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Speaker 1: Let's get to our guest joining us here in the

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Speaker 1: New York studio is Ben Emmons. He has principal also

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Speaker 1: senior portfolio strategist at New Edge Wealth. It's always a pleasure,

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Speaker 1: Happy New Year, thanks for being with us. One of

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Speaker 1: the things that when I looked at the market today,

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Speaker 1: the bond market seem to be sending one message. Okay,

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Speaker 1: I understand the equity market faltered a bit, but when

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Speaker 1: you look at that GDP nowadata coming out of the

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Speaker 1: Atlanta Fed Q four a revision upward to three point

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Speaker 1: nine one, that that's his stunning number. How can the

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Speaker 1: bond market not reconcile itself with the possibility that growth

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Speaker 1: is going to be so strong in Q four or

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Speaker 1: maybe the bond market is saying that's a given. We're

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Speaker 1: looking at the future now and things are going to

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Speaker 1: be much much weaker in Yeah, there's a lot of

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Speaker 1: good things in there that you're saying, Duck and by

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Speaker 1: Kathleen Duck, Happy New Year. It's great to be here. Um.

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Speaker 1: So the message from the bond market, Kearney, is about

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Speaker 1: there is a slowdown happening in the economy, but we're

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Speaker 1: not at recession yet. And I think the Yu Curban

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Speaker 1: version that you're looking at every day, it's really the

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Speaker 1: FAT moving its rate to such a high level that

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Speaker 1: we haven't seen yet from the last forty years, right,

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Speaker 1: that's that restrictive policy. That's more what the UK is

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Speaker 1: signaling then that there is an imminent recession over session

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Speaker 1: at the moment. And that's what that GDP now number

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Speaker 1: really tells us. I mean the spending component at PC

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Speaker 1: that's now a two point four eight that that's that

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Speaker 1: is actually at least half percent higher on average from

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Speaker 1: pre pandemic. That's so there's still a lot of the

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Speaker 1: stimulus that we have put into the system since Marsha

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Speaker 1: that's in that number. Then of course people have made

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Speaker 1: more income and the more people find jobs as we know.

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Speaker 1: So I think the mor market is simply saying this

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Speaker 1: isn't economy on this track to slow down, but not

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Speaker 1: a major recession just yet, otherwise to yield them the

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Speaker 1: tank here would be far lower than what we are now. Well,

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Speaker 1: what I'm thinking of is what this means for the FAT,

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Speaker 1: because they could do as few as like maybe they

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Speaker 1: do a fifty and basis point hike. But when you

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Speaker 1: look at where the economy is and you look at

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Speaker 1: where wages still are. Wow, do you say maybe they

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Speaker 1: should do a seventy five and then see if they

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Speaker 1: can downshift of fifty. I mean, and there are dots

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Speaker 1: and and radio listeners. You know, that's the FEDS plot

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Speaker 1: for what interest rates is going to be this year,

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Speaker 1: the median for over the first of the years, what

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Speaker 1: five point oh five point one percent, five point two.

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Speaker 1: But there is at least one dot that's up at

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Speaker 1: five point six, And I wonder if those higher dots

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Speaker 1: are going to be right? Yeah, And I think that

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Speaker 1: is by the way, Jim Butler's who've often interviewed, because

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Speaker 1: he put out that forecast of his funds rate of

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Speaker 1: five to seven percent exactly to your points of we

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Speaker 1: need much higher rates to be sure that we're going

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Speaker 1: to get two percent inflation in the next few years.

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Speaker 1: Now that that seems like a daunting desk and the

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Speaker 1: ballmark is maybe saying that that you cannot get this far.

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Speaker 1: But do your in Kathleen. We have rising wages, we

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Speaker 1: have inflation that's far sticky and far higher than we

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Speaker 1: have experienced over the last three decades. There is this

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Speaker 1: risk that if you you know preemptively go to neutral

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Speaker 1: or even ease, that you will repeat what happened in

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Speaker 1: the mid seventies, and the economy just comes right back

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Speaker 1: and produces a lot more inflation, and you have to

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Speaker 1: come back with a lot more So the gym's point

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Speaker 1: that ball, that point is on the dop blot. It's

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Speaker 1: not something that's inconceivable that the fact may get to

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Speaker 1: that point if this inflation stays to stick. We've seen

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Speaker 1: a lot of holatility in the foreign exchanges, you know,

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Speaker 1: and the rate of change in the weakness of the

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Speaker 1: dollar over the last let's say six weeks eight weeks

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Speaker 1: has been pretty remarkable. But we had a rally in

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Speaker 1: the green bag today and I'm wondering what you make

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Speaker 1: of that. In the face of of weaker treasuries in

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Speaker 1: yield terms, we're seeing a rally in the dollar. I mean,

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Speaker 1: I'm a little confused here if we're talking about economic

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Speaker 1: weakness and people are are seeing dollar strength square that circle. Yeah,

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Speaker 1: though it has been quite significant decline since September. Right there,

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Speaker 1: we have a you know, the depreciation of the dollar

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Speaker 1: that has happened again, I think to the foreign exchange

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Speaker 1: market got on the same story as as the bomb market,

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Speaker 1: the fat cannot go as far as but the top others,

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Speaker 1: implying the real yields have to probably decline again and

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Speaker 1: therefore week er dollar plus that in Europe and in Japan,

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Speaker 1: the central banks really have to catch up to where

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Speaker 1: the fet is and and we've seen this playing out.

