry's largest providers of money market funds, we believe we have the experience and knowledge to provide you with some of the key insights into events in recent weeks. Joining me today is my colleague Baptist, uh, can boom. Our chief investment strategist to give a macro view on the impacts of the virus to the global economy and the relevant policy responses. And then In addition to that, will also have Daniel Farrell who's ahead about money market and short duration portfolios in Europe to discuss the direct impact of the virus on money, markets, money market funds and short duration fixed income as a whole. Just one housekeeping point before I hand overs about are we will have a Q&A session at the end, but please feel free to send in your questions or some of you already have done throughout. The presentation will do our best to answer as many as possible, but we will also respond to any that we can't answer directly later today. So without further ado, I will hand over to Bowser to kick things off. Thank you Steve and good morning. Everyone and thank you for joining us today. In these very volatile and interesting times with lots of uncertainty and lots to discuss as he said. I want to break up the macro story in a health story in economic story and they financial markets do I want to start with the health parts right now because that's in the end. Of course, the source of all of this volatility in all of this uncertainty, So what we're seeing of course, is a shift away. In terms of the spread of the virus from Asia towards Europe and very likely towards the US as well, and the way we've been describing this is sort of the good, the bad and the ugly. The good part of the story is that countries in Asia, most notably China, but also South Korea and Japan, have been able and relatively successful in containing the spread of the virus and flattening. The courage is what is the nomenclature in a lot of people are using the bad, of course, is that large parts of Europe have not been able to do so and are still in the ramp up face, and the ugly is really those countries like Italy, Spain and very likely the US as well in the next couple of weeks. That are so far, really uh, in the bad part of the cycle, meaning very large increases in cases, and a healthcare system that's either at risk of being overwhelmed or is already overwhelmed and is having a very hard time coping with all the new inflow of these cases. The over the underlying assumption in all of this is of course that there is. A hope that the timeline and a template laid out by countries like China and South Korea can be mocked can be used as a model for what is likely to occur in Europe, with enough measures being taken and as well in the USS sort of with a 8 to 11 day delay, and that is of course still uncertain because the measures taken different country by country. I we're seeing more and more, and lockdowns we're seeing more and more. Suppression strategies being implemented, but the success of them of course takes a week or two because that's how long. The incubation period is for the virus to reveal itself, and that's still there for a big unknown, and something that markets are clearly still focused on as well. But we also don't know yet is what sort of health developments will see in the next couple of months. First and foremost, in the treatment of the disease. Now there's a lot of testing going on with known an existing medicines to see if the treatments can be improved as well as, of course, vaccine development, which is now a global race. And we hope to get some news that at least something is coming our way in the next 6 to 12 months. That would be of course very important for markets as well, because that puts a time constraint on the duration of this crisis. So the health crisis is A is a mixed picture across the Globe. And that also means that the picture in terms of the economy is also mixed. So what we're seeing now is estimates for Q2 economic growth in ASEAN are actually being ramped up quite significantly and the latest estimates we're seeing is a China could do as much as 8% annualized growth in Q2 as its economy is bouncing back from the massive massive slowdown that is experienced in Q1. And of course, the Western World is still very much in the midst of this, which means that the economic fallout there is going to be still. Very large and estimates for Q2. Annualized GDP growth range from sort of the minus 10 to minus 30% annualized. That is, but still six 5 six 7% quarter on quarter negative growth and is going to be a big big hit. And of course, financial markets have picked up on this, which is why we're in this massive contraction and even bear market territory at the moment when we look at this from an economic scenario perspective, we have both base case and they risk ace. Our base case is that there will be some recovery after the virus waves and the the curves gets Latins, but we're more, U shaped camped as opposed to the V shape can. We don't think there will be a quick snap back back to the old levels. Instead think is going to be. For a long period of subpar economic growth and then at recovery. Uh, in the online economy and in fact actually like the square root shape recovery more than the U shaped, which tells you that the baseline economic growth rate that you came from won't quite be achieved in the future. We expect future rating on that grow to be impacted and to show. You have to have a drag in it from the coronavirus. So that's the that's our base case scenario, arvis cases, of course, are that the mitigation of suppression strategies are not successful in the Western world for all sorts of reasons, including political ones, and that the virus takes much longer goes much deeper into the population, and much