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Speaker 1: This is the Bloomberg Surveillance Podcast. I'm Tom Keene, along
Speaker 1: with Jonathan Farrow and Lisa Abramowitz. Join us each day
Speaker 1: for insight from the best and economics, geopolitics, finance and investment.
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Speaker 1: the Bloomberg Terminal and the Bloomberg Business App.
Speaker 2: Lurri Cavsine joined us.
Speaker 1: Now.
Speaker 3: How do us secuity strategy at RBC Capital Markets?
Speaker 2: Laurie?
Speaker 3: What if I have you with us on the program
Speaker 3: to kick off this trade and week. There's a line
Speaker 3: in your recent note we aren't convinced this is the
Speaker 3: end of the current period of equity market weakness.
Speaker 2: Lorie. Why is that?
Speaker 4: Well, I think that basically what we did with the
Speaker 4: government shutdown is we took one of a number of
Speaker 4: different issues that have been weighing on market short term
Speaker 4: off the table, and we only took it off the
Speaker 4: table for you know, maybe a month and a half
Speaker 4: or so. We'll see how long it lasts. But I think,
Speaker 4: you know, we always look at these kind of episodes
Speaker 4: and markets and say where was sentiment? And I don't
Speaker 4: think sentiment got bad enough last week to serve as
Speaker 4: any kind of big springboard. So we were looking at
Speaker 4: some of the commentary that was coming out over the
Speaker 4: weekend saying you know, it's time to buy, We're in
Speaker 4: the clear, and said, well, this thing has just been
Speaker 4: kicked down the road. There's still a lot of other
Speaker 4: stuff we're going through, and sediment just never got that bad.
Speaker 4: We just really we saw concern comeback last week. We
Speaker 4: didn't see fear. And if you look at the AAII survey,
Speaker 4: net bulls got down to about minus thirteen percent on
Speaker 4: the weekly data point, but the four week data point,
Speaker 4: the four week average was about flat. You contrast that
Speaker 4: with back around the SBB period, we were at minus
Speaker 4: twenty percent or worse for four weeks in a row.
Speaker 4: So we're just not anywhere near the same kind of
Speaker 4: point where we can say, Okay, it's so bad, we
Speaker 4: got to go higher from here.
Speaker 1: Laurie, Once again, small caps disappoint. I have a chart
Speaker 1: a keep of a NASTAQ one hundred, granted seven or
Speaker 1: eight super stocks. Maybe they're Dow stocks, but we don't
Speaker 1: want to admit it. And the Russell two thousand, and
Speaker 1: it's a chart of failure. What should these companies do
Speaker 1: if they can't get value from the market. Should they
Speaker 1: go private? Should they merge? Should the zombies go away?
Speaker 4: Well, I think there's always going to be, you know,
Speaker 4: sort of that zombie element, and the Russell two thousand,
Speaker 4: I don't think they're going to you know, disappear anytime soon.
Speaker 4: I do think that we have to keep an eye
Speaker 4: out to see whether or not there's more m and
Speaker 4: a activity that comes up, particularly in an area, say
Speaker 4: like the industrial space, where we often hear from small
Speaker 4: cap portfolio managers that quality of management and quality of
Speaker 4: businesses is quite high. So I think that's one thing
Speaker 4: that we can look at I think, frankly, small caps
Speaker 4: just have a problem at this point in time after
Speaker 4: that last FED meeting, because while I do think twenty
Speaker 4: twenty four cuts are still on the horizon, that's still
Speaker 4: the call of our rate strategy team. I think there's
Speaker 4: starting to be some doubts about how many cuts, about when,
Speaker 4: and that was really the catalyst. I think that small
Speaker 4: caps needed to really get going, and it seems like
Speaker 4: it's been damaged. I think we're also just in an
Speaker 4: air pocket of economic uncertainty right now, and small caps
Speaker 4: I think also needed to see incremental enthusiasm about the
Speaker 4: twenty twenty four economy emerged, and instead we've gotten the
Speaker 4: return of uncertainty in here.
Speaker 5: Laurie, a couple of months ago, you came on and
Speaker 5: you expressed caution but said you were not bearish, that
Speaker 5: you did see equities muddling through. Am I hearing that
Speaker 5: you are more bearished now after seeing where bond markets are,
Speaker 5: how high yields are, the fact that yield cuts, that
Speaker 5: cuts are not being priced into the market maybe shouldn't
Speaker 5: be pricedge to the market for next year.
Speaker 4: Now, I think you know, our head is still really
Speaker 4: where it was at the beginning of August that we've
Speaker 4: got some short term issues that we've got to work through.
Speaker 4: We've had a tremendous run in the market this year.
