00:00Yeah, it could be a one and done, Tom. So if you perhaps looked at the Fed chair's view of
00:07inflation,
00:08he would share what many people say about the near term inflationary impulse that comes from the AI
00:15and the infrastructure build out, all this kind of stuff. But his view would be that in the longer
00:22run, and this is going into next year, you start to get some of the disinflationary pressures
00:27coming through. Back in February of this year, before the war in this region started, that was on
00:34the 27th of February, the yield on 10-year treasuries was below 4% and the market was implying three
00:41cuts.
00:41Here we are six, seven months later, we've got 5% 10-year yields and three hikes. So one thing
00:48I would
00:48say is that you've had a six rate hike move in the space of six, seven months. That's 150 basis
00:56points.
00:57That explains the entirety of that 10-year yield shift and a bit more, really. So I think that a
01:04lot of the narrative out there has got very bearish on bonds, and it tends to talk about fiscal policy
01:09in the same breath as being bearish and about the supply of bonds and all of the inflation risk
01:15premium and what have you. I just don't really see it. The term premium hasn't gone up. People have
01:21been claiming that it has. It has not gone up. You can see it on the Bloomberg terminal. The curve
01:26has
01:26flattened because it's been pricing in the rate hikes. Inflation expectations are controlled.
01:32Spot inflation is a bit higher. So I could see one hike and then next year we could be back
01:38into
01:38the easing mode. It's the war in this region that has ruined the best laid plans.
01:45I mean, Paul, under the press conference today, it's like Howard Johnson's. There's 28 flavors.
01:49Exactly.
01:50It's like everybody's got an opinion.
01:51Which way is he going to go? Stephen, so given that background, I mean, is there a call here for,
01:57if I want to ask you where the 10-year is going to be a year from now, would you
02:01say lower than
02:02where we are here? I'd say nearer to 4 than 6. And so the starting point is 5. So if
02:12we had a
02:12sportsman's bet on this, we could bet a coffee each way. So if it's 4.99, I win. If it's
02:235.01,
02:23you win. We have plenty of coffee here at Bloomer. Yeah. So earlier this year, when yields were 4%,
02:34John Farrow asked me what was more likely, the yield on treasuries going down towards 3% or West Ham
02:41United staying up in the premiership. So it was an impossible question because I didn't know how to
02:47answer it, in fact. Here we are at 5% and West Ham are top of the championship.
02:53Just saying. There you go. Stephen, what are you going to be listening for from Chairman Warshare?
02:59He's kind of in a tough situation. He's got a lot of pressures coming from different areas.
03:05What are you going to be looking for? Yeah. I'm tempted to give him a break in that he's still
03:12in his honeymoon phase. And frankly, it's been very difficult with the global geopolitical backdrop.
03:20I mean, what's happened is pretty unprecedented. So as I said, the best laid plans have been
03:26completely wrecked. Right. I think we have to give it time. And I think committing to a series
03:32of rate hikes is very unlikely here. Stephen Major, talk about the real yield. I mean,
03:39I'm looking at the 10-year real yield. It gets my attention. But to me, almost historic is the 30
03:44-year
03:45inflation-adjusted yield is really back to once-in-a-lifetime highs, way over 3%. Discuss
03:52the long-term real yield. Yeah. So really interesting. I had a couple of calls this morning
03:59on the same subject. 3% real yields are basically 2% higher than the Fed's indication of its neutral
04:07rate. So maybe we have to meet in the middle. But 3%, 2% more. The attraction of TIPS is
04:16the immediate
04:18consideration here. So TIPS should be good value with a 3% real yield. The problem is TIPS investors,
04:24TIPS traders know that if you had a risk-off, you'd be in one of the worst possible products. Because
04:29in a
04:30risk-off, illiquid instruments like TIPS would massively underperform. And markets would start to price,
04:35disinflation and deflation. So I think the positioning should favor nominals. So you buy
04:43nominals because the real yield is high. It doesn't mean to say you buy TIPS. Inflation expectations
04:51under control. And the real yield, I think, is quite juicy. It's way above where the Fed's saying
04:56neutral is. And even if you met in the middle, it's still 100 basis points high.
05:00I shaved my beard today, folks. Tottenham scored a goal yesterday against Liverpool. I finally shaved.
05:06So we got to do this. Americans, I want you to understand, imagine if the New York Mets,
05:11the San Francisco Giants, the LA Angels, worst in class, were worried about being relegated down
05:18to AAA baseball to play the Rochester Red Wings next year. Now, Steve Major, we know,
05:23in East London, of course, diehard West Ham United fan, as John Farrow's mentioned.
05:29Explain this weekend, Steve Major, when in your childhood, your West Ham United will visit,
05:36is it Millwall? I mean, this is the mother of all derbies. And now, because West Ham has been so
05:42weak,
05:42they're down in the Championship League. Is this a big deal in East London?
05:48Well, it is. And it's quite historical, because it goes back to the Docklands and the workers in the
05:55docks and their rival teams and rival unions. And so it predates me. It's more my father's era.
06:03So that history is there, and the resentment somehow has carried on to today. The truth of it is,
06:10we don't really care, because we're a premiership team, and they're not. How about that?
06:15How do you get from West Ham, how do you get from the League Below Championship,
06:20think AAA baseball in America, folks, what's the process to get back up to Premier League?
06:26You've just got to win games, right?
06:29Yeah, but you see, it doesn't happen in America, because relegation isn't there. So the reason the
06:34valuation of American teams is so much higher than their British equivalents in sporting terms is
06:41because the discounted cash flow is going to be more attractive when you don't have the relegation problem.
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