00:00Let's bring in Matt Maley, Chief Market Strategist at Militabac and Companies,
00:05also the author of the Maley Report newsletter.
00:08Hello, Matt. Lovely to chat to you, as always.
00:11I want to ask you, you know, we've seen the Fed move on Wednesday.
00:14The European Central Bank increased their rates also for the first time in three years last week.
00:20The BOE is steady, but they are signaling they're heading for an increase in November.
00:24Are we at the start of a global rising trend?
00:30Well, Sally, it certainly seems to be seen that way.
00:34You know, it's something that they've been, certain countries, of course, have been hinting at for,
00:39or strongly hinting at for quite some time.
00:41And, of course, the ECB has already done so.
00:44And the, you know, the tone of Chairman Walsh yesterday was, you know,
00:50a little bit more hawkish than people were looking for.
00:52Now, I do see that the long-term yields have come down a little bit,
00:57but I think that's a little bit of a situation where, you know, we had this buy the rumor, sell
01:02the news.
01:03I mean, people were expecting this rate hike.
01:06Everybody was kind of on one side of the boat.
01:09Positioning was very short.
01:11The market was expecting, you know, the prices to go down more and rates to go up further.
01:16So I think people are just moving back a little bit now that they've gotten the actual news.
01:20But it's going to be hard to see rates come down much more, those long-term yields,
01:26given this whole backdrop that you just described.
01:30Walsh has always been clear that his focus, his mandate, is to control inflation.
01:35We know the economy is looking strong.
01:38That is good news.
01:39But, of course, you've got to balance it all very carefully because you don't want to discourage growth,
01:44but you do want to control inflation.
01:46Do you think he's making the right moves at this point to get it right?
01:51I think he is.
01:53I mean, inflation would just be a crushing blow.
01:57And we do have a situation, of course, in the Middle East and in Eastern Europe, for that matter,
02:03that should keep energy prices high for a longer period of time.
02:09But, you know, the one thing that people do have to realize, though, is that, you know,
02:12the stock market, it sounds great that the stock market has been able to, you know,
02:17weather this big increase in interest rates, this big increase in oil prices.
02:21However, if you look at history, this has happened many, many times in the past,
02:25where the stock market ignored it for six, seven, eight months of both of these kind of moves.
02:30But every single time that's happened, and you go back to 1987,
02:34it has eventually always had a meaningful impact, a negative impact on the stock market.
02:40So, to be honest with you, after the great run we've had, that wouldn't be the worst thing in the
02:44world.
02:45But it could be a little bit rough for some investors in the coming months.
02:49Mitch was just telling us how tech stocks are doing really well today.
02:52Of course, this story has to include AI.
02:55Talk to me about the relationship between AI spend and interest rates.
03:03Well, I mean, the higher interest rates go, the harder it makes the AI spend to continue.
03:09And because, you know, we see now that companies are, you know,
03:16going into the debt markets to pay for all this spending now.
03:19I mean, a year ago it was all out of free cash flow.
03:22And this is crowding out, you know, it's basically hitting a major supply into the market.
03:26It makes it tough for these foreign sovereign countries, including the U.S., to sell their debt.
03:32And the higher the debt costs, maybe the less likely they are to take it on.
03:37And that, in turn, could cause them to cut back on some of this spending.
03:40And with 50% of the economy, as good as things look now,
03:44if we see any kind of sign that that spending is going to pull back at any time in the
03:49next 6 to 12 months,
03:50that would certainly have a negative impact.
03:53Matt, do you expect to see another interest rate hike before any meaningful difference is made?
04:00Yeah, I do.
04:02I think we'll probably see another one, probably not in October, but you never know.
04:07Politically, that makes it a little bit tough.
04:09But the thing that I worry about is that if we see a slowdown in spending in AI
04:15or the kind of reversal in this economy that we've seen recently,
04:20that would actually mean that a one-and-done would be a negative thing.
04:23You don't like to see one-and-done.
04:25That means that the economy was much more fragile than they realized
04:28and that it's going to slow a lot more.
04:30And given how strong earnings expectations are right now for the rest of this year and next year,
04:35that's not something we want to see.
04:37Have there been any surprises in all of this?
04:40You know, we know that Kevin Walsh is a bit of a hawk.
04:43He seems to be very focused on what he has to do.
04:46Anything that's a bit of a curveball from your point of view?
04:49Well, the one thing, Sally, that there's a little bit of a curveball,
04:52but I think it's actually a good one over a longer period of time,
04:56and it may be a little bit tougher on the short period,
04:58is that he is indeed following through with his idea of being less transparent.
05:03He's talking a lot less, but you saw in the press conference yesterday
05:07where he didn't take on follow-up questions.
05:10He's moving back to what we saw before the great financial crisis.
05:14We needed extra hand-holding after the great financial crisis
05:18and after the pandemic because the system was very fragile.
05:22Now that's not the case to the same degree,
05:25and so I actually think that this is a positive move,
05:28but it may shake up a ruffle of a few feathers over the near term.
05:32Thank you so much for speaking to us, Matt Maley,
05:35Chief Market Strategist at Militaback and Company.
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