Speaker 4: I would say, though, you know, there's definitely a camp
Speaker 4: of strategists out there right who are you know, very
Speaker 4: much in the doom and gloom camp for next year.
Speaker 4: And I wouldn't put me in that camp by any stretch.
Speaker 4: I do, you know, sort of subscribe to what you
Speaker 4: guys were living to us the neil do to you earlier,
Speaker 4: kind of the resiliency of the consumer. I just think
Speaker 4: we're not going to get a lot of information about
Speaker 4: that in the here and now. Companies seem to have
Speaker 4: planned up and they're frankly not saying anything that's all
Speaker 4: that useful, whether you're looking at conferences or the last
Speaker 4: round of earnings reports. And I think that's a problem
Speaker 4: when you've had the year like we've had, Doubts are
Speaker 4: starting to create about the economy again, and we're not
Speaker 4: getting a lot of stars to navigate by at this
Speaker 4: point in time.
Speaker 3: I think the interesting point about this moment, Laurie is
Speaker 3: that unlight through the most rest of this year, consumer
Speaker 3: discretion rey is starting to crack. The equity market is
Speaker 3: starting to show some real weakness that the story of
Speaker 3: the year is being consumer discretionary has really performed to
Speaker 3: perform quite strongly. What do you take away from the
Speaker 3: weakness we're seeing in the equity market for discretionary recently, Laurie,
Speaker 3: whether you see that as a buying opportunity if we
Speaker 3: discounted enough gun into Q four.
Speaker 2: I think it.
Speaker 4: Depends on what part of consumer discretionary you're talking about.
Speaker 4: You know, we talked a little bit about small cap earlier.
Speaker 4: Small cap consumer discretionary stocks which do tend to you know,
Speaker 4: sort of migrain order to lower end. They're more domestically focused.
Speaker 4: They priced in a recession last year. The big cap
Speaker 4: s and P five hundred consumer discretionary stocks did not.
Speaker 4: And while valuations don't look terrible right now, they haven't
Speaker 4: been looking cheap at any point in our model over
Speaker 4: the last year year and a half, So we think
Speaker 4: the risk reward there is not fantastic. And then, you know,
Speaker 4: we talked a little bit about higher bond yields. That's really,
Speaker 4: I think probably one of the biggest problems we're dealing with,
Speaker 4: and the problem is that it Traditionally, if you look
Speaker 4: at a post GFC world, the sectors that do most
Speaker 4: poorly when bond yields arising aren't things like consumer discretionary,
Speaker 4: communication services, kind of those growthier parts of the market.
Speaker 4: So you've got a sector that it never get cheap enough.
Speaker 4: Economic angst is rising, and you've got this bond yield
Speaker 4: negative catalyst hitting all of you know, kind of hitting
Speaker 4: them precisely the wrong time.
Speaker 1: Laurie James Diamond is going to get all the press today.
Speaker 1: He's going to do chit chat with Emily Chang and London. Great.
Speaker 1: It's all going to be, you know, the usual big
Speaker 1: bank stuff. The BKX chart is a train wreck. Are
Speaker 1: the banks some mother of all value traps here?
Speaker 4: You know, it's interesting financial should be outperforming in a
Speaker 4: higher bond yield environment. They're not doing that right now,
Speaker 4: not to the extent that they should be anyway, And
Speaker 4: we're seeing, you know, energy has really kind of sucked,
Speaker 4: you know, some of the benefit that the other parts
Speaker 4: of the value trade would see. I think it depends
Speaker 4: on your time horizon, you know. I do like financials.
Speaker 4: In the S and P we're overweight. We have said
Speaker 4: we like energy better. You are seeing a nice revisions
Speaker 4: recovery if you look at the bank space in particular,
Speaker 4: but we haven't quite crossed over into positive revision territory.
Speaker 6: Things have just been.
Speaker 4: Getting less negative. I do often find that when you
Speaker 4: see Earning's revisions turning, but they're not quite in positive
Speaker 4: territory yet, you still have a lot of doubters in
Speaker 4: the trade, and that's often a good opportunity to come in.
Speaker 4: I think there's money to be made here long term,
Speaker 4: but I do think you have to have a stronger stomach,
Speaker 4: and there, frankly may be other parts of the value
Speaker 4: trade that just don't have as much.
Speaker 7: Hair on them.
Speaker 3: Hey, Luri, thank you, good luck for the rest of
Speaker 3: this Waight Lo Cavasity, the of RBC Capital Markets.
Speaker 1: Joining us on Jordan Rochester g Ten, FX strategist at Nomura.
Speaker 1: What I see Jordan this morning that is absolutely distinct
Speaker 1: is finally Swiss Frank gives way to stronger Swiss Frank.
