Tax Bill Fine for Stocks, Not Great for Bonds: Academy's Tchir

Watch Tax Bill Fine for Stocks, Not Great for Bonds: Academy's Tchir - Bloomberg on Dailymotion

Transcript

00:00Do you think it's good or bad if we do get it through for markets thinking across stocks and bonds?

00:05I think it's probably not great for bonds. I think we could see a little bit higher yield.

00:09But from there, I think it's probably fine for stocks, right?

00:11This is the first stepping stone. And part of it, it's a disaster if we don't get anything through, right?

00:15Because the big problem, I think, with this is it's extension of existing tax cuts.

00:20So if those disappear in some way, shape or form, that's just awful because no one's behaving as though they're coming off.

00:26So a lot of this deficit is going to be increased, but it's not going to get the full bulk of it coming into the market

00:31because it's only the incremental increases, I think, that will create new spending power.

00:35Why is it good for stocks when the first time around, when we had a similar debate in Trump 1.0,

00:40when you had tax cuts that were supposed to juice the markets, you got 10-year yields to 3.25%.

00:45That was enough to spook equity markets. We're at 4.45% now. Why isn't that enough to spook equity markets?

00:52Well, I think last time we ran up heavily right into the actual tax bill getting passed.

00:57So there was a lot of sell the news. I don't think we've had quite that same run-up.

01:00I think we've had the run-up much more because of tariffs.

01:03But again, we've had, I think, in the last two weeks, we've been talking a lot,

01:06the Trump put is clearly back on the table, and Trump pivot has been very helpful to markets.

01:10So there is some risk if yields go higher.

01:12My biggest concern on the yield side is, you know, the basis trade,

01:16which supposedly was a big part of why yields went higher back in April.

01:21That got reset. I think one of the problems whenever we get sort of intervention

01:24is those trades get reset and people get very comfortable.

01:27Hey, if they're going to intervene, I can put this trade back on.

01:29So the stops will be higher.

01:31But I'm concerned if you start getting to 5, 10, 5, 15 on 30 years,

01:34you can accelerate quickly because that basis trade unwinds again.

01:38So to be clear, is there some real market fragility you're worried about at this moment?

01:41Yeah, I'm not in panic mode, but I do think bond yields could push higher.

01:45So I think structurally we should be lower.

01:48I think right now the technicals are pushing for higher yields.