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Speaker 1: So I think today Doctors was sort of a maybe

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Speaker 1: just a hangover from the New year, right the yield

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Speaker 1: declined he saw in the ten year. Basically it fell

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Speaker 1: back to the level from right before the Christmas into

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Speaker 1: New Year holiday. It's almost like that between the Semer

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Speaker 1: twenty six and the Semer thirtieth the yel went from

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Speaker 1: three seventy five or three ninety. Nobody was trading, so

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Speaker 1: it just went there, just go back to three seventy five.

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Speaker 1: So I think that did a little bit of popping

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Speaker 1: the dollar whatever. I look at the dollar index, it's

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Speaker 1: sort of hanging here one or four and a half,

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Speaker 1: and there's still a lot of like more pressure on

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Speaker 1: the dollar, I think from out currencies where central banks

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Speaker 1: have to continue to titan to a level where the

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Speaker 1: fetish or closer to. So let's look at some of

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Speaker 1: these other central banks, because the bank of Japan UH.

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Speaker 1: It's going to be making decision on January twentieth, if

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Speaker 1: I'm not mistaken. That's just a couple of weeks away.

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Speaker 1: And because the bond purchases, the BOJ has been forced

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Speaker 1: to doon bond purchases to keep that a new higher

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Speaker 1: yield on the UH seething on the tenure j GB

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Speaker 1: at point five, that's a reason for them to maybe

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Speaker 1: do another tweak. And for sure an easy change for

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Speaker 1: them to make is to boost their inflation forecast to

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Speaker 1: two percent or higher from one point six their last

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Speaker 1: forecast in October. That's going to be taken as a

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Speaker 1: signal of tightening globally bond markets investors. What does that mean?

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Speaker 1: I think it's a significant shift that lean because if

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Speaker 1: we have this yuk of control policy on placed since

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Speaker 1: August of sixteen, it has for sure pressure treasury yields

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Speaker 1: lower than it may ottwise have been. Have we had

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Speaker 1: in economy since twent sixteen, that's been on a strengthening

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Speaker 1: path up until the pandemic. So the money that's come

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Speaker 1: out of Japan investing in the treasury bonds, our corporate

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Speaker 1: bonds or other assets to an extent now gets reversed

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Speaker 1: because of this yuk of control policy becoming more flexible,

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Speaker 1: wider band, and eventually, I think what group has done

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Speaker 1: layout the path for the is successor to end it

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Speaker 1: eventually not have yuk of control and bring the policy

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Speaker 1: rate to at least to zero or positive. And to

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Speaker 1: your point, like the inflation in Japan has clearly turned

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Speaker 1: just like here, it's just like everywhere else. It's a

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Speaker 1: global pandemic. Therefore, Japan is no longer in this unique

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Speaker 1: isolated situation of this protracted deflation as much people may

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Speaker 1: still have some expectation of that that to a batter

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Speaker 1: way has changed. I looked at surveys and fasion expectation

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Speaker 1: Japan have shifted. So Japan has to go to a

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Speaker 1: tighter policy which means positive rates and no yuk of control,

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Speaker 1: which means that the Japanese banks, in the Japanese life

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Speaker 1: insurance and pension funds are likely to reinvest their Maturian

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Speaker 1: treasury into Japanese bonds. I'm going to give you a

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Speaker 1: deadline on this next answer. Here, You've got forty five

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Speaker 1: seconds to weave in the China story with the global macro.

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Speaker 1: How does China figure into all of this, so it's

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Speaker 1: it's in our view, a big macro event in and

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Speaker 1: we do have to think about the China reopening in

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Speaker 1: the context of the US reopening. This is the second

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Speaker 1: largest economy in the world, so it's undoubtly going to

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Speaker 1: have an impact on Comaliti's on investment or spending, on

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Speaker 1: basically global trade. And it could be that as much

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Speaker 1: as there's a expected recession out there now and the

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Speaker 1: expectations are very high for recessions everywhere, that the China

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Speaker 1: reopening make counterway that and not only change this expectation,

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Speaker 1: actually impact the actual recession that takes place, you know,

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Speaker 1: make recession more shallow, or not even happen, not even

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Speaker 1: land is Jim your Danny said the other way, Ben,

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Speaker 1: it's always a pleasure. Thanks for being with us in studio.

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Speaker 1: Ben Emmons from New Edge Wealth joining here on Debray

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Speaker 1: Gasha