00:00Drumroll, your views on Kevin Walsh and what he would mean for markets.
00:06I think this is a big moment for markets in the short term in terms of we've talked over this
00:12month about some crazy moves and about kind of some frothy price action in markets. This is now
00:18the catalyst to change things around. And let me explain why. I think that relative to expectations
00:26as priced, this is a surprising outcome in terms of it's kind of enforcing Fed credibility and Fed
00:35independence relative to what's priced. This is not going to remove the fact that Trump will never
00:39stop pressuring whoever's the Fed official, that he's appointing someone who he expects to deliver
00:44a cut at the very first meeting. And whoever it is will deliver that cut at that first meeting and
00:48might deliver another cut before the midterms. But the point is, this is someone who has a track
00:54record of caring about inflation. Now, they currently believe that the AI will lead to a
00:59disinflation wave and that's why they can afford to cut. But they're not, don't have a track record
01:03of concern about inflation. Also, he's 55 years old. He has a career ahead of him. He does not want to
01:09ruin the rest of his career by being a complete puppet for the Trump. And therefore, he will cut
01:14aggressively as far as he can, but not farther than he thinks that will actually destroy the market.
01:20And ultimately, the appointment of Walsh shows that Besson still has influence and kind of going,
01:24look, if you get this wrong, the Treasury market blows up, which undermines everything. And they're
01:27trying to do on the right side anyway. So I think because of that, the market's realigning everything.
01:32We're going to see a bounce in the dollar short term. The dollar move is already getting overdone.
01:35And we're going to see a pullback in precious metals. We're seeing a pullback in crypto,
01:39pullback in stocks. So this is going to be a temporary correction of markets. This is not a long term
01:43game change, but a short term it is. Can I just come to that long term game change,
01:47though? Walsh has indicated that he is not comfortable with the Fed being as active a
01:53market participant as it has been in terms of supporting sort of via QE, supporting asset
02:01prices, et cetera, et cetera. He feels it's been distorting. The equity market has almost relied
02:06on that Fed put that if it goes down, will be rescued kind of idea. And I'm wondering whether
02:13that gets degraded under Walsh. Yeah, probably. But I don't think that's an immediate trading
02:20dynamic. Look, ultimately, his views on the balance sheet are very relevant. Part of the
02:25reason we're seeing a steepening of the yield curve. Part of the reason we're seeing this
02:27sell off. That's a way of being hawkish, of wanting to lower the balance sheet. I think
02:34ultimately, look, if the stock market starts collapsing significantly, that is justification
02:40for the Fed to cut rates. And it's reasonable. As I said, he will go for any reasonable term to cut
02:46rates. So I still think there'll be a Fed reaction function. And I still think it'll be
02:49more sensitive than it would have been under prior regimes, given the administration pressure.
02:53It just means the people who are just buying every new top again and again on thinking that there's
02:58no way this can fall, they're the people are going to correct it, which is why there's a short
03:02term turning point that might last for a couple of weeks. It's not a long term game changer at all.
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