Speaker 1: It's ever so slight, but that's a distinctive tea leave
Speaker 1: link euro trajectory with the symbolism of a stronger Swiss
Speaker 1: Frank to come.
Speaker 8: Indeed, some I think last week's weakness in Swiss Frank
Speaker 8: was a lot to do in month fender as well.
Speaker 8: A lot of moves last week cool her to do
Speaker 8: that month end flow because of the equity sell off
Speaker 8: that we had. But when it comes to the sort
Speaker 8: of view on the Swiss and Stocky and all those
Speaker 8: sort of local Euro Area currencies, Swiss is one of
Speaker 8: those currencies where in a global slowdown it tends to strengthen.
Speaker 8: It's still got a banking repatriation flow as well. So
Speaker 8: if you think the Euro Area is going into a recession,
Speaker 8: which we do, that is usually to Swiss Frank's benefit,
Speaker 8: You've still got a central bank that is also intervening
Speaker 8: in the FX market as well, eleven billion euros per
Speaker 8: per month of in FX intervention to strengthen their currency.
Speaker 2: So even though we think the SMB is.
Speaker 8: Done with rate hikes, because of the impending global slowdown
Speaker 8: and potential for recession risks pretty much in Europe and
Speaker 8: the US, it's very hard to be selling the Swiss franc.
Speaker 1: Okay, sell Swiss Frank, I'll go with that. But then
Speaker 1: they got the euro. What is the appropriate pair to
Speaker 1: play weaker euro?
Speaker 8: Well, we're looking at it this morning. I mean, the
Speaker 8: view for US is euro dollar and EUROCAD. I think
Speaker 8: euro dollar towards one o two doors parity is very
Speaker 8: possible as long as oil prices don't find.
Speaker 2: A way to collapse.
Speaker 8: In the previous guest you had on Kit Jukes, he
Speaker 8: was talking about US yields rising higher.
Speaker 2: Well, US rates suggest that euro dollar should.
Speaker 8: Be at one oh one to one oh three already,
Speaker 8: and if oil gets to one hundred dollars a barrel
Speaker 8: to one hundred and ten dollars a barrel, it's very
Speaker 8: easy for the Euro Area to see their currency weaker
Speaker 8: because they are an energy importer. The problem for all
Speaker 8: of US this year and euro as a chart shows you,
Speaker 8: it's been a zigzag up down, up, down, up down,
Speaker 8: and this looks to be finally an exit of that
Speaker 8: rangebound price action.
Speaker 2: This looks to me more like a trend now. It's
Speaker 2: a bit of deja vu to last year.
Speaker 8: Last year euro broke through parity thanks to vadamir Putin
Speaker 8: natural gas supplies being squeezed. This year, it's more thanks
Speaker 8: to what's going on in the Middle East with the
Speaker 8: lack of oil supply, and that's going to help.
Speaker 2: The euro get towards those sort of figures.
Speaker 8: The main risk is if the US data starts to
Speaker 8: come in soft and US yields stop climbing. But I
Speaker 8: think we've had a bit of good luck in that respect.
Speaker 8: For this week, at least, US government shutdown has been avoided,
Speaker 8: which means that we're going to get non farm payrolls,
Speaker 8: we're going to get the jolts data, and crucially, we're
Speaker 8: not going to get all those government workers laid off.
Speaker 8: It was going to be really difficult for the market
Speaker 8: to buy the dollar with initial claims jobbers claims spiking
Speaker 8: higher on Thursday. Well, that shouldn't happen now thanks to
Speaker 8: that government shutdown being avoided.
Speaker 3: Jordan, we've got a natural bias here to ask questions
Speaker 3: about the US dollar. US rates better reserve the US economy.
Speaker 3: You touched on the international story. Can you have us
Speaker 3: understand how important that is, not just what's happening with
Speaker 3: the Middle Eastern crude, but also what's happened or hasn't
Speaker 3: happened over in China.
Speaker 8: Absolutely well, the situation in China has been that for
Speaker 8: the first half this year, most economists were quite disappointed
Speaker 8: with the growth data. We've had a more bear sho
Speaker 8: outlook on China than most when.
Speaker 2: It comes to our GDP forecast.
Speaker 8: But what's happened over the summer is that China has
Speaker 8: done little bits of policy here and there, and it's
Speaker 8: kind of built up to a much more mixed view
Speaker 8: in the market on China, which is is China slowing
Speaker 8: down or is it bouncing back? And the property measures
Speaker 8: such as cutting mortgage rates for first time buyers is
Speaker 8: a significant one because most of the Chinese property market
Speaker 8: is first time buyers. Well, that's going to lead to
Speaker 8: some of the Chinese data looking healthier over the short term.
