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Speaker 3: We'll begin this hour with SMP five hundred set for
Speaker 3: a weekly gain. Savita Supermanian, a Bank of America writing
Speaker 3: sentiment is far from uphork. The consensus Wall Street broker
Speaker 3: is recommending an average at location of just fifty six percent.
Speaker 3: To US docs, this is not euphoria, Siviita joins us. Now,
Speaker 3: thank you so much, good morning, Thanks thanks for joining us.
Speaker 3: So it's not euphoria. What are we in right now?
Speaker 4: What is this world? Yeah, the world.
Speaker 5: Feels weird, but I think we're in that sort of
Speaker 5: wall of worry stage where there are certain themes that
Speaker 5: are getting a lot of credence and credibility like AI.
Speaker 5: Other themes are kind of falling out of bed like
Speaker 5: GLP one, and then you've got this potential broadening of
Speaker 5: the market that we've all been waiting for with baited breath,
Speaker 5: that I think is at a moment where it's it's
Speaker 5: actually in the work. So if you read the transcripts,
Speaker 5: and I love Lori's quote, but I think that when
Speaker 5: you read the transcripts, companies are worried, but they're also
Speaker 5: talking about the fact that they've delayed a lot of projects.
Speaker 5: They haven't canceled them, they've delayed them. That means there's
Speaker 5: a lot of pent up activity, business activity in the
Speaker 5: pipes that is likely to be unfurled over the next
Speaker 5: couple of quarters. And I think what really stemied that
Speaker 5: pickup in broadening and you know kind of other companies
Speaker 5: actually moving from you know they're very low low multiples
Speaker 5: and low low levels, is the idea that we're past
Speaker 5: a lot of the tariff uncertainty. I mean, granted, there
Speaker 5: are curveballs that are thrown at us every day, but
Speaker 5: we do know what's going on with Europe. You know,
Speaker 5: we've got a better handle on how companies can actually
Speaker 5: plan and do business. We're also starting to see I
Speaker 5: think the beginnings of this m and A cycle, even
Speaker 5: cross border MNA, so I think those are other animal spirits.
Speaker 5: I could on LESHA a broader pickup in economic activity.
Speaker 5: And then when we look at things like you know,
Speaker 5: companies reporting, I think what's really noteworthy is that at
Speaker 5: this point about eighty percent of companies have beat on revenue.
Speaker 4: That's new.
Speaker 5: We haven't seen this revenue surprise in a while.
Speaker 4: So what that means is that.
Speaker 5: Analysts mark down expectations very low for sales and demand,
Speaker 5: and they're beating those lowered expectations. So I think this
Speaker 5: all bodes well for a broader market.
Speaker 4: I would stick with.
Speaker 5: Large cap value stocks, companies that are you know, really
Speaker 5: in the penalty box but could actually start to work
Speaker 5: in an environment where you know, we do see earnings
Speaker 5: broaden in a bigger pickup.
Speaker 6: What happens if you add in rate cuts to all
Speaker 6: of that, is that just jet fuel for the broadening
Speaker 6: out and even maybe for some of the smaller companies.
Speaker 5: I think it's jet fuel for small caps. I don't
Speaker 5: know if large caps need a rate cut. I mean,
Speaker 5: the thing that I like about the S and P
Speaker 5: five hundred is it's kind of immune to the FED
Speaker 5: because a lot of these stocks really move more on
Speaker 5: long rates rather than short rates. So I think that,
Speaker 5: you know, the refinancing risk is really firmly in the
Speaker 5: Rustle two thousand rather than the S and P five hundred.
Speaker 4: But I do think that a FED cutting.
Speaker 5: Rates from these levels would be sort of a driver
Speaker 5: for more positive sentiment on stocks, a shift out of
Speaker 5: cash into stocks if inflation remains high.
Speaker 4: I think there's one.
Speaker 5: Pocket that the bulk of individual investors have to go to.