longer to suppress, and therefore the economic fallout will turn out to be much bigger. That's a risk case at the moment. We are still seeing it as a risk age, but some of the common tree coming out of them. You ask is a little bit worrying, disregard. Hum. The other risk is that we see is the fact that geopolitical skirmishes, coots could continue that. We've seen a major one between Saudi Arabia and Russia with respect to the oil price, and we could see more of those types of skirmish. I'm not talking about war here, but about countries trying to reassert their geopolitical dominance or positioning using the crisis is a way to do so. A fitting a little bit from the economic outlook to the financial market side of things. Like I said, with the enormous amount of economic growth lossed, and by extension, enormous amount of earnings potential. Lossed we've seen a very significant correction in financial markets and what you're seeing here is the bear market analysis in the equity market downturns and you see that this has been sort of the. The an average event driven bear market has been very fast. It's been deep, but it's also been. Driven by what should be a time constraint event, the coronavirus is expected to go away is expected to find the treatment and a vaccine in the next 18 months, and therefore it should be an event driven as opposed to the cyclical or structural bear market. Which also means that the potential for recovery is there as long as policy makers are able to manage the crisis. Which brings me to the next point, which is the policy response to this crisis and has been very, very substantial. We've all seen the enormous amount of monetary policy action come out, or central banks across the globe. Big bazookas have been fired in terms of interest rate cuts in terms of QE programs. In terms of all sorts of liquidity support or particularly the fixed income markets. So this has been a very strong policy response, and we're now also seeing. More and more on the fiscal side as well, Europe was leading the pack it last night. We finally got news that the US government also moved ahead and struck a deal on a 1.8 trillion dollar, 8% of GDP. Fiscal stimulus for the US economy, all really geared to overcome what is essentially a cardiac arrest in the economy. Keep the patient in live while it's having this heart attack so that it can recover and bounce back once the heart attack is over and people still have jobs still have income. And companies are still in existence and having gone bankrupt, that's really the goal of the policy mix. And so far we think a lot has been done. We think a little bit more needs to be done, especially in Europe, but so far we are impressed with the speed and the size of the policy actions take. However, it is one area where there's still a lot of stress in the system, and I know Dan is going to talk a little bit more about this in a minute, but the fixed income markets have shown really that there's still a lot of liquidity concern out there in markers. And they have taken a beating, the spread widening and fixed income. Both investment grade and high yield has been a very, very fast and the underlying markets across the board in fixed income spectrum and have seen a lot of stress of a lot of equity issues when we talk to our fixed income specialists in Northern Trust. But we're hearing at that, they think. About 70% of the spread widening is which is. Has has to do with the liquidity concerns in about 30% in the spread. Widening has to do with credit concerns, 'cause obviously there are kind of concerns there are. Companies are going to go bankrupt in, especially in the energy spectrum. There's real stress there, but at the same time this type of widening that can only be explained by underlying liquidity issues in the markets and also see that in the next slide if you break up that spreads, widening into the credit quality buckets and you see that even in the highest buckets there's been a very material. Drawdown, which we would normally not associate with credit concerns 'cause these are very highly rated very strong companies that are very unlikely to go bankrupt, so this is another sign that these markets have been dislocated. There is a silver lining, however small of this which is. And once you see this much policy action being directed at these markets, once you see this much sport coming, you're also likely to see the markets recover. And in fact, when we listen to our specialist and I will talk about this some more as well in a few minutes. This is a key point that we do expect that these markets will start to trade a little bit better, a little bit more liquid next couple weeks. Once all of the supporting actors get priced incorrectly in the markets. In the mean time, of course we still have a lot of uncertainty to deal with. And there's still a lot of risk, but at least that's the silver lining to office. And that all headed over to you then. Watch TV. Thanks also, that was a that was very, very useful indeed. Just a a couple of key points there. To reiterate, the good, the bad and the ugly. You know Asian containment, European ramp up face and some significant increases in Italy, Spain and now looking like the US which will lead to negative growth outlook across many major economies. And our base case is for AU shaped recovery. We have seen significant correction in financial markets, largely event driven, and there's bound to put it a cardiac arrest to the to the economy and then on the credit side, we have seen a material drawdown in credit quality and a spiking in credit spreads, so some key points to remember there, but also on a positive note there is potential for recovery as long as policymakers can stand that negative impact. So, uh, just just to