Speaker 8: But for us, the long term is that China's trade
Speaker 8: balanced China's current account those flows are looking pretty weak,
Speaker 8: especially with the tourism outflows which are going to continue
Speaker 8: to pick up. So from a flow perspective, we're not
Speaker 8: seeing the inflows into China bonds like we saw from
Speaker 8: foreign investors either. All together, weaker outlook for China a
Speaker 8: bit messy in the short term for data surprises because
Speaker 8: of all of these sort of measures that were announced,
Speaker 8: But the big picture is a slowdown and a weaker
Speaker 8: Remember for us, does.
Speaker 3: That make it more difficult to make a call for
Speaker 3: next year, that goes beyond one ten.
Speaker 8: Well, the difficulty with the euro dollar view is that
Speaker 8: when the FED cuts rates, when you get liquidity, it
Speaker 8: leads to dollar weakness. Now we have the view that
Speaker 8: the FED could even cut rates as soon as March
Speaker 8: because of a recession call that the US economics team
Speaker 8: at number have that starts in Q four, by the way,
Speaker 8: but if they're wrong, if we get an actual off
Speaker 8: landing for the next few months, because soft landings can
Speaker 8: last a few months before it turns into a hard landing,
Speaker 8: if we have all the data in the US pretty
Speaker 8: healthy in Q four, it pushes those FED cuts out,
Speaker 8: so that one ten call is based on that a
Speaker 8: Q one story next year, really where the market quickly
Speaker 8: shifts to saying yep, FED cuts are coming in the
Speaker 8: next few meetings. At the moment, we're in the higher
Speaker 8: for longer phase. That's why the dollar's not selling off
Speaker 8: here Jordan.
Speaker 5: One reason why I love your research is because you
Speaker 5: always put the sort of conviction level that you have
Speaker 5: on each trade. Can you talk about how difficult it
Speaker 5: is to have conviction at a moment where you're dealing
Speaker 5: with so many variables. We're tracking the weather. Again, we're
Speaker 5: tracking you know, different congestion pricing and congestion emissions over
Speaker 5: in China. To understand the recovery, I mean, how do
Speaker 5: you have conviction in a market like this.
Speaker 2: You have to look at the local stories.
Speaker 8: I think, so you have the broad dollar view, which
Speaker 8: we've got a pretty high conviction on, you know, three
Speaker 8: to four out of five, I would say for the
Speaker 8: long dollar vie, then the local story. And what helps me,
Speaker 8: Lisa is positioning. So just a few weeks ago, maybe
Speaker 8: let's go about four weeks ago, you would have had
Speaker 8: guests on here saying the Bank of England could raise
Speaker 8: rates maybe to seven percent, And because of one week
Speaker 8: services CPI and one Bank of England meeting and a
Speaker 8: week labor report as well, it's quickly shifted to the
Speaker 8: Bank of England's done. And because of that shifting narrative,
Speaker 8: you've got a lot of stale positioning out there. So
Speaker 8: I think in Sterling there's still long Sterling position amongst
Speaker 8: some investors that needs to be unwound. We've gone through
Speaker 8: a lot of that already, but I think there's more
Speaker 8: to go. So that helps me have a four out
Speaker 8: of five on short cable for example. Or then you
Speaker 8: have to look at the other factors in Asia and
Speaker 8: elsewhere and think where is there less positioning? I think
Speaker 8: that's where you have lower conviction. So if there's less positioning,
Speaker 8: lesser positioning squeeze, there's not much of a.
Speaker 2: Trade to do. But short cable short ur.
Speaker 8: I think there's still some stale lungs out there that
Speaker 8: need to be unwound.
Speaker 1: Joan.
Speaker 5: This is a pretty toxic recipe for the Bank of
Speaker 5: England and for the European Central Bank.
Speaker 2: Right with inflation, well, inflation's coming down. The main thing
Speaker 2: is does it not fall to two percent? And that's
Speaker 2: what the center banks are really worried about.
Speaker 8: I personally look at all these charts that help us
Speaker 8: forecast inflation, and it looks like it's going even below
Speaker 8: two percent on some of them. So PPI, which is
Speaker 8: the manufacturing inflation in the UK.
Speaker 2: And Europe, it's pretty awful.