Speaker 5: So think about individual investors that are mostly retirees. They're
Speaker 5: sitting in big tech stocks and cash. If cash shields
Speaker 5: are coming down but inflation is still relatively.
Speaker 4: High, what are you going to do for real yield?
Speaker 5: This is where I think that dividends, cash return, etc.
Speaker 4: Come in. What worries me a little bit.
Speaker 5: About the big ballast of the S and P five
Speaker 5: hundred the AI spenders is that these guys are becoming
Speaker 5: more capital intensive and that might not be great for
Speaker 5: multiples for.
Speaker 4: Cash return, et cetera.
Speaker 5: In fact, we wrote a note this morning highlighting that
Speaker 5: the magnificent six if you take out Tesla is growing
Speaker 5: much more capital intensive and less R and D focused,
Speaker 5: and I think that's something to watch because we're sort
Speaker 5: of in the middle innings. I think of an AI
Speaker 5: spend cycle, and if that continues, the asset lightness of
Speaker 5: these megacap tech stocks is potentially compromised.
Speaker 4: Your note you have.
Speaker 3: We are moving from quote everyone spending on tech to
Speaker 3: tech spending on everything data.
Speaker 4: This has been a story of the entire quarter.
Speaker 6: Yeah, it has been the story, and it's been a
Speaker 6: lot of the reason why it's hard to be bearished.
Speaker 6: But I do think this idea of the business model
Speaker 6: changing is so interesting Cevita, because part of the thing
Speaker 6: that people bought tech for was because they were capital
Speaker 6: lights and you could get those really high valuations.
Speaker 5: And great growth and yeah, great growth and free cash level.
Speaker 6: So is there now a ceiling or will there start
Speaker 6: to be a ceiling on multiples on valuations if it's
Speaker 6: a different business model and.
Speaker 4: All of a sudden they're capital intensive.
Speaker 5: Well, I think you need to see the revenue beats
Speaker 5: for these companies, because if you don't see top line
Speaker 5: really accelerate along with capex, you're cutting into that earnings.
Speaker 4: You're cutting into that free cash flow.
Speaker 5: We've already seen the total shareholder return for the Magnificent
Speaker 5: six drop since twenty fifteen. We've seen capex to sales
Speaker 5: pick up, We've seen R and D to sales decline.
Speaker 5: It's all happening. The question is when will it get
Speaker 5: priced in? Because these stocks are trading near their all
Speaker 5: time highs in terms of multiples. I think what we
Speaker 5: start to see is a tradeoff where old economy stocks
Speaker 5: are getting all these new tools to get more efficient
Speaker 5: asset light, labor light, et cetera, whereas tech companies are
Speaker 5: starting to get more asset intensive. It's a very sort
Speaker 5: of slow burn shift or handing off of you know,
Speaker 5: multiple expansion to multiple contraction.
Speaker 4: But I think it's something to keep an eye on.
Speaker 3: When it comes to policy. We have the one big,
Speaker 3: beautiful bill. There is a little bit more of an understanding.
Speaker 3: What's going on with terras? Yeah, what are you waiting
Speaker 3: for out of Washington? What's the next shoot to drop?
Speaker 5: You know, I think right now there's there are not
Speaker 5: a lot of catalysts, and maybe you know the FED obviously,
Speaker 5: but I think that you know, we're in an environment
Speaker 5: where our near turn out look.
Speaker 4: On equities isn't great.
Speaker 5: I mean, we think a lot of the good news
Speaker 5: is priced into the market. If you look at reactions
Speaker 5: to beats, they were pretty good, but reactions to missues
Speaker 5: were terrible. In fact, the worst downdraft to earnings missues
Speaker 5: and sales missus in the history of our data since
Speaker 5: reg FD back in two thousand and one. So this
Speaker 5: means the good news is probably more than priced in
Speaker 5: in the near term. I do think if we see
Speaker 5: this broadening of earnings growth and we see a pickup
Speaker 5: in some of the economic indicators, maybe the FED cut
Speaker 5: is compromised or a continued cutting cycle is compromised, but
Speaker 5: I think that's the driver for better earnings.