remind everyone. Please keep the questions coming in. We will. We will answer as many as we can at the end, but this stage I'm going to hand over to to my colleague down foul to talk about the impact on liquidity markets. First of all, would you be able to just bring us up to speed with what's been going on over the past couple of weeks and just give us some some some context please? Absolutely. I'm in first of all, good morning. Good afternoon. Good evening tool. Those in those phone. Thank you for joining as we all agree that this is a very current topic and very important to all of us. So really where we are? You just heard from vout? Are there has been extensive even from the central banks and governments in a very short time frame? We look back at what we're seeing from those central banks. We've seen very aggressive cups in a very short amount of time from those who had. The headroom to be able to do so when we look at the central bank action that has been conducted at this point in time, we look at it in a really a 2 prong approach. One is the economic and market stabilisation and that has obviously through traditional forms such as interest rate cuts and then Secondly through quantitative easing. An increase in asset purchases. Now when we look at how this what this means and what this means for the money market funds. Obviously, both of these are going to impact the liquidity funds with lower reinvestment yields, so obviously we will see a drawdown in the overall yields that we're able to invest in and the growth Shields that we are fund actually produce closer to the central bank policy rates. And once we get into a normalized market condition. The second part that we've seen is more related to liquidity support. At this time. You know we see what's happening in the real world. This is a time where more and more companies are reducing operations, or on a full lock down and not receiving the cash flow that in normal waves. So the central banks and the government have stepped in to provide that short-term funding need that they need to ensure that they can get through this crisis. And and they can't, you know. And it's very difficult for me to utilize the short end of the money market space by issuing issuing debt. So if we look at just moving to next slide, just look at what that actually means. So through not as they're not getting those traditional. The flow of revenue that having to borrow more and this slide shows what has happened to the yield that they have a paying on commercial paper for one month trade. And this is based in dollars, and you see that there's been a huge spike very similar to what about a showed you investment grade and high yield spreads. This is due to the liquidity and a lack of liquidity in the market. These issues these companies are having to pay very high interest rates for the short term loans. So what has the what? What have the central banks done to combat this? They introduce the Bank of England, ECB. The feds have all introduced a large amount of facilities in order to assist with this market. The quality and provide these to the short end of provide these two companies. Why has this happened as well? And why are we seeing a more liquidity in the short end and the come to a bit of a freeze? 'cause we've seen more D risky? And we've seen money market flows flown in from into money market funds from different asset classes as people want to Derisk. We also seeing that data balance sheets are getting filled to capacity and unable to provide natural market liquidity they normally do and money market funds. Taking prudent action and on whole from buying term investments and credits and building up the quiddity buffets so all of all of the each of these different components are confiding. Freezing the quiddity flowing in the system, so some of the other mechanisms which are focused by the central banks are focused on providing liquidity support to markets, and so we've got the crunchy sport to the companies, but also liquidity support to market to try and Thor out this liquidity freeze that we're seeing and make the money move around the system and once again. Great thanks Dan. You mentioned the the various cuts by by by central banks. the Fed the Bank of England. Could you just give us some perspective as to how money market funds can still benefit investors in a reducing rate environment? Yes, so you know, I would say that the prior to the large scale outbreak of the virus, our views on the markets were were going to see rate cards by the central banks for a variety of different reasons, across new globally and so we were positioned. Yo prior to prior to this crisis and with longer durations an and focuses more on buying more government and government related paper and into Apple photos. So what that means is our yield of the fund will naturally reduce over an extended period of time because of that larger that longer duration and strategy, Rosa deposit rate will immediately reacted and is reduced. Immediately, some post the central bank cuts, but more importantly what the funds are doing at providing dated equality and diversification. Unless you're placing an overnight deposit, is that they are not. You do not have the same liquidity. Your tide into a fixed fixed term and with the deposit you have a single entity exposure rose within a money market fund. We are investing across a variety of different instruments, intimate types. And corporate financials. An individual issue is so you get an aboard diverse fund, and instead of a single entity exposure. Great thanks Dan. Thanks for clarifying that. We've seen a lot of stress, uh, in in recent weeks, uh, in the US markets, particularly at the front end of the curve, and that has impacted some of the US domestic money