Speaker 8: I think in Norway it's minus thirty five percent year
Speaker 8: on year, So you get these extremes in manufacturing that
Speaker 8: will push the headline down eventually. So I think, look,
Speaker 8: we could be looking at CPI falling much closer to
Speaker 8: two percent than center banks think, and then Lisa, we'll
Speaker 8: be looking at global recession risks in the early part
Speaker 8: of next year, and a lot of these center banks
Speaker 8: that worried about inflation today will be very worried about
Speaker 8: growth and employment tomorrow. We've already got signs in the
Speaker 8: UK labor data, the Swedish labor data, there's layoffs happening,
Speaker 8: and when we get to the year end, I think
Speaker 8: a lot of center banks we're changing their focus on
Speaker 8: inflation was high today and focusing more on the fact
Speaker 8: that it was going to be quite low tomorrow. The
Speaker 8: main risk to that, of course, is oil and the
Speaker 8: supply side. So in the US, these UAW strikes and
Speaker 8: boosting car prices and as we know, the oil markets
Speaker 8: moving headline inflation higher as well. If we have another
Speaker 8: rise in oil to one ten per barrel, then inflations
Speaker 8: will be the center banks will be in a stagflationary
Speaker 8: mode and the markets won't like it. FX will be
Speaker 8: selling those sort of currencies like the pound, like Swedish krona,
Speaker 8: because that's what the sort of mix we had in
Speaker 8: twenty twenty two. So we could be going back to
Speaker 8: a twenty twenty two style FX market reaction, which was
Speaker 8: massive dollar strength.
Speaker 3: But twenty seconds for you, Jordan, you can have it.
Speaker 3: When was the last time Villa scored six goals? I
Speaker 3: can't remember.
Speaker 8: That's a good stat But it's bloody good, isn't em.
Speaker 3: It's bloody good to to hear that Jordan's words.
Speaker 1: I practice for a week in proper.
Speaker 2: Jordan Rochester any more? Jordnah, thank you?
Speaker 1: Proper Never with a crok in his mouth is Michael Darta,
Speaker 1: chief economist, macro strategist, dog keeper for Roth MKM. Just
Speaker 1: back from Japan, which is always a good and wonderful thing,
Speaker 1: Michael data in your political economics, What did you learn
Speaker 1: in Tokyo and Kyoto?
Speaker 6: Well, Tom, we were there on pleasure, not business. You know,
Speaker 6: incredibly beautiful cities, majestic if you're talking about Kyoto, and
Speaker 6: for people that have never experienced it, I mean in Tokyo,
Speaker 6: imagine a city three times the size of New York
Speaker 6: City with essentially no litter, no crime, and almost no
Speaker 6: one even disobeying traffic lights. I mean, it's quite a trip.
Speaker 6: You have to experience it firsthand really to believe it.
Speaker 1: Frankly, they are imputing inflation into their system. Some would
Speaker 1: say they're inventing an inflation. Do you see any historical
Speaker 1: analog that any country can manage inflation higher successfully?
Speaker 6: Well, sure, Tom, if you believe in the power of
Speaker 6: the central bank. And that's essentially what's happening the discussion earlier,
Speaker 6: Lisa really hit it on the head. The problem for
Speaker 6: the boj is that they can't hit two targets with
Speaker 6: one arrow. So if you're going to effectively peg an
Speaker 6: interest rate, you can't at the same time peg the
Speaker 6: currency or even you know, control the price level, you know, perfectly,
Speaker 6: So you know, what's happening is they've got to adjust
Speaker 6: the you know, the rate pegs based on macroeconomic conditions.
Speaker 6: It's different in the sense that typically central banks, you know,
Speaker 6: will target the you know, the short policy rate. In
Speaker 6: Japan because of the zero lower bound situation, they're targeting
Speaker 6: a long term interest rate. But the same basic concept applies, Mike.
Speaker 5: If we do get some sort of abandonment of yieldcraft
Speaker 5: control or the Bank of Japan losing the plot, losing control,
Speaker 5: losing the narrative when it comes to controlling bond yields
Speaker 5: and controlling the depreciation of the end, how much does
Speaker 5: that accelerate the move up in US yields that we've
Speaker 5: seen as we see just yields globally rise and maybe
Speaker 5: some of those buyers from over in Japan step away
Speaker 5: from the US market.
Speaker 6: Yeah, it's an interesting situation. I mean, if you look
Speaker 6: at what's happened in the US bond market, we've had
Speaker 6: a huge real rate shock, so this isn't really an
Speaker 6: inflation expectations story. So you do have movement in global
Speaker 6: yields on the back of central banks trying to persist
Speaker 6: in a tighter policy regime, but it's really driven by
Speaker 6: real interest rates. Inflation expectations in the US have really
Speaker 6: barely budged, so crude oil prices are spiking higher, coppers
Speaker 6: rolling over and FED rate hiking expectations. Or if you
Speaker 6: look at let's say the thirty six month FED fund's
Speaker 6: futures yield, it's moved up one hundred and fifty basis
Speaker 6: points since the spring of this year, So that really
Speaker 6: accounts for the entirety more than the entirety of the
Speaker 6: rise in the ten year yield. So it's a higher
Speaker 6: for longer trade based on the back of perceived economic
Speaker 6: resilience in the States and the fact that you know,
Speaker 6: the Fed's reaction function is to make sure that growth
Speaker 6: slows below trend, So you know, if it looks like
Speaker 6: that's not happening, then they're going to persist for a
Speaker 6: longer period of time.