Speaker 4: And you still think we're going to be at sixty
Speaker 4: three hundred year end.
Speaker 5: So sixty three one hundred is our year end forecast.
Speaker 5: I think it's tricky because we've also got the mid
Speaker 5: term elections coming up, So our twelve month forecast, which
Speaker 5: is probably more important or relevant, is really for more
Speaker 5: like five percent gains from here. I think what's interesting, though,
Speaker 5: is that the years where you've seen the biggest earnings
Speaker 5: recoveries haven't necessarily seen the strongest market returns. So that's
Speaker 5: kind of what we're operating on, is the idea.
Speaker 4: That earnings are coming back.
Speaker 5: We're exiting a manufacturing recession, but market returns aren't necessariarily
Speaker 5: going to be blockbuster.
Speaker 4: Tavita, thank you so much for your time this morning.
Speaker 4: Thank you, fantastics.
Speaker 3: Vita Supermanian of a Bank of America. We're joined by
Speaker 3: former Chief International Trade Counsel for the Senate Finance Committee,
Speaker 3: Bruce Hirsch, and he writes, our trading partners have had
Speaker 3: to adjust to the idea that these deals need to
Speaker 3: include offers to purchase specific US goods or commit to
Speaker 3: invest in the United States. The bigger the number, the better. Bruce,
Speaker 3: thank you so much for joining us. This is exactly
Speaker 3: what Danny and Oliver were just getting at. The issue
Speaker 3: I have with this premise for Switzerland is that they
Speaker 3: are top five foreign direct investor already into the United States.
Speaker 1: Well, they certainly are, and we have a close trading
Speaker 1: relationship with them, but we also have a trade deficit
Speaker 1: with them, and a large part of that deficit is
Speaker 1: on pharmaceuticals, and pharmaceuticals is one of the areas of
Speaker 1: great concern that President Trump he wants to onshore that manufacturing.
Speaker 1: So he's going to look at that deal perhaps a
Speaker 1: little bit differently, and he looks at some of the
Speaker 1: others also. He's really been counting on our trading partners
Speaker 1: to reduce their terrorists the close to zero and that's
Speaker 1: difficult politically for a country like Switzerland are doing agricultural products.
Speaker 3: So what do you think Switzerland can offer at this point,
Speaker 3: given the fact that Oliver just outlined how difficult these
Speaker 3: negotiations have become.
Speaker 1: Well, I mean, there's the possibility that they'll make some
Speaker 1: very tough decisions on agricultural terriffs. Beyond that, you know,
Speaker 1: if there have any other investments in the bank to
Speaker 1: put on the table here, that probably is going to
Speaker 1: be critical. I mean, I suspect that President Trump is
Speaker 1: looking for some sort of investments in domestic manufacturing here
Speaker 1: of pharmaceuticals, because that, again is what he cares about.
Speaker 1: But it's hard to say, and they really are between
Speaker 1: a rock and hard place.
Speaker 6: Bruce Amory's have done really great reporting on this that
Speaker 6: it did look like the Swiss and the US had
Speaker 6: a deal before all of this unraveled. It's a less
Speaker 6: traditional type of negotiation that you need to satisfy the
Speaker 6: President himself rather than a coalition of stakeholders or the
Speaker 6: Senate itself. You've been in the room under more traditional
Speaker 6: trade frameworks. How does it change the negotiation when you're
Speaker 6: really trying to favor a party of one instead of
Speaker 6: more stakeholders.
