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Speaker 1: Let's get to our guest, J. Pulaski, founder and principle

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Speaker 1: of TPW Advisory. J. The FED is still talking tough

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Speaker 1: on fighting inflation, but now you have two central banks,

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Speaker 1: the Bank of England buying long term bonds and the

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Speaker 1: b o J supporting the en in there. Uh, it's

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Speaker 1: a sign that central banks are looking at their policies, reassessing, perhaps,

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Speaker 1: but at least in public not the fit no. I

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Speaker 1: think that's right, Brian. And we've been talking for some

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Speaker 1: time about the desynchronized nature not only of monetary policy,

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Speaker 1: where you have the FED in the ECB raising aggressively,

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Speaker 1: the b o J standing pat in the PBOC of

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Speaker 1: China cutting rates, but also you see the same in

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Speaker 1: terms of the growth profile around the world, US, Europe slowing,

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Speaker 1: ads of picking up and um. I think that's really

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Speaker 1: what markets are hopefully starting to focus on. The UK,

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Speaker 1: I think is kind of a specific exam whole unto itself,

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Speaker 1: and obviously they've got themselves and what we have been

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Speaker 1: calling a little bit of a tempest in a teapot.

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Speaker 1: I think other people would not be quite so diplomatic.

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Speaker 1: It's certainly they've been accused of financial let's say negligence

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Speaker 1: by some commentators out there. But the thing is, the

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Speaker 1: markets are sending a signal to the administration, but the

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Speaker 1: government seems not to be listening. Well, I mean, I

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Speaker 1: think the Bank of England with remembers an independent entity

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Speaker 1: and I think it has heard the markets and has

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Speaker 1: stepped in, and I think they have to because the

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Speaker 1: real issue here Froside as I as I see it

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Speaker 1: is that raising rates spiking as they have dramatic, unparalleled

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Speaker 1: rate spikes, really means that when a huge amount of

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Speaker 1: British mortgages, which tend to be fixed rate in short term,

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Speaker 1: come to be refinanced in the next quarters the peak

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Speaker 1: and that refinancing cycle for UK mortgages is literally in

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Speaker 1: the next several quarters, it is going to create massive pain,

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Speaker 1: huge issues regarding consumption. And that's really the risk that

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Speaker 1: I think the b o E recognizes and is focused

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Speaker 1: on trying to avoid. The administration, as you point out, um,

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Speaker 1: either didn't think this through or thought it through and

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Speaker 1: didn't think the markets will react as they have. Well,

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Speaker 1: you get these unintended consequences for sure. Whenever you have

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Speaker 1: extreme policy. UM, we know there's a big difference between

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Speaker 1: financial market volatility and financial system instability. And this is

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Speaker 1: the line that these central banks have to walk. Are

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Speaker 1: we getting close to the ladder? There? Financial system instability?

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Speaker 1: You know? And that's what some that's what as you say,

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Speaker 1: people are worried about. I mean, look, markets hate uncertainty,

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Speaker 1: and there's just tons of uncertainty. Uh. You know wherever

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Speaker 1: you want to turn your head a cross assets, across regions, etcetera.

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Speaker 1: I personally, uh and we at TPW Advisory do not

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Speaker 1: see systemic risks, certainly not in the UK. Just you know,

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Speaker 1: we talked a little bit about the Bank of England

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Speaker 1: and of course it's probably go any systemic effect outside

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Speaker 1: of the UK. But you know, when we how do

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Speaker 1: you think the FED and what sort of prison did

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Speaker 1: the FED look at what's going on? Well? I mean

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Speaker 1: I think the FED is clearly focused on the US

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Speaker 1: and US inflation and look, it's been right to extrapolate

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Speaker 1: over the last several months higher inflation, uh in more

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Speaker 1: aggressive FED and uh we at TVW Advisory, I think

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Speaker 1: we're at the turn and that it's no longer right

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Speaker 1: to extrapolate. We're looking for fifty basis point. I can

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Speaker 1: November expecting better inflation data in between now and then,

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Speaker 1: and that should lead to a peak in the dollar,

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Speaker 1: and as that dollar rolls over, that opens up a

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Speaker 1: lot of Opportunit is you were just suggesting, and excuse me,

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Speaker 1: in the commodity and um emerging market equity space in particular.

