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00:00So we have a lot of ETF related things to get into. Bank, of course, just had a big birthday,
00:05but given the size of the moves that we're seeing in the market right now, let's start broad. The
00:09S&P 500 higher by nearly 2 percent. The Nasdaq 100 higher by more than 3 percent on the heels
00:15of that peace agreement announcement. Then you take a look at the bond market,
00:19still a big move. You did see yields drop across the curve. Coming back a little bit though,
00:25when you put it all together, you take a look at the different asset classes and you add oil in
00:29there. I mean, what's your initial read on this knee jerk? So I'd say obviously the peace
00:36agreement. And as you said, we'll see how durable it is. My senses are moving in a direction that
00:40ultimately will be quite positive. So the thing that's amazing to me, and by the way, it played
00:47out around the SpaceX transaction. There is so much cash that's sitting on the sidelines. So we
00:52can debate a number depending on how you measure eight or nine trillion in money market funds,
00:5619 trillion in deposits. And you know what happened? You go back a week ago and you think about this
01:01big
01:01SpaceX deal. People have to find room, though, in terms of portfolios, et cetera. So you create a little
01:07bit of that. And then once that has happened, all of a sudden it unlocks this cash, particularly when you
01:14get a good piece of news and people say, gosh, I can get into the pool. And it's pretty
01:18explosive when you see it happen. Obviously, the move after we've had a good run in the equity market
01:23has been pretty impressive today. Thank you for explaining that, because sometimes it's, you know,
01:29when you ask a macro guy what's going on in the equity market and the bond market, you don't often
01:34get a candid response. I appreciate that. I'm curious when we link what's happened with the
01:39interim peace deal with the spate of central bank meetings this week. I believe there's more than 20
01:43central bank decisions this week. Was this a gift to central bankers? Maybe not in the U.S.,
01:48where we already know that the Fed's not going to do anything one way or another. But for other
01:52central banks, this is some kind of relief for them. A hundred percent. I mean, you think about
01:57obviously headline inflation. The stress is real around what those numbers end up being. I mean,
02:03we look at the core. You know, I would argue there is some transmission coming in. But it was
02:07interesting to see the CPI report last week. We look at core goods, core goods, three-month moving
02:12moving. Average core goods inflation is 0.1 percent. And six-month moving, I was 0.4. You're
02:17not seeing in goods where you're seeing this latent inflation is, quite frankly, in services. Things
02:21like, I mean, insurance, a number in CPI. You look at that number, education, et cetera. So
02:28it's definitely helpful. It definitely takes, you know, places like the ECB that are looking
02:33at multiple hikes and say, gosh, now maybe they don't have to move in multiple forms. So it is
02:39a big deal. I mean, it is a big deal for all markets when you think about
02:42central banks may not have to hike as much. And then you think about, you know, what does
02:46it mean for overall? When you think about your NPV of owning the equity market, if rates aren't
02:52going to move significantly higher, it's, yeah, it's a big, it's a big deal.
02:55So you, the last time you were on the show, you had a clip that I put out on social
02:59media
03:00because I really, it opened my eyes to this. I said, why would the Fed cut? And you said,
03:05well, the reason is housing. That's why the Fed should cut. And then they had a contest for who's going
03:11to be the Fed
03:12chair. Kevin Warsh is the Fed chair. And they're now in between a rock and a hard place here
03:18because you do have some of these inflation numbers going up, but you do have this housing
03:22pressure, which you brought up. And since you're back and all that's happened since, I want to get
03:27your take on what you would do. I mean, what I would do? Well, I'm positioned for what they will
03:32do. And I've learned in my career, whatever I would do is interesting for my friends. But what I
03:38way of position is what they're going to do. Listen, I think if you take that and go back
03:42to this inflation report and you're looking, you break it down, the less interest sensitive
03:46sectors are experiencing healthcare, education, insurance, sticky inflation. You're not really
03:51going to bring down healthcare costs by moving the funds rate. If you look at what happened,
03:55that CPA report used cars, automobiles, small business, low income, housing. Those sectors
04:02are actually A, not experiencing much inflation, if any at all. And B, they're in a tough spot.
04:08So it's much more complex when you think about, particularly if you have a dual mandate and you
04:13think about my mandate is actually employment and price stability. And today it's very hard to use the
04:21interest rate tool to manage automobile insurance. And so I think, and quite frankly, I think the new chair
04:28will use some other tools. And I think you'll look at the money supply. I'm certain he will. I'm
04:33certain he will look at the balance sheet. This idea that the overnight funds rate is going to help
04:40modulate healthcare insurance doesn't make a lot of sense. But, and so I think you'll see a much more,
04:47like how do we use balance sheet? How do we use money supply? And a much more, and by the
04:50way,
04:50the front end of the yield curve, nobody really front finances off the front end. It's all out the curve.