Speaker 1: Well, it's going to lead to a bit of confusion
Speaker 1: on both sides at the table because I mean, as
Speaker 1: you mentioned at one point, the question was, how do
Speaker 1: you satisfy Congress? They're the ones who have to approve
Speaker 1: the deal. With the end of the day, the groundwork
Speaker 1: will have been done with Congress, with stakeholders to develop
Speaker 1: a US position. Consultations will continue, your good sense of
Speaker 1: what you need to do. Now you're trying to satisfy
Speaker 1: a party of one. And because President Trump has a
Speaker 1: number of objectives and they can shift whether it's revenue
Speaker 1: or industrial policy, or leverage for trade or non trade objectives,
Speaker 1: you just don't know. So both sides are at the
Speaker 1: table and they're trying to figure out what will satisfy
Speaker 1: President Trump, and they're not really quite sure.
Speaker 6: Well to that point, we're in this environment where it
Speaker 6: has been figured out the top line of the deal
Speaker 6: first and then the details later bruce to what grief,
Speaker 6: does that actually give the US more leverage as things progress.
Speaker 6: The fact that we don't have these details, and it
Speaker 6: is something that Washington can push back on because you
Speaker 6: don't have the details in the fine print yet, well.
Speaker 1: Well, you know, it certainly gives the opportunity for leverage.
Speaker 1: It also gives the opportunity to disrupt the deals that
Speaker 1: you've just cut. We've already seen in some of the
Speaker 1: deals both with the EU and Japan. You know, they're
Speaker 1: concerned about when certain parts of the deal with regard
Speaker 1: to Section two thirty two National Security Secral tariffs, when
Speaker 1: they're going to be implemented. They were expecting them to
Speaker 1: be implemented right away and that hasn't happened. So, yes,
Speaker 1: it gives leverage, but you know, the question is at
Speaker 1: what cost and will it blow up the deal? So
Speaker 1: it's a great challenge. It also sort of undermines a
Speaker 1: lot of what these countries are looking for and what
Speaker 1: the markets you're looking for, which is stability, because to
Speaker 1: the extent that there are things like that, there are
Speaker 1: these opportunities to disrupt the deals by continuing to push
Speaker 1: after the top line has been agreed to. You know,
Speaker 1: that can undermine that sense of stability that everybody's seeking.
Speaker 3: Mody is looking for stability right now, Bruce. What's going
Speaker 3: on with India and that trade negotiation.
Speaker 1: Well, again, this really highlights the fact that the deals
Speaker 1: are made at the top. And you know, we had
Speaker 1: a situation in which the negotiators are right up to
Speaker 1: the cabinet level thought they had a deal with India.
Speaker 1: It was presented to President Trump and he looked at
Speaker 1: it eventually and decided not enough. Again, a lot of
Speaker 1: countries are going to zero. India wasn't willing to go
Speaker 1: to zero on their agricultural goods, and so he just
Speaker 1: said no. And this is going to create a real
Speaker 1: challenge for a number of reasons. You know, we have
Speaker 1: to India is going to have to make some tough choices.
Speaker 1: Potentially they may have themselves kind of check of some sort.
Speaker 1: But politically it's very difficult for Prime Minister Moti because
Speaker 1: he presents himself as a strong leader and having to
Speaker 1: appear to cave to pressure is really going to be
Speaker 1: very difficult for him, either on these tariffs or on
Speaker 1: the relationship with Russia. So it's going to be a challenge.
Speaker 3: On that one, and he's even go out with the
Speaker 3: rhetoric saying this is going to be challenging, but I'm
Speaker 3: going to have to do it. He doesn't want to
Speaker 3: cave at this moment. We're gonna be watching those trade
Speaker 3: negotiations very carefully. Former Chief International Trade Council for the
Speaker 3: Senate Finance.
Speaker 4: Committee, Bruce Hirsh, thank you so much for joining us.
Speaker 3: Don Vin of Key Bank has a sector weight rating
Speaker 3: on Intel's shares.
Speaker 4: John joins us now.
Speaker 3: John Mandeep is really outlining here that it's not just
Speaker 3: the President of the United States. He might be the
Speaker 3: final nail in the coffin, but actually there is the
Speaker 3: board that's pushing back on the CEO strategy right now
Speaker 3: when it comes to Intel.