Speaker 5: Mike, there are a lot of questions over the weekend
Speaker 5: about why something hasn't broken, given how quickly rates have rised,
Speaker 5: given how quickly benchmarking yields have rised. Do you see
Speaker 5: any evidence either any economy or in the markets that
Speaker 5: you track that shows that something is breaking.
Speaker 6: Well, you know, I think the reason something hasn't broken
Speaker 6: yet is the strength of the cyclical upswing that we've
Speaker 6: had coming out of the COVID shock has been much
Speaker 6: more robust in what we've seen historically, especially relative to
Speaker 6: the last cycle. So with that, you're going to have
Speaker 6: a higher neutral interest rate, and with a higher neutral
Speaker 6: interest rate, it'll simply take longer before things start breaking,
Speaker 6: so you can have more central bank tightening before things
Speaker 6: fall apart. There also may have been some temporary factors
Speaker 6: that have held things up this year. There's been a
Speaker 6: very strange explosion in the fiscal deficit at a time
Speaker 6: of full employment. You know, that is probably also feeding
Speaker 6: into the higher for longer strategy on the part of
Speaker 6: the FED. So those you know, those factors matter, But
Speaker 6: the critical element here is, you know, nominal growth is slowing,
Speaker 6: Nominal GDP growth is slowing on the back of tighter
Speaker 6: FED policy. Gross domestic income in nominal terms, even if
Speaker 6: you adjust for FED losses, has essentially decelerated to trend
Speaker 6: or below trend growth. Here you have the FED, you know,
Speaker 6: with policy rates up at five and a quarter to
Speaker 6: five and a half, and they may move up further.
Speaker 6: So I think in terms of something breaking that could
Speaker 6: still be in front of us. There's a perception that
Speaker 6: we've successfully soft landed. But those kinds of discussions are
Speaker 6: pretty common prior to business cycle peaks and recessions, so
Speaker 6: we're not quite out of the work just yet.
Speaker 1: Michael, first day of Q four Primmer, what is the
Speaker 1: signal of disinversion? If two ten spread is one hundred
Speaker 1: prems or basis points, and we reverse and we start
Speaker 1: to disinvert towards normal, what is the signal of that?
Speaker 6: Well, you don't get meaningful and sustained disinversions without the
Speaker 6: front end of the year yield curve coming down, you know,
Speaker 6: which would happen in a slower growth recession scenario with
Speaker 6: the FED cutting interest rates. You know, it certainly would
Speaker 6: be possible, at least theoretically, for the long end to
Speaker 6: just keep rising in the curve to disinvert. But that's
Speaker 6: actually pretty unusual historically. The last time we saw anything
Speaker 6: even close to that was actually two thousand and seven,
Speaker 6: and within a few months we were actually in one
Speaker 6: of the longest deepest recessions in history. So, you know,
Speaker 6: this inverted yield curve structure backdrop that we have, I
Speaker 6: think is a real warning sign in terms of the
Speaker 6: sustainability of the business cycle. And you know, I think
Speaker 6: a bit of cold water in terms of getting too
Speaker 6: excited about any kind of sustained growth acceleration.
Speaker 3: Mike, some real confusion for me, at least at the moment.
Speaker 3: I hear lots of confidence to why yields can go lower,
Speaker 3: but I feel that I hear little conviction as to
Speaker 3: why they're higher.
Speaker 5: Mike.
Speaker 3: I don't know how you can make the coal for
Speaker 3: the former without an understanding of the latter. Mike, Why
Speaker 3: I yields up so much at the long end? How
Speaker 3: much of this is just about budget deficits in Washington.
Speaker 6: Yeah, I think a combination of for US is John. Obviously,
Speaker 6: the economy has been more resilient than anticipated this year,
Speaker 6: and you do have this strange fiscal policy and environment
Speaker 6: where the fiscal deficits exploded to levels really never seen
Speaker 6: outside of wartime when you're at full employment. And so
Speaker 6: the Fed's higher for longer strategy has been self actualized
Speaker 6: by the bond market. You know, we can see them
Speaker 6: move up in real yields is going basically step for
Speaker 6: step with that thirty six month Fed fund futures implied yield.
Speaker 6: So that's the higher for longer trade, but that can
Speaker 6: also be unwound. You know, this has happened over the
Speaker 6: course of this year, over the last six months really,
Speaker 6: and with softer data going forward that you know that
Speaker 6: trade can be unwound. So I think we know why
Speaker 6: it's happening. The question is you know what is the
Speaker 6: forecast going forward and will that forecast be accurate?
