- 3 hours ago
Category
🗞
NewsTranscript
00:00Really, depending on which Fed speaker you're listening to at any moment,
00:04it's either jobs that are most important or sticky inflation that's most important.
00:08So from your perspective, what's the greater force at the moment?
00:12Well, I think it is a bit of a toss-up.
00:15I think Fed officials aren't quite sure what they want to do.
00:19But my inclination is to believe that they'll pass on a December rate cut,
00:25that there will be another pause.
00:27They'll reconsider at the beginning of next year.
00:30As Fed Chair Jerome Powell recently said, over the past year,
00:34they've already lowered the federal funds rate by 150 basis points.
00:38And maybe it's time to just give it a rest and see how it all plays out in the economy.
00:44And also wait for some better data to understand where the economy actually is.
00:50But right now, I think they still need to be concerned about inflation.
00:53And obviously, in the labor market, there's some issues.
00:56But I'm not sure that those issues can be solved by lowering interest rates.
01:00So you mentioned that you see a December rate cut coming.
01:05But are there some risks to that expectation as well?
01:08Because, as you say, we've been a bit data poor recently.
01:12Is the market prepared for the risk of a pause in December?
01:16And maybe that pause being extended for some time?
01:19I think it wouldn't be much of a surprise because I think Fed Chair Powell already
01:24signaled that in his press conference a couple of weeks ago.
01:29And the market did sell off on that, but then regained its footing,
01:34mostly because the earnings story is still very good.
01:38You know, there's a lot of concerns about the economy,
01:42but I think the economy is actually proving, has proven,
01:45and will continue to prove remarkably resilient.
01:48And we see that in earnings.
01:50You know, they say that the stock market is not the economy,
01:54but earnings are the economy.
01:56So the stock market is very much influenced by what's going on in the economy
02:00as reflected in earnings.
02:02And the earnings picture in the first quarter was surprisingly good.
02:06Same in the second quarter.
02:08And now we're getting kind of the tail end of the third quarter earnings reports.
02:14And they also look amazing, amazingly good.
02:17Instead of a 6.5% increase year-over-year in earnings,
02:20it's coming in at 14% on a year-over-year basis.
02:24That's what's really driving the market.
02:28Yeah, that's an important point to remember that, you know, things aren't bad.
02:32And normally if the Fed's cutting rates, you would say, well, you know,
02:36the economy looks as if it's in need of support.
02:38But you point out there's already been quite a lot of easing so far.
02:43Does that economy, does the U.S. economy look like it needs support?
02:47Not to me.
02:48As a matter of fact, I, last year when the Fed started cutting rates,
02:54I said that might be a mistake because the economy was stronger
02:59than they were thinking.
03:00The labor market at the time certainly looked stronger than they were thinking.
03:03And that proved to be right.
03:05But they went ahead.
03:06They didn't listen to me.
03:08They cut the Fed funds rate by 100 basis points for September through December of last year.
03:14And guess what?
03:15The bond yield went the other way.
03:18Bond yields rose 100 basis points,
03:20something more than offsetting the easing of the federal funds rate.
03:24And it kind of looks like the same thing is happening right now.
03:27They cut by 25 basis points and then 25 again.
03:33So we've got 50 basis points here in September, October.
03:38And yet the bond yield is kind of sticky around 4%.
03:42Mortgages are kind of sticky around 6%, 6.5%.
03:45So the Fed's got to appreciate that the Fed funds rate,
03:52while they can control that, they can't control the rest of the yield curve.
03:56And the rest of the yield curve is sort of saying no mas.
04:00You know, let's not go.
04:02We don't really need it.
04:05Yeah.
04:05And where do you feel the Fed funds rate is positioned vis-Ã -vis the neutral rate?
04:11Do you think we're getting close?
04:12Well, you're asking the wrong guy, because I think the neutral rate is an illusion.
04:19It's maybe even a delusion.
04:22There is no such thing.
04:24If we could, we can't measure it.
04:27And if we could measure it, I think everybody agrees it wouldn't necessarily be fixed.
04:32It's not like some constant in mathematics.
04:35I think we only really know it after the fact.
04:37And what seems to be factually true is the labor market is tight, even with its problems.
04:43The unemployment rate is 4.3%.
04:45That's the last reading.
04:47And inflation is still 100 points above the 2% inflation target.
04:51But it probably will drop to 2% over the next six months once the tariff shock is over.
04:56So we're kind of at nirvana.
04:58We're kind of where we should be, which leads me to conclude then,
05:01so why are we lowering interest rates?
05:03Why is the Fed lowering interest rates?
05:04So why is the bond market resisting it?
05:07So I think the bond yield at 4%, 4.5%, the Fed federal funds rate at 3.5% to 4%
05:15is where the economy continues to thrive.
05:19All right.
05:20So you're painting a picture of relentless optimism here.
05:23And the saying goes that the only thing that kills bull markets is a recession.
05:27So from what you're saying, we're nowhere near close to one of those.
05:30So that in mind, you've updated your price target for the S&P by year end.
05:35Can you unpack that a little bit more for us?
05:37Yeah, I'm looking for the S&P 500 to get to 7,000 by the end of the year.
05:42It's been a volatile year.