Speaker 4: Do you think he can stay in the top position?
Speaker 7: I think he can, right. I think if you kind
Speaker 7: of take a step back, there's only a handful of
Speaker 7: executive is out there that are capable of leading Intel.
Speaker 7: And clearly during the search he was their top pick,
Speaker 7: right he was on the board of Intel's deeply familiar
Speaker 7: with the challenges that they had. He's had a lot
Speaker 7: of success historically, He's been successfully run Cadence. So I
Speaker 7: think he's you know, I think there's a lot of
Speaker 7: noise going on right now. But you know, taking a
Speaker 7: step back, he's the right person to kind of run
Speaker 7: Intel at this point.
Speaker 4: He's the right person John.
Speaker 6: But what happens if it's a White House that is
Speaker 6: unsatisfied if he stays on as CEO, Just how painful
Speaker 6: could they make things for Intel?
Speaker 7: Yeah, I think he's got to learn to kind of
Speaker 7: manage up, if you will, to the White House. Obviously,
Speaker 7: this is an uncharted territory for public company CEOs if
Speaker 7: you are singled out by the President of the United States.
Speaker 7: But yes, this would be extremely difficult if he doesn't
Speaker 7: figure out how to kind of manage up to the
Speaker 7: White House. You know, a big beneficiary Intel is of
Speaker 7: the of the Chips Act, Right, They're going to get
Speaker 7: a significant amount of funding from the US government to
Speaker 7: support their manufacturing initiatives. And if he's not willing to
Speaker 7: play nice and manage manage up, you know, a lot
Speaker 7: of that funding could be at the at risk.
Speaker 6: Well, he wrote a note made it public as well,
Speaker 6: basically saying that they're trying to work with the White
Speaker 6: House to alleviate any concerns John, what would it look
Speaker 6: like to manage up how would Intel get out of
Speaker 6: the situation in the ire of the president that they
Speaker 6: have right now.
Speaker 7: Yeah, I think at this point, I think the tension
Speaker 7: between the administration and Lipu right now is how much
Speaker 7: they're willing to commit to manufacturing the US. I think
Speaker 7: if you look at Lipwui's predecessor, Pat he kind of
Speaker 7: maybe was a little bit too aggressive in terms of
Speaker 7: building out capacity to manufacture in the US is of
Speaker 7: the mindset of if we build out this capacity, they
Speaker 7: will come. Lippoo, as we've seen, has taken a much
Speaker 7: more discipline approach at spending. He's come out and he said,
Speaker 7: you know, we are very excited about our next process
Speaker 7: Note fourteen A, but we are going to be much
Speaker 7: more disciplined about it. Right if fourteen A doesn't pan
Speaker 7: out as we'd like, I'm not ready at this point
Speaker 7: to fully commit to fourteen A, which is leading manufacturing
Speaker 7: in the US. So I think he's got to carefully
Speaker 7: choose his words and commit communicate to the White House
Speaker 7: that he's fully committed to US manufacturing, but he's got
Speaker 7: to be very careful about committing the full amount there
Speaker 7: and just be very careful about how he selects his words.
Speaker 3: John, How can he be explicit to the President of
Speaker 3: the United States when the Wall Street Journal this morning
Speaker 3: is saying that he and some Intel directors have disagreed
Speaker 3: about simple questions as whether or not the company should
Speaker 3: stay in the manufacturing business or exit entirely.
Speaker 4: Doesn't he need to shore.
Speaker 3: Up his own company, the directors the board before he
Speaker 3: starts making matter of fact statements to the President of
Speaker 3: the United States.
Speaker 7: Yes, I do agree that he's got to kind of
Speaker 7: figure out also how to manage the board. But it's
Speaker 7: not a surprise that they're having differences. But I think
Speaker 7: this is why they needed to bring them in, you know,
Speaker 7: I'll pat the previous YEO had the full support of
Speaker 7: the board, and obviously that strategy wasn't working, so they
Speaker 7: had to bring somebody in to kind of change up
Speaker 7: the strategy. And I think that's that's what the board
Speaker 7: and Laboo are going through it now. They're going through
Speaker 7: some of those growing pains.
