00:00Sentiment is one thing, how consumers actually act is another thing.
00:03Just some of the earnings this morning, UPS solid, maybe some issues around the margin.
00:07Coca-Cola, people are still buying drinks.
00:09What is your read as we start this earnings season on the consumer?
00:12Well, I think the Fed only needs to look at its own data, which is, I look at weekly credit
00:17card balances.
00:18And weekly credit card balances show the consumer absorbing higher gas prices
00:23and actually inflation peaking in mid-April, even though gas prices peaked in mid-May.
00:31So you've seen prices decelerate from May's time.
00:35And even though there's been basically almost a dollar increase in gas prices over the last month,
00:43credit card balances, which are not people revolving balances, these are just balances based on spending.
00:50And those have come, those continue to decelerate.
00:53So they're up, but they're not up as much.
00:55So I think the Fed, and this is Fed, not New York Fed, Fed data,
01:00is going to give them a lot of reason to stay on hold, I think, this week.
01:06Stay on hold or allow them wiggle room to maybe even hike?
01:09I think they stay on hold and they'll probably still have this tough guy language
01:12with this hawkish language that gives them wiggle room.
01:16So I think that putting these people on these special task force buys Chairman Warsh time, right?
01:24I think that was one of the issues, right?
01:26He's going to look at every aspect, but it will take these guys six months,
01:30you know, several months to actually put a working group together,
01:35find a, you know, do their analysis and find a conclusion.
01:38So he's got time.
01:39There has been this argument, though, that what a better way to show that,
01:42one, the Fed is still independent, and two, to show that you're not giving forward guidance
01:46by just going out and hiking and almost surprising the market.
01:49Do you put much credence to that, that that does achieve some of his goals?
01:52I think that's overthinking it a little.
01:54I think his bias is to wait and be really right.
01:57So he's a very thoughtful, confident guy,
02:00and I think he will wait until the time's right to raise rates.
02:04Is this a Fed, though, that needs to figure out some way to get long-term yields done?
02:08It's a 30-year down, rather.
02:09It's been a 30-year yield that's been above 5% for the longest stretch since the early 2000s,
02:14I think around 2007 or 2008.
02:16He himself has called out the issues with this housing market and mortgages more dependent on that.
02:22It's something that perhaps at some point already is starting to weigh on risk assets.
02:26Is this a Fed that really needs to do something about long-term rates?
02:28I don't know that they can do something about long-term rates.
02:31I mean, it's a fiscal issue, which is nobody in D.C. has any appetite to rein in debt,
02:37and that's going to be a persistent problem with higher rates.
02:42And I don't know that so many countries are in the same boat that we are,
02:47but until we focus on that, which there's been absolutely no discipline or willingness to focus on that,
02:54rates are going to push higher.
02:56But again, isn't this a Fed that will need to really hike rates in order to show that commitment to
03:01bring it down?
03:02Because, for example, things like government spending is continuing,
03:06and then there's some crowding out of the bond market of all of the issuance we're getting from these hyperscalers.
03:11I mean, those forces seem, again, those are ones outside the Fed control,
03:14but ones that have really been weighing on this Treasury market.
03:17I don't know that what the hyperscalers have issued in terms of debt is crowding out anything as massive as
03:23the Treasury market.
03:25It's just peanuts compared to the size of the Treasury and the issuance, like the rollover of the Treasury market.
03:32What do you make of general crowding in financial assets of both IPOs, equity issuance, and the bond market?
03:39This idea that for the first time we are seeing real supply coming online,
03:43that it had been at least for the equity market when where companies stayed private for longer,
03:47there were take privates, and you didn't really have robust issuance.
03:50And now that's starting to change with all these IPOs we're getting above $1 billion.
03:53Does that change something for markets?
03:56Well, I think you've seen people sell other stocks to buy new issues.
04:01So, yeah, I don't know that there's crowding out.
04:03There's so much money swassing around this market that it can absorb a lot.
04:12But, yeah, people are selling certain stocks to buy others, and that's just theory of displacement.
04:19It's not money's coming out of the market.
04:20It's just choosing different assets.
04:22People do love to point to this idea, though, that when you get this many IPOs, it's something of a
04:26peak in the market.
04:27I mean, could history rhyme this time?
04:29I think historically people like to do deals at high valuations.
04:34You know, banks are, in banking anyway, banks aren't bought, they're sold.
04:39So people love to sell at high valuations.
04:41And I'm sure, you know, a lot of these companies need to go public because they need liquidity for not
04:48only their private equity investors, but their employees as well.
04:55So there are other issues at hand.
04:56But I think the market's been able to absorb a lot.
04:58But it's true.
05:00The market has, and companies too, have.
05:02I mean, this earnings season, expectations are so incredibly high.
05:06Even though we still have elevated gas prices, we still have, and we have new tariffs coming on.
05:10Earnings expectations for growth year over year are in the high 20s, something we usually don't see out of a
05:15recession.
05:16What do you make of just the high bar of expectations we have for corporate America this quarter?
05:20I think it's an economy, you know, it's your tale of two economies, right?
05:26So you have an economy that is with, you know, the semis and with the high-end consumer, the high
05:34-income consumer doing incredibly well.
05:37And look, banks or financials or the market in general has bought back a lot of shares.
05:43So there's a lot less available shares to buy.
05:46And then, you know, the economy's been robust.
05:50So the banks set the tone in terms of had incredible earnings, incredible trading, incredible capital markets.
05:58The power of the World Cup was, you know, an exponent of the Taylor Swift effect.
06:05And that's tremendous.
06:06And people have been spending.
06:08What is amazing in terms of when I look at consumer spending, you know, you look at grocery spend, which
06:14has been negative.
06:14And then it was barely positive.
06:17So you see certain people cutting back on spending.
06:19But travel and leisure have accelerated while gas prices have gone up.
06:24So I think that's World Cup.
06:26So I think that the comps in the forward months may be difficult.
06:31But for now, things are good.
06:33I was going to say, isn't that something that can't really be recreated?
06:36We saw so many international people also come in to the U.S.
06:39if they were able to make it through the border, come in.
06:41And you had Europeans come in, even though the narrative had been that the U.S. economy was so much
06:45more strong than Europe.
06:46People were willing to spend money not only on those expensive flights, but for the most expensive tickets ever for
06:52a World Cup.
06:53I mean, it's hard to see how this economy would really create that versus a one-time boost.
06:57The other thing that happens is, you know, any money that had been earmarked has been pushed out the door.
07:05So there's been incredible sort of fiscal spending, just remnant fiscal spending that's been pushed out the door.
07:12So I think we're getting into the third quarter, which will still be strong.
07:18The fourth quarter, I think, will be a little bit of a reckoning.
07:21Late part of the third quarter, you know, fourth quarter will be a little bit of a reckoning.
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