04:55How the chair manages long end interest rates, particularly you think about what does it mean
05:01for mortgages? What does it mean for other things? So listen, I wouldn't hike and, but you know,
05:07we'll see you have a committee that's, that's clearly hawkish. Beyond the rate conversation.
05:10I do want to talk a little bit about the communication coming from the fed and how it might change
05:15going forward because Kevin Warsh, I mean, he's made it clear. He has not a lot of love for forward
05:22guidance, the dot plot, you know, all the press conferences that the fed has sort of tuned the
05:28market into. And I wonder, you know, whether or not you think the bond market, whether traders in
05:33general are prepared for a federal reserve that maybe communicates a little bit less.
05:38You know, I'm going to, I'll say one thing. I'm a believer and you don't need as much forward guidance.
05:43In fact, part of what you say is the bond market prepared for it. If you're easing policy,
05:49you actually don't want people to be prepared for it. You want to actually, I mean, one of the
05:52beauties of what the fed has is its voice. When you're easing, it's very different than you're
05:56tightening. When you're tightening, you want to be foreshadowing. You want to be predictable in
06:00terms of how you're going to and wean people off of easier policy. When you're easing, you don't want
06:05that. You want to create animal spirits. You want to create economic velocity. And so I actually think
06:10not having forward guidance or having less forward guidance is actually a real tool that you can
06:15utilize going forward. Listen, I don't find the dot plot of terrible utility. I mean, for markets like
06:22to hone in on where it is to price the forwards. But listen, it's 19 votes. You don't know who's
06:28who.
06:28You don't know, you know, there are some more important ones than others. There's a there's a
06:32disparate process of how people fill out their dots among the 19. So I actually think it'll be a good
06:37idea. And, you know, quite frankly, one of the for markets getting some volatility into the markets
06:43is a is a good thing. And I you know, I think I think people as long as you lay
06:47out here are the
06:49metrics that we're looking at. Here are the parameters where that the feds going to operate
06:53within. And as long as you're clear and articulate as this is what we are focused on and then let
06:58the
06:58markets interpret it as the data presents itself. So anyway, I think it'll be I think it'll be refreshing
07:02and I think it'll be I think it'll be helpful. And I think that's what a lot of people are
07:05counting
07:05on this meeting or this press conference this Wednesday to do for Kevin Walsh to kind of lay
07:10out his vision. One thing that we have heard from him in the past is that he is not a
07:15fan of the Fed's
07:16balance sheet, the size that it is right now. He wants to reduce that. Talk through what the
07:20implications of that, because there's some concern that it could push up long term rates by forcing
07:24the market to absorb more bonds. So I mean, that I mean, it's going to be a big deal. I
07:29mean,
07:29I think one of the things, listen, I think he'll be very deliberate in reducing the balance
07:33sheet. I think one of the things, you know, the way financing works today, it's very different in
07:38the past. You think about they can be banks used to borrow short, lend long. And today, it's very
07:43much financing is tranche the way we finance commercial real estate or residential real estate
07:48or buy or credit. So it is very much what is important is liquidity in the system, meaning if you
07:53reduce the balance sheet too quickly, it can be very disruptive. I am certain he's not going to go down
07:58that
07:58path. And the other thing that is really important is the shape of the yield curve.
08:03And I think how you utilize the balance sheet. And by the way, you can reduce the size of it
08:08because so much of our debt, 89% of the debt in the United States is in zero to two
08:12years.
08:13It's actually not that much net of what's on the Fed's balance sheet today. There's actually not much
08:18exposure, duration, interest rate exposure out the yield curve. If you were thoughtful about how you
08:23use the balance sheet, my senses they will be, you can actually keep long rates tethered and less
08:28volatile. That's where you don't want to see the volatility is if you can keep longer and interest
08:33rates stable, we can get the mortgage rate down in this country, you can get housing velocity moving.
08:38That is going to be something really important. And I think the balance sheet is a big part of how
08:42you do
08:42that. I want to ask you about consumer sentiment. So stock market doing great up 13% since April.
08:50When you start to see these sentiment numbers from the University of Michigan
08:54come in as the worst since COVID and the great financial crisis.
09:00It's tough for me to believe this. What do you make of that disparity? Because if this data were
09:06accurate and people were just going to stop spending, you'd think the market would pick up on it
09:11and not go bananas. So where's the disconnect there? What's going on?