market funds. Would you be able to just give us some clarity on what's driving that in the USA and how the industry in the market is? Is is different here in Europe? Yeah, absolutely so as as I mentioned, you know we are seeing if we take it back a few weeks. We saw this huge deal risking from investors and a lot of money moving and flooding into the money market industries. And as we progress and as we have seen this more more liquidity in credit markets come a little bit more frozen an we've seen a shift in the US prime funds into US Treasury in government funds. Searching to see in this slide? This is since early since February until last week. This is the increase in dollar. I sent across Treasury funds, government funds and prime phones. I can see there's a huge amount of money moving into those two treasure in government funds and money moving out the prime funds. And that is a function of what we have just been talking about in terms of corporates have interpace. Use with the market rates increase and we're just seeing that uncertainty investors in a bit more concerned about the liquidity in prime funds and shifting into government and Treasury funds. Not one reason for this. Shift is the size of the market. Post US money market fund reform. In 2016 we saw in all of the investors shift 2 government funds and away from prime funds and one of the driving factors was that is those prime funds. And now the nephrons variable. Now phones. And that's what put those investors off and they went more into the government Treasury market so that that mark in the US in that industry is extremely large and is extremely bigger larger than. The prime money market funds. Now if we look at Europe apart from US dollar public debt funds which again US still smaller than LV, now dollar funds. The industry doesn't have that scale in public debt funds. Will government funds, and we know materially notice any shifts of that magnitude away from what we are equivalent or prime funds into government related money market strategies. And as I said yes there is a dollar market, but in euros in Sterling it's all but nonexistent. Thanks standing and you mentioned, the uh, regulatory reform and one of the key things of European money fund for formal dinner. The key outcomes was the lowering of the The The Mark to market color from 50 basis points down to 20 basis points on Elvina funds. Could you give us some insight just to the impact on the mark to market valuation of our phones in recent weeks? Bearing in mind what's been going on with with with various central bank movements and and volatility. Yeah, so if we think about that volatility in a marked market now versus a LV NAV NAV, which is a blend of amortized cost accounting and Mark to market accounting, the big triggers which can make that divergent move widens and closer to the plus or minus 20 basis point color or interest rate shops, spread spread shots and redemptions. These are all moved. The divergent in a meaningful way. So even even though we did see the combined cuts. For the Bank of England, 65 basis points and not divergent only moved four basis points and in dollars where we see combined 150 basis points of cuts than that divergent was eight basis points, is and is now closer to 0 and we what led us to be very comfortable with our positioning. Up until this point is we conduct extensive stress testing on the funds through various model portfolios to see how they will react in different market events. And this proactive action from our portfolio management team, an independent risk management teams, make us comfortable the wheel. What we were well positioned for these shocks an interest rate shocks and knew that we have funds could operate under the directory requirements. Great thanks son and one other outcome of reform was. So you going sorry stay just it just to just to just to flick back there. You know, just to that, this slide here just really just show the nab divergents an across the dollar and Sterling funds. As you can see, you know we put this back to the prices and you can see what the immediate impact has been in March 2020. We have seen this material. Right decreases by the central banks, but you can see even during the credit crisis, we didn't breach that 20 basis point color. Great, thanks dad, that service is really clear. A clear diagram that evidence is the low level of volatility within the portfolios. In addition to the color one of the other structural changes of money from reform was the rules around liquidity feeds and redemption gates, particularly for money funds relative to the traditional use. Its regulation. So could you just give us an update as to? What that means and and and relative to what we've seen recently? What would be what would be the outcome of, uh, of some of these triggers to lead us to a point of redemption? Gate or the liquidity fee? Yes, this this. This first let's take a step back and and look at the. The knew they could see rules that European money market fund reform actually implemented. So there's two scenarios here. One way there's an option ality to apply a liquid jiffy. Apply redemption gates to spend the funds and then take no action, which I'll come onto in a second. And at this point we have to see in a single day. Net redemptions greater than 10% and our weekly material assets fall below 30% of the total. A Navy and at this point the Board of the fund has the discretion to take one of those actions. Now when we talk about saying take no action, that is. We will work with the board to look at will prioritize maturities. We will look at our positions and they securities that we hold which are highly liquid and we may look to sell those in the market and bring ourselves back up to above the liquidity buffer. The