Speaker 3: Mike, thanks for the inside buddy, As always my town
Speaker 3: of rough mcm on this bum market.
Speaker 1: Let us dive in right now to what you and
Speaker 1: I witnessed this weekend. He witnessed it as well. The
Speaker 1: congressman from Arkansas, french Hill, he's been such a good
Speaker 1: friend of the show and trying to give us perspective
Speaker 1: on the history we're witnessing. French Shill, I really take
Speaker 1: issue with people that say this has never happened before.
Speaker 1: It's an outrage, beloney. My reading a history back to
Speaker 1: Alien Sedition Act is this is frequent, like Joe Cannon
Speaker 1: nineteen ten. Is an absolute parallel here from those analogs
Speaker 1: of the past Alien s Edition Joe Cannon nineteen ten.
Speaker 1: What is the outcome for the Speaker of the House?
Speaker 1: You support?
Speaker 7: Well, Tom, It's great to be with you, always good
Speaker 7: to be on the program. Look, I think Kevin McCarthy
Speaker 7: should Congressman Matt Gates bring a motion to vacate the
Speaker 7: chair to the House floor, There'll be a motion made
Speaker 7: to table that motion, and I think Kevin McCarthy survives. Look,
Speaker 7: Kevin McCarthy has over two hundred solid supporters in the
Speaker 7: Republican Party. You witness that in in January when it
Speaker 7: took fifteen rounds for him to be elected Speaker of
Speaker 7: the House. And on your historic point, that hadn't happened
Speaker 7: that many times since nineteen twenty three, exactly one hundred
Speaker 7: years before, and I think it was nine rounds then.
Speaker 7: So these items have historic precedent. As you point out,
Speaker 7: Kevin McCarthy has the support of his conference. He's doing
Speaker 7: a good job as Speaker of the House, bringing to
Speaker 7: the House floor important measures. He negotiated single handedly virtually
Speaker 7: a good debt sealing deal that lowers spending twenty twenty
Speaker 7: four over twenty twenty three and has some other important
Speaker 7: economic reforms. And so that's why I think his colleagues
Speaker 7: will sustain him as Speaker of the House.
Speaker 1: You're entrenched in Arkansas. Fine, there are Republicans up north
Speaker 1: who are not entrenched, and they're outrage this weekend seem
Speaker 1: to be tangible. Are those Republicans in the north at
Speaker 1: risk because of the foolishness of the weekend.
Speaker 7: It's such an important point. We have our majority tom
Speaker 7: our very narrow majority where we can only lose four
Speaker 7: or five votes on the House floor because we have
Speaker 7: one districts in which President Biden was so in New
Speaker 7: York and in California particularly, we have House Republicans that
Speaker 7: won successfully with outstanding campaigns in twenty twenty two, but
Speaker 7: they might be in a Biden district plus three or
Speaker 7: a Biden district plus thirteen, and so they are really
Speaker 7: hurt in their districts if it looks like we're not
Speaker 7: governing and not honoring our commitments on spending and regulatory policy.
Speaker 7: In other words, they're conservatives and they're advocating at home
Speaker 7: for solid conservative Republican values, but they want to deliver
Speaker 7: it in a way that makes sense, and this kind
Speaker 7: of back and forth does, I think put them at risk.
Speaker 3: Congressman, does help them if you combine the Ukraine aid
Speaker 3: effort with the aid effort for the Southern Border.
Speaker 7: Jonathan, I think you'll find that we will move a
Speaker 7: Ukraine bill in the coming days, and that we're building
Speaker 7: a consensus around what that should look like, including oversight
Speaker 7: of the administration's strategy in Ukraine to win and win promptly.
Speaker 7: But look overwhelmingly, you've seen it in vote after a vote,
Speaker 7: there's a majority of members of Congress that support Ukraine funding.
Speaker 7: They want to make sure that other countries are doing
Speaker 7: their part. They want to make sure that that money
Speaker 7: is transparent, and they want to make sure that the
Speaker 7: Biden administration is encouraging a strategy in Ukraine that can
Speaker 7: win and win promptly, there's definitely fatigue after the stalemate
Speaker 7: of this summer along the front lines of Ukraine.
Speaker 3: Why is it importance combine that with a border security issue,
Speaker 3: which essentially is what Speak mcconfe communicated over the weekend.
Speaker 7: Well, this is an important political point domestically, Jonathan. People
Speaker 7: are stunned by the incompetence of the Biden administration to
Speaker 7: secure the border. Over six million people across the border,
Speaker 7: over one hundred and fifty one people on the tear
Speaker 7: watch list across the border, hundreds of pounds of fentomyl
Speaker 7: that can kill the Americans many times over, and two
Speaker 7: hundred thousand people a month they're coming across the border,
Speaker 7: setting a record up twenty five percent from last year.
