00:00Very different, very different from, you know, the 2007 credit issues and leverage issues that we had in the financial
00:08system in a system that was, you know, for the most part, overextended in terms of the amount of exposure
00:17they have to the different securitized markets that created, you know, quite a bit of a big mammoth that ended
00:25up unwinding.
00:27Today, what we're seeing is really more close to what we saw in the 80s, Tom, where it is oil
00:33shock, where we see oil prices over $110 and the inflation expectations and inflation concerns globally seem to be driving
00:42a lot of these pressure on yields.
00:45Now, the biggest difference, you know, tends to be that, you know, at this moment, inflation expectations and growth in
00:53the US economy and global growth seem to be tied together.
00:57So a lot of what we see the yields pushing up on the long end seems to be as a
01:02result of, you know, inflation expectations going higher, actual real economic growth to also go up and the risk associated
01:12with deficit in all governments.
01:13So when you put all the pieces together, clearly we see that long end of the yield curve, you know,
01:18moving much, much higher.
01:21So, Omar, I mean, we've got the 10-year now at 465, up another six basis points today.
01:26I mean, where do you think this thing maybe ends the year, higher or lower from here, do you think?
01:32Well, we believe that, you know, we're probably going to go back not too far from when we started the
01:38year.
01:38A lot of what these suggest is that that 10-year yield benchmark seemed to be a good balance between
01:46economic growth, you know, inflation that we hope at some point after the conflict goes away that it will start
01:52to tame down, and, you know, economic growth.
01:54So I think when you put all the pieces together, you know, we think it's going to probably end up
01:58appreciating a little more.
02:00We probably still need to see the highest of the yields.
02:03So we're probably going to see a little more spike on yields as we continue to see volatility and as
02:08we continue to see inflation, you know, pressure.
02:11But, you know, overall, as things start to calm down and go back to normal, you know, we're probably going
02:16to see a little bit more stability on inflation that would lead into a more increase in prices for bonds
02:22and lower yields.
02:23I mean, Omar, I know you're hiring a new regime.
02:26You've got Colin Martin coming in at Schwab.
02:29You've got Kevin Gordon, who's there as well.
02:32What do you say to the young Turks that have never enjoyed price down, yield up?
02:37Actually, that has been the story of my last decade, Tom, of, you know, trying to explain what high inflation
02:44means, because even at this level, if you go back to the 80s, this is really not that big of
02:50an inflation shock that we have.
02:51Clearly, prices at the pump are very high compared to anything we had back then.
02:55But certainly, a lot of this has to do with just understanding the dynamics of, you know, the yield curve,
03:03the level of interest rates, as well as just where we are on the market.
03:07And I think, you know, the equity market is a great barometer for inflation.
03:11And we have been talking to our team here that the best hedge for inflation continues to be the equity
03:18market.
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