00:00The markets are taking so much comfort in the jaw boning aspect, right?
00:04So whether it's the Trump administration talking about reopening the strait and ending the war
00:09to, you know, central bankers across the globe focused on inflation and ready to hike.
00:15And I think ultimately it's about action and not rhetoric.
00:19But the rhetoric is definitely driving the market in ways, quite candidly, I haven't seen in my career.
00:26OK, so are markets too complacent about the prospect of Fed hikes before cuts?
00:32I think the markets are too complacent around the impact of inflation itself, right?
00:37If you look at the forward curves, if you look at where inflation is pricing out in the future,
00:43it's a resumption of normal.
00:45And I don't think we're in this normal environment.
00:48I see a market where there's just shock after shock after shock that leads to higher inflation,
00:54not less inflation.
00:55And I do think it changes the trajectory of interest rates.
01:00Most importantly, the market was really leaning into this narrative of this global rate cutting
01:06environment.
01:07And now we're talking about rate hikes.
01:09And so it's caught the market completely flat footed and looking the other way.
01:14Well, yeah, Jamie Dimon says that yields are only going to climb further.
01:17Where do you see them going to?
01:18Yeah, I think the bias over time is higher yields, not lower yields.
01:22If you believe that inflation is in the system, that means that central banks have a lot less
01:29room to move rates lower.
01:31That means that the yield curve has to stay kind of higher.
01:36And then you think about just the debt and the deficits and the political disruption,
01:41so to speak.
01:42Like I see risk premium moving higher and I see the bias for higher yields, not lower yields
01:48over the course of the many years, let's say.
01:52Well, yeah, you've kind of described it as a boiling frog situation.
01:54It's not like there's going to be one trigger that triggers a sovereign debt crisis.
01:59How far away are we from that?
02:01Well, I think that's the whole thing we don't know.
02:03But I think we're getting like the preconditions matter.
02:07And I think that's the concerning part.
02:10So you have elevated debt and deficits.
02:13You don't have a political will to change it.
02:16Sovereign supply is just going to increase over time.
02:20You're also seeing this digital infrastructure supply competing.
02:24So you're in this crowding out effect.
02:26And so what that means ultimately is that yields have to be higher to attract that capital for
02:32those risks.
02:33And it's a story that just is just starting.
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