Speaker 7: So I believe, and I hear this from my constituents.
Speaker 7: The Governor of New York has even called out the
Speaker 7: National Guard on this issue. So every state's a border state.
Speaker 7: We think the most pressing domestic problem, besides getting spending
Speaker 7: under control from the pandemic, is the border and border security.
Speaker 7: And that's why I think Speaker McCarthy set that out.
Speaker 7: Let's find a compromise and do something about border security.
Speaker 7: Honor a commitment. We've passed that bill across the House
Speaker 7: floor only with Republican votes. We call it HR two,
Speaker 7: and we'd like to see if we can get Democrats
Speaker 7: and support in the Senate for border security. There is
Speaker 7: a strong majority to support Ukraine under the terms that
Speaker 7: I just outlined. So let's do both. Let's have two
Speaker 7: wins by working together.
Speaker 5: Whether it's the border, whether it's Ukraine, whether it's the budget,
Speaker 5: whether it's getting Kevin McCarthy to remain a speaker Congressman,
Speaker 5: are you finding sort of a greater ally in centrist
Speaker 5: Democrats right now than the far right of the Republican Party.
Speaker 7: Well, inside the Republican Party, we have some goals. We
Speaker 7: want to secure the border. We want spending below the
Speaker 7: pre pandemic levels to the best that we can considering
Speaker 7: the wins that we locked in in the debt sealing
Speaker 7: deal between President Biden and Speaker McCarthy, those are shared priorities.
Speaker 7: Inside the Republican Conference, we're still educating, in my view,
Speaker 7: our members on what is the best course forward for Ukraine.
Speaker 7: I admit there's a party split there and I'm disappointed
Speaker 7: about it. I'm a strong supporter of kicking Putin out
Speaker 7: of Russia. It's an outrage that he's there. And there
Speaker 7: are many reasons why Putin was greenlighted to invade Ukraine
Speaker 7: that date back to the Obama administration. But where we
Speaker 7: are is where we are, and we're doing that work
Speaker 7: I think to find consensus on how to move forward
Speaker 7: on Ukraine.
Speaker 5: Congressman, I guess what I'm trying to say is, if
Speaker 5: Speaker McCarthy remains speaker, there's going to be some Democrats
Speaker 5: that basically give a pass to it. Is there increasingly
Speaker 5: a centrist coalition that's going to have a greater influence
Speaker 5: going forward.
Speaker 7: I think it could be, Lisa, you saw that in
Speaker 7: the run up on trying to find a solution in
Speaker 7: this most recent conflict on the end of year spending,
Speaker 7: where you had centrist Democrats work with Republicans to try
Speaker 7: to find a way forward for a continuing resolution. So
Speaker 7: you may see that continuing. If so, that may be
Speaker 7: in the best interest of the American people if centrist
Speaker 7: Democrats come to the Republican side and work with us
Speaker 7: on things to cut spending, secure the border, and properly
Speaker 7: fund assistance to UKRAI.
Speaker 3: The Congressman, I've known you long enough to know that
Speaker 3: these issues frustrate you. Shut down debates, debt ceiling issues.
Speaker 3: Do you think your colleagues in Washington understand that they're
Speaker 3: losing the privilege to act recklessly based on what's developing
Speaker 3: in the treasury market.
Speaker 7: Jonathan, You are so right. I have made that point
Speaker 7: repeatedly over the last month. Looking at that tenure this
Speaker 7: morning at over four to six, gets my attention. Moody's
Speaker 7: comments get my attention. And one thing that we had
Speaker 7: and you'll all appreciate this, in the Republican continuing resolution
Speaker 7: that failed on Saturday, all the Democrats voted against it
Speaker 7: and thirty one Republicans voted against it. Very disappointing, very disappointing.
Speaker 7: You would have secured the border cut spending by eight
Speaker 7: percent for four weeks. Was a debt commission, Jonathan. And
Speaker 7: that's exactly what we need, is a bipartisan Alan Greenspan
Speaker 7: type approach dating back to nineteen eighty three where we
Speaker 7: solved US Social Security solvency at the time and produced
Speaker 7: a forty year positive outcome for that very very important
Speaker 7: program for our seniors. That's the kind of approach we
Speaker 7: need to take on finding a bipartisan solution to long
Speaker 7: term fiscal concern on that two thirds of spending that
Speaker 7: the US con does not debate.
Speaker 3: We got to talk more about it. We can do it.
Speaker 3: Maybe in Alabama, raise a Backspama October fourteenth, Congressman, Thank you, Congressman.
Speaker 3: French Show Avonkasoul.
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Speaker 7: Red pup didn