05:44I wrote a couple of times that I reserve the right to change my opinion as often as the
05:49president changes his mind about tariffs and other matters.
05:52I did start out the year at 7,000, then with the tariffs, I gave in some.
05:59But I remain bullish relative to where the market was.
06:02And I'm back at 7,000.
06:04I mean, it's only 2% away.
06:06So it's a day or two away in terms of getting there.
06:11I'm using 7,700 by the end of next year.
06:14That will be a 10% increase.
06:16So I think it's still very much a bull market.
06:18And look, I think the optimistic view, so far, so good.
06:23I started out back in 2020 arguing that this decade could turn out to be the roaring 2020s.
06:30And so far, so good.
06:31And guess what?
06:32I don't even think it's going to end badly the way the 1920s ended.
06:37I was about to say, let's hope it's not followed by the 2030s mirroring the 1930s.
06:42But let's move on from that idea.
06:46We've also got reason to have a little bit of optimism as well with the U.S. government apparently on the cusp of reopening.
06:54Would you expect to see any meaningful bounce to asset prices off the back of that?
06:58I think there already has been.
07:00I think the market had, you know, rebounded somewhat on Friday.
07:06It was still a down day.
07:07And then I've had a very good Monday on the perception that Congress would open the government.
07:14And that's what seemed to be on course for that.
07:16So I think the market's already pretty much discounted that.
07:20I think the market right now is kind of wondering what happens if the Supreme Court later this year or early next year determines that Trump's tariffs are unconstitutional.
07:32Then what happens?
07:34That could be a messy situation.
07:36I guess the administration would have to refund the tariffs.
07:40And then the bond market could have an adverse reaction.
07:43Because right now, if we keep the tariffs in place, the government's going to bring in another $350 billion on a 12-month basis.
07:52And that could disappear.
07:55And some of it might have to be refunded if the court rules against the administration, which it very well might.
08:02So that will probably happen at the beginning of next year.
08:05For now, I think we're sort of in year-end rally mode, Santa Claus mode.
08:11And 2%, 3% increase from here would get us to 7,000.
08:15And that would be a great way to end the year.
08:18In the back of my mind, I can hear viewers saying, ask about AI bubble risk.
08:24But we're going to get to that in a little while.
08:26But first of all, the question around the tariff risk that you were just discussing there,
08:31is that part of the reason you've changed and lifted your outlook for the price of gold as well into 2026?
08:38Well, you know, I've never had an opinion on gold because I'm an old-fashioned strategist.
08:43I need something to value.
08:46I need some income, some dividends, some coupons.
08:51But the gold doesn't provide any of that.
08:54But when the gold price rose above 2,000 to a new record high last year,
08:59I did write that I thought that might be the beginning of a major breakout to the upside.
09:05And I thought it was mostly related to a simple fact.
09:09And that is Russia invaded Ukraine.
09:10The United States froze the international reserves of the Russians as did the Europeans.
09:17And central banks, countries that don't share our views, started accumulating gold.
09:25So I thought that was basically what was driving it.
09:27But along the way, I think another story here is Chinese investors lost a lot of money in the property market.
09:34They got whipsawed in the stock market.
09:37But I think they've kind of stumbled onto gold as a good way to increase their net worth.
09:44And so I think that's also driving the price of gold up.
09:46When it crossed 3,000 at the beginning of the year, I kind of looked at the charts.
09:50And I could see this thing getting 4,000 by the end of the year.
09:54And as you know, we got there a few weeks ago.
09:57So I'm using 5,000 by the end of next year and 10,000 by the end of the decade, which is where I also see the S&P 500.
10:0910,000 by the end of the decade.
10:10I mean, is that I'm wondering if that part of the reason for that is that gold is priced in U.S. dollars.
10:16We're seeing quite a lot of dollar weakness at the moment.
10:19And Stephen Jen of the Dollar Smile Fairy has been the latest to weigh in on this.
10:23CC's the trend for the U.S. weak and getting weaker.
10:27What's your view for the greenback?
10:29Well, I guess I continue to be a contrarian.
10:33I don't try to be a contrarian just to be contrary.
10:38But that seems to be where I've been heading.
10:41And I think gold had just a correction, kind of an 8% to 10% correction.
10:46A lot of people are using DXY, which is the dollar index.
10:49And it's about 57% weighted in the euro.
10:52So the DXY is basically the euro.
10:55And I don't have any particular reason to get excited about the euro as an alternative to the dollar.
11:00But I think what a lot of people are missing is stablecoin.
11:05We had in July the Congress passed and the president signed the Genius Act, as it's called.
11:10And it kind of legitimized stablecoins.
11:15And stablecoins are just digital dollars that are backed by liquid assets, by treasury bills.
11:23And I think a lot of them will be in dollars.
11:25I think a lot of them will be backed by treasury bills.
11:27And I think it will be used.
11:31I think it will be one of the reasons that the dollar will actually be surprisingly strong.
11:36Already a lot of emerging markets are latching on to stablecoin as a good way to deal with the fact that their financial systems just aren't that developed.
11:45For more videos, visit www.fema.org.
Recommended
7:39
|
Up next
1:58
1:40
1:34
3:37
4:38
2:09
5:11
Be the first to comment