Speaker 6: John, I would love to get your read on the
Speaker 6: wider chip sector now that we've had some of their
Speaker 6: earnings under our belt.
Speaker 4: It was an.
Speaker 6: AMD that was punished for voicing uncertainty when it comes
Speaker 6: to whether or not they'll be able to sell some
Speaker 6: of their key technology in China. You had the lights
Speaker 6: of NXP for exams Semple saying they were uncertain of
Speaker 6: how much of a pull forward they had in terms
Speaker 6: of orders. Just how much clarity do you have on
Speaker 6: the sector as a whole for where we move from
Speaker 6: here with some of these tensions still very front and center.
Speaker 7: Yeah, there are clearly a lot of cross currents right now.
Speaker 7: I think the trend that we are seeing Last night
Speaker 7: we had Marketship, which was a great print. Stocks down
Speaker 7: eight percent pre market today. I think what we're seeing
Speaker 7: right now is it doesn't matter how good your print
Speaker 7: is and how good your results and guidance is, everything's
Speaker 7: getting sold in this market. I think people are very
Speaker 7: nervous that a lot of the strong results that we're
Speaker 7: getting in this environment is a function of pull forward
Speaker 7: demand related to tariffs. I think there's a lot of
Speaker 7: concerns that this could result in a weaker second half.
Speaker 7: There's a lot of concerns that this could undermine kind
Speaker 7: of the cyclical recovery that we're seeing in the broader
Speaker 7: chip sector. And then on top of that, right, you've
Speaker 7: got these geopolitical uncertainty that is layering on top of that. Right,
Speaker 7: just the other day in the middle of the earning period,
Speaker 7: you know, you have the Trumpet administration levy one hundred
Speaker 7: percent check tariff on companies that aren't willing to commit
Speaker 7: to building in the US.
Speaker 4: Right, and then potentially export controls.
Speaker 3: And do they actually mean that they're going to be
Speaker 3: licenses that are going to be taken back or will
Speaker 3: they just be you turned like we saw at the
Speaker 3: age twenty, John, thank you so much for your time
Speaker 3: this morning, John Vin of key Bank Capital Markets, Colin Marker,
Speaker 3: Charles Schwab writing the need for new FED chair to
Speaker 3: cut rates.
Speaker 4: Could be a point.
Speaker 3: By the time FED chair pals term is up next year,
Speaker 3: the FED may have cut three or four times.
Speaker 4: Colin joins us now for more. Is this the irony
Speaker 4: of all this?
Speaker 3: The President is really job boning the FED and wants
Speaker 3: to talk about maybe regime change at the FED by
Speaker 3: time to get some of these appointments.
Speaker 4: They were dumb what he wants.
Speaker 8: I think Sid, I don't think it's going to matter
Speaker 8: because what we saw with obviously the headline about the
Speaker 8: weakening labor market. Now, there was already some support for
Speaker 8: RAID cuts. It seems like there's even more support for
Speaker 8: RAID cuts based on comments from various FED officials, and
Speaker 8: the data basically says that if we do get that
Speaker 8: weakening labor market, and if we look forward to say April,
Speaker 8: May June of next year, the markets are pricing in
Speaker 8: three or four RAID cuts. So even without the headlines
Speaker 8: of a new FED chair, who's it going to be,
Speaker 8: how dubbish are they going to be, we might see
Speaker 8: a FED funds rate one hundred basis points lower than where.
Speaker 4: We are right now.
Speaker 8: That doesn't mean that the jaw boning might end. It
Speaker 8: doesn't mean that we might not get a new FED
Speaker 8: chair who is as dubbish as the administration wants. But
Speaker 8: we have to remember that it's a committee, and I
Speaker 8: think most committee members, whether it's a governor or a
Speaker 8: district bank president, they look at their dual mandate and
Speaker 8: they I think they're more methodical about how they're going.