second scenario is where it's mandatory and this is where the weekly mature and asset fall below 10% of the total assets, and in this case the Board of the funds must take one of the following actions and it's to apply and liquid Stephie or suspend redemptions now. So that's what the regulations actually stipulate. If we actually look at how we are positioned in how we opposition now funds historically. We if you look at our daily the quiddity profile. Regulations stipulate that you have to have 10% overnight liquidity available. We actually run these funds in a much more conservative way in focusing more on liquidity, so typically depending on the fund, we will be anywhere between 20 to 30% overnight liquidity and in some situations we will be higher. And if we look at our weekly mature in assets. We can see the dotted lines here. Statues that 30% trigger point an we are we are typically couldn't these charts and in normal conditions above that threshold now the one thing talk to reiterate here is what this chart shows you is our pure mature in assets in one week. The regulation actually allows us to include within that weekly material bucket and up to 17 and half the sense of the of our assets. Which are invested in government and or government agency paper? And which is backed by the government and typically and in these funds, you know, we do like we prefer to invest in those securities, and because of the creditworthiness and the diversification benefits and we will hold anywhere up to 17 half percent and in some situations even greater amount than that in these phones. So any given day that will obviously that number will change, but typically our weekly liquidity including government agency paper, is anywhere between. 35 to 50%. Thanks Dan. Some really key points there around the the large levels of liquidity that we we continue to hold in all three of our global cash strategy. So very very useful to note just quickly and conscious of time before we move on to the Q&A. Could you just give us a a bit of an insight into recent weeks? What tactical decisions you've made from an asset allocation perspective? Yes, so you know, we've taken some prudent action. I would say over the last few weeks and really prior to that on harvesting the quiddity. So we've been really focused on building up outlook with the buffers and ensuring that we have higher levels of overnight and weekly quiddities that has included a shift to be on hold from buying any credit term paper. An and but still focused in, but any paper with by is more government or government agency paper within the facts and but you know prior to that we actually the market was the credit market was actually not providing much spread above the agency or government paper anyway, so we were actually naturally buying into this crisis more. Agency paper and government paper. And in these funds anyway. But for the time being, we are taking the prudent action, go to hold off buying any term credit paper. Things done and then you you mentioned time credit there. Could you just really quickly just give us a bit of a an insight former credit standpoint? What our view is. what I consensus is on on on financials. Yes, you, I think you know you heard you heard about to say there that you know where within the fixed income group what we believe is priced into the market, which is due to liquidity and what is due to credit concerns. Credit concerns are more focused at the moment on those oil producers and companies related to oil on the financial side. At this stage we have no concerns. All of the price action we have seen is being due to liquidity not fundamentals changing and I think it's important for us to recognize here that you know people trying to look at the parallels between this and. And the crisis in 2008, that was a credit crisis. This is a liquidity crisis an and actually for mouse talents. And speaking to our. And this team and credit research team know front they are comfortable with the financials will be holding within this portfolio within these portfolios. The banks are in a much stronger position than they were in 2008. There holding a lot more capital than they were in 2008. And actually you started to see some of the government's actually reduce the amount of capital they required to hold at this time, and that's because of financial woes are going to play a very, very important part. It through this process and providing loans and companies and individuals in order to get them through this crisis. And again it comes back to this is a liquidity crisis at the moment. Perfect thanks Dan. Um, just a couple of key points there. From from from Dan's presentation and the liquidity is a key indicator to watch. This has been a liquidity squeeze in recent times, but that we expect to ease as a central bank program. Start to support the market. Uh, a low level of impact to to Northern Trust Asset Management liquidity strategies this is. This is largely due to our own internal stress testing and conservative position in the fund's Dan just mentioned there very much a tactical decision going into this crisis to move away from term credit and into government and agency paper and then finally just money market funds as a whole still provider an ideal solution for the yield optimization. I'm risk management in reducing rate environment and European money market funds continued to be robust and hold a very high level of liquidity to ensure they can meet their obligations during these volatile times will move on to the Q&A. Now there has been a lot of questions that have come in Whilst bow to and Dan have been have been speaking but but please do please do continue to ask questions if we can't some. Now we will get back to you directly. Later on in the day, but