00:00When does a higher real yield impinge on the American economy and on industry in America?
00:08Well, I would argue right now it's already starting to have an impact because it was only a week ago
00:16that we came out of the FOMC meeting expecting a couple rate cuts.
00:21And you looked at the labor market. That was their primary concern for good reason. It seemed a bit soft.
00:27Now you're paying a lot more to fill up your automobiles. And if you're a business, your input costs for
00:33energy has gone up.
00:34I would say it's having an impact right about now.
00:38If that is the case, certainly for a lot of folks, they're starting to feel it. How does the Fed
00:43react to that?
00:44There's really not a whole lot they can do, is there?
00:47I think the problem is at these levels, there's no obvious solution because even ourselves with $100 oil,
00:56we don't see a recession. We see growth slowing down a lot from where we had it, inflation going up
01:02a little bit.
01:03Then they just have to wait and see what cracks first.
01:07Does the labor market come under a lot of pressure and unemployment go up?
01:11Or do they see energy prices pass through to finished goods and services and consumers still buying and demanding wage
01:22price spirals?
01:22David Rosenberg in Toronto publishes moments ago, Rosenberg Research, quote, still no market panic in equities, even with a VIX
01:30out of 29.53.
01:32How do you measure and is there panic in the Bob Michael world?
01:37I mean, price down, yield up.
01:41How does that, you know, equity panic, how does that work in the bond space?
01:45It's well, there are also volatility indicators in the bond market and they've actually been been muted.
01:57So it's been a surprisingly orderly sell off a little bit at a time.
02:04A lot of confidence that you have an administration looking for an off ramp.
02:09They'll find one.
02:10They watch the markets.
02:11They know the midterm elections are coming up soon.
02:15They have to figure out how to extricate themselves from the Middle East.
02:21And that's what the market's hanging its hat on.
02:24So the Fed has a little bit of leeway, the U.S. economy.
02:27We are a net exporter of oil.
02:30But boy, I guess we're all learning how exposed other parts of the world are to this pinch in Mideast
02:37oil.
02:37How do you expect other central banks around the world to react here?
02:41It's strange, right?
02:42Because this all started with us being told that 20% of oil passes through the Strait of Hormuz.
02:51So you say, OK, $60 a barrel.
02:54Let's go to $72 a barrel.
02:56Maybe a little premium in there.
02:58You're up at $80.
02:59Not you're going right to $100 and hanging out there.
03:03And expectations, I saw one could be $200 a barrel.
03:07I think that's a bit extreme.
03:09I think by the time you get to $120 to $150, you'll create a tremendous amount of demand destruction.
03:16So it's a bit puzzling that you're there.
03:19Unlike the Fed, which has a dual mandate, they have to watch the labor market as well as inflation.
03:26The ECB and the Bank of England have single mandates.
03:29They have to watch inflation.
03:32And there's no differentiation between core and headline.
03:36All they know right now is headlines going up a lot.
03:40Hence, they're talking hawkish.
03:41You would expect the ECB to hike rates once or twice in here.
03:45We'll watch for the Bank of England.
03:48Who knows?
03:49You have a sterling academics, which goes back as far as Persia, your work in Greek and Latin.
03:56With all of your academics at Penn and your work, of course, driving the bond ship for Mr. Diamond,
04:03the cultural overlay here of Persian patience.
04:08What I keep reading in informed articles is these people are patient.
04:12Would you agree with that?
04:16Iran will be patient beyond anything?
04:20Well, if you look at their position, there's little else they can do.
04:26A lot of the infrastructure in their country has been destroyed.
04:30And yet, somehow, they're able to control the global supply of oil by controlling the Strait
04:39of Hormuz with a fleet of drones, despite all the military might of the West.
04:47And I think this is what the market's starting to get concerned about.
04:51The administration may want an off-ramp, but the Iranians don't need to give him one.
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