09:16So, you know, I think I said, Matt Miller show the other day, I don't really believe in the
09:20K shaped economy. I actually think it's, I think I called it the three month old birthday cake. Like
09:24the icing is, is doing is still okay. It's underneath. That's not. And what's underneath
09:29is much, much bigger. 75% of the economy, I think is having a hard time. And so if you
09:34take
09:34part of what we talked about low income, young people, you know, the housing market, I think most
09:39people are having a hard time when particularly when you get higher fuel prices, higher food prices,
09:43prices, it does pressure consumer sentiment. And you, by the way, you see this in the earnings
09:47reports. I mean, it's incredibly dichotomous in terms of where high end is doing, whether it's
09:53hotels, retailers, restaurants, and then where, and by the way, I wouldn't just say it's low end.
09:57I'd say it's low to middle, even a bit higher than that. So I think you have that dynamic in
10:02the
10:02economy. The one, the one thing I will say, that's a travesty is actually most of what driving
10:07consumption in aggregate today. It's actually the top 10%. So even though the consumer sentiment
10:13amongst the broad populace is not in great shape, the sheer aggregate spend there is not that large.
10:19So you can actually have an economy when you look at it, tips of the waves and say, gosh,
10:23the economy is doing pretty well in aggregate, but where most are actually having a hard time.
10:27It's part of why I have a different view on where I don't think rates have to go higher.
10:31So don't eat the cake is what I'm saying here and here. It would not taste that good.
10:36No, exactly.
10:37I assume it's amazing. Maybe what's underneath doesn't look so good. I do want to get your
10:41thoughts on credit though, because there was a really interesting headline this morning coming
10:44from Nvidia with plans for a bond sale targeting $20 billion. That would be Nvidia's first bond sale
10:51since 2021. And you sort of combine that idea with the fact that you're seeing the hyperscalers
10:57come out, hit the bond market in a big way. You also have big equity issuance going on as well,
11:02especially not just in IPOs. You also have the likes of Alphabet raising equity as well. How are
11:08you thinking about that dynamic? That when you look across bonds, you look across equities,
11:12you're seeing these big raises. How are you thinking about in the context of portfolios such as bank?
11:17Oh, that's a great question. I mean, so first of all, you know, I've been doing this. I'm not saying
11:22how many decades now I've been doing it, but it's the most exciting time I've ever been around
11:26investing because you've seen debt issuance, equity issuance, converts, loans with warrants,
11:31all sorts of funding, because the truth is they have to come in every market. By the way,
11:35they're coming in the US, coming in Europe, coming anywhere that they'll take it. There's a lot of
11:39financing coming. How do we think about it? Listen, I think some of it is, you know, some of the
11:44high
11:44quality paper that comes investment grade market is just okay. And by the way, there's more to come,
11:50as you said, including today. I think some more of the interesting converts,
11:54some of the structured financing that's coming, where you can really add some yield,
11:59maybe a bit further down the cap stack, maybe some of these new companies that are coming.
12:04That's where I find it more interesting. Listen, I mean, they're, you know, because the size is so
12:08big, there's some tactical opportunities to go in and then maybe reduce your exposure.
12:13But I think, like I say, doing some things that are a bit off the beaten path, where you get
12:18some more
12:18yield is has been great for the portfolios. Okay, I have two quick lightning round questions. Okay,
12:24and we have one minute. Okay, TLT. Yeah, it lures so many sailors to shipwreck. It's been going like
12:30this for about a year. Yeah, buy it or sell it. I don't think I don't think long rates are
12:36going
12:37very far. So that's a terrible, boring answer. But I think it's right. By the way, I think the best
12:42expression is sell volatility against it. And that's been a that's been volatility has been high.
12:47And that's been the best trade is sell sell vol against it. One of your mutual funds, I believe,
12:52still owns a little bit of iBit Bitcoin. And you're one of the early people inside BlackRock to get
12:57into it. Yeah, it's now sold off 50%. Yeah. Is it a buy now? Or are you going to wait
13:02more?
13:03Well, these are specific questions. So listen, I think it's ultimately going considerably higher.
13:09I think the technicals, there's some technical condition around it that causes it to chop around.
13:14I think it's ultimately going higher. We're keeping it a pretty moderate exposure, quite frankly,
13:18because I think there's some other things that we already talked about in technology and some of the
13:23growth engines. By the way, there are places to get yield and things like some parts of the credit
13:27markets, EM, that I felt like it's just okay today. And so we've reduced exposure. Ultimately,
13:31I think it's going higher.
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