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Speaker 1: So I mentioned unintended consequences. Um, you know, one day

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Speaker 1: there's no problem with the plumbing, then the next day

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Speaker 1: you have a mess right now the FED and I

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Speaker 1: think you agreed. There isn't really a situation in the

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Speaker 1: United States where you have a financial system instability. But

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Speaker 1: can it develop very quickly? No, I don't think so, Brian. Look,

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Speaker 1: one of the things that really differentiates the current environment

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Speaker 1: from OH eight or OH one is that if you

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Speaker 1: look across the consumer, if you look across corporates, if

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Speaker 1: you look across banks, um, everyone is in pretty good

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Speaker 1: financial shape, right. All have money in their pocket, money

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Speaker 1: on their books, and so they're really you look at

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Speaker 1: high yield credit is not suggesting there's any major problem

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Speaker 1: coming out. And yet you can get nine yield on

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Speaker 1: US high yield at this point. So when you look

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Speaker 1: at things like credit, that doesn't suggest any real concern

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Speaker 1: about it. To risk when you look at banks same thing. Yes, yeah, yeah,

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Speaker 1: I beg to differ looking at the treasury yield and

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Speaker 1: looking at that inversion that is telling you something. Well,

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Speaker 1: we actually prefer to look recited the three months ten

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Speaker 1: year yield curve, which we think it has better predictive

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Speaker 1: power than the two year ten year, which is more popular.

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Speaker 1: In the three month ten year is still forty to

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Speaker 1: fifty basis points wide. I mean, I think where there

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Speaker 1: is concerned is in the really aggressive move in real yields.

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Speaker 1: Real yields right now are for the ten year about

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Speaker 1: one point four. They were pressing one point six over

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Speaker 1: the last few days. That level is a level where

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Speaker 1: typically the FED needs to pay attention because real you know,

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Speaker 1: paying inflation adjusted rates of that magnitude are significant. The

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Speaker 1: other point I would make is that the markets and

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Speaker 1: consider us are not worried about unanchored inflation expectations. Inflation

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Speaker 1: expectations rather seem extraordinarily well anchored, and so the market

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Speaker 1: believes the FED will be successful. And you're now at

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Speaker 1: a point where the market and the Fed, after the

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Speaker 1: last couple of weeks, have agreed that we're probably going

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Speaker 1: to have a terminal rate somewhere around four four and

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Speaker 1: a half or four and a half, So you have

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Speaker 1: to get much more aggressive than that, I think, to

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Speaker 1: really shock the market. At this point. You can see

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Speaker 1: a lot of really abrupt moves though, and sometimes this

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Speaker 1: purpen is because of normal reasons. For instance, you had

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Speaker 1: negative rates in in a lot of Europe for a

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Speaker 1: long time, and those buyers there, they bought a lot

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Speaker 1: of corporate bonds in the United States and they bought

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Speaker 1: a lot of high yield. Now there's a cash crunch.

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Speaker 1: They need the money. A lot of countries, participants, citizens

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Speaker 1: need the money, and that money can rush out very fast.

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Speaker 1: That could mean that, you know, yields get very unstable

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Speaker 1: at some point. It's the type of thing that could

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Speaker 1: happen quickly. I guess you think it's we don't see

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Speaker 1: it at the moment. Well, I mean, you're absolutely right.

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Speaker 1: I mean, look, the volatility in the fixed income market

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Speaker 1: is off the charts right If you look at the

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Speaker 1: move index for US treasuries, the VIX for fixed income,

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Speaker 1: it's at a record levels. And that's driven in large

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Speaker 1: part by the ill liquidity in the treasury market, which

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Speaker 1: is the world's most liquid financial market. It's approaching record

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Speaker 1: ill liquidity level. So ill liquidity leads to volatility, which

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Speaker 1: leads to potential risk of things breaking. Absolutely, we'll put

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Speaker 1: well put, Jay, Thank you so much for joining us.

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Speaker 1: J Pilowski there he's found in principle of a tp

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Speaker 1: W advisory getting his take on these dramatic market moves.

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Speaker 1: This is Bluemke