first of all, first question here is more for you. Bow to and can you talk us through the whether the Chinese economy has normalized over the past few few weeks as they work to contain the outbreak of the virus? Sure, thanks the UM will normalize would be too much credits, but they have definitely ramped up uh activity again. So when we looking at indicators such as coal consumption by power plans, if we look at traffic congestion all sorts of real activity indicators we're seeing China basically restart its economy. We would estimate. And that's also by the way, a rough reflection of what the Chinese government itself estimates that the economy is sort of. 80 to 90% back up and running. But we are also seeing of course that China, which is still a big manufacturing hub and still relatively trade sensitive. That the slowdown and the basically standstill in Europe and US is affecting it in depth. Part of the economy. So we do. We do still see things like freight volumes decline, so it's a partial. Partial ramp up, definitely with respect to the consumer. I will respect the infrastructure. Things are ramping up quickly, but other parts of the economy that are more internationally exposed are still lagging behind. Great thanks for 270 some some positives to take from that and the next question is is is for Dan and how his money market fund reform in Europe better prepared money market funds for these types of scenarios. Well, I think that that's a good question and you know, I think that. Mostly crisis in 2008. You know thing regulators actually identified money market funds as an important function to financial markets and they they made the necessary changes and all of those provisions and that they made from rectory effective. Maybe Yeah, better position of funds and the underlying investors to have better than Quincy and more transparency in the underlying Holdings and positions and also. Their pricing and during times of crisis and you can see that all of those in June. The presentation you can see you know those those liquidity threshold that the impact of the colour. And to ensure that all investors can invest and redeem a fair pricing and during the crisis there all there to protect investors and during the reform process we were as an organization very much in favor of those of those reforms. So I think they are here to protect investors. And and and ensure that money market funds can weather these storms. Great thanks Dan. Another question here for about 2 and it's a It's a two part question. Firstly what does this mean for Brexit and Brexit negotiations? And any Silver Linings to take away? Thanks Steve. Yeah on on Brexit I think. Uhm a lot of British people at least be happy that it's no longer the headline news story. Thinking a little further happened that we can't help but think that this will prove to be a decisive factor to make the government decides to extend the transition periods by one year at least, and maybe even two. But I, my guess would be they would go for one year. Um, simply because these negotiations are very interested in very. Difficult at the best of times, let alone under the current circumstances where both of the chief negotiators are in Corentine, so I can't help but think that this will be sort of used by the government as extenuating circumstances to to basically Oscar an extension, even though they promised they wouldn't. So that's my base case scenario. If that's not the case, and if they're. Stronger willed than that, uh, or I would say to risky approach, 'cause I don't think UK economy can deal with two two large shocks in such a sort short time period. But if they do want to go down that road and push forward, I think we have to conclude that it will be a bare bones goods only trade deal at best, which will be painful for the UK economy. With regards to your second question, the Silver Linings, I think the The real silver lining is the hope, but it's not yet proven because we could see a set back in Asian countries as well. And now that they're ramping up production again, the virus could spread again, but the hope is that the template and the timeline that they put forward is manageable and achievable by Western countries as well, and that would mean that there is an end to all of this. There is a light at the end of the tunnel, and at the very aggressive policy action, both on the fiscal and the monitors. Terry side might just be enough to keep the underlying patient. The economy to consumer the business sector alive while we managed his this tremendous challenge and problem. So that's that to me, is a silver lining that this should be and hopefully will be a time constraint issue. Great thank you Elsa and thank you down as well. I'm afraid we have now run out of time. We will respond to all of those unanswered questions directly to you later today or later this week. I hope you found that session beneficial. Please reach out as you can see from that final slide. We do have various resource is for our global investment insights both in the media, social media and on our website as well. And please reach out to your relationship managers and your Contacts within Northern Trust. We'd be happy to talk you through our offering what we're seeing in this this current market. That's all from us. Thanks for thanks down. Please take care of yourselves and have a great day. _1594286688517
The global economic and market disruption caused by the spread of the coronavirus has made money markets and liquidity top of mind for investors. In this webinar, you will learn about:
The impact on global growth, currency and credit markets.
The alternatives to enhance yield whilst managing liquidity.
How money market and ultra-short bonds strategies behave in this extreme environment.