Speaker 4: To go about it.
Speaker 8: So even the headlines might not stop, but I think
Speaker 8: cooler heads will prevail.
Speaker 6: Some people have made the point, though, and Paul Donovan
Speaker 6: at UBS included that Waller's actually the most dubbish pick
Speaker 6: you could have for a FED chair because he has
Speaker 6: credibility with the rest of the committee and could sway
Speaker 6: them to more dubbish.
Speaker 4: Outlook is that, right would a Waller be.
Speaker 6: The most dubbish pick over the Kevins, over anyone else based.
Speaker 4: On what we've seen.
Speaker 8: I don't know if he'd be the most dubbish pick,
Speaker 8: but he's clearly dubbish. We could argue he's the most
Speaker 8: dubbish member of the committee right now governors and district
Speaker 8: bank presidents. But he's not out there talking about the
Speaker 8: need for a three percentage point raidcut or something like that.
Speaker 8: If the data were to change, maybe his tune or
Speaker 8: tone would change, but right now we're not seeing that.
Speaker 8: So it seems like he could be in line to
Speaker 8: be the next FED chair. There's a lot going on,
Speaker 8: you know. We have the temporary announcement for Myron because
Speaker 8: we don't really know what Powell's going to do. So
Speaker 8: if Powell stays on and Waller's already in there, he
Speaker 8: could be a logical choice without making too many headlines,
Speaker 8: without having to worry about the confirmation process.
Speaker 6: Well, so, when Stephen I was announced, the market reaction
Speaker 6: was slight, but there was one there, a little bit
Speaker 6: of curve steepening. If you get someone like a Myron
Speaker 6: or again one of the Kevins, a less traditional sort
Speaker 6: of appointment to the FED chair, would.
Speaker 4: You put on steepeners? Does that trade make sense?
Speaker 8: We think steepeners make sense regardless, because we think short
Speaker 8: term rates are likely coming down based on the data
Speaker 8: we're seeing. But at the same time, we have fiscal
Speaker 8: concerns that likely aren't going away anytime soon, and the
Speaker 8: idea that inflation might stay elevated. We're not expecting a reacceleration,
Speaker 8: but the idea that with the tariffs in place right
Speaker 8: now at relatively high levels, we can see it stay
Speaker 8: higher than we would have expected if we talked.
Speaker 7: About this, say six months ago.
Speaker 8: So we think maybe long term rates stay where they are,
Speaker 8: maybe come down a little bit, but likely not as
Speaker 8: much as short term rates. So I think whoever is
Speaker 8: in charge of the Fed over the next six to
Speaker 8: twelve months, we think the curve should continue to.
Speaker 3: Steep In talking to Neil Dudda yesterday and he joined
Speaker 3: the program this morning. He was talking with the fact
Speaker 3: that Powell basically holds the cards if it is someone
Speaker 3: that seems overtly political that the top administry wants to
Speaker 3: put as a FED chair.
Speaker 4: Do you think he stays on.
Speaker 8: I don't know, and I say that because because it's
Speaker 8: anybody's guess right now, and I think he's in a
Speaker 8: really difficult position. On the one hand, he doesn't want
Speaker 8: to or I think he does a really good job
Speaker 8: of not politicizing it because he basically doesn't say much.
Speaker 8: Anytime someone asks him a question or someone brings it
Speaker 8: up at the press conference, he just defers and says,
Speaker 8: we're looking at the data now. If there's a push
Speaker 8: for someone who is, you know, very partisan, very political,
Speaker 8: and is very loud about the need to cut rates sharply,
Speaker 8: which the data right now doesn't support, maybe he stays
Speaker 8: on because his term as governor doesn't end for another
Speaker 8: few years.
Speaker 4: But I think he's in a.
Speaker 8: Really difficult position because that makes it seem like he's
Speaker 8: politicizing it, when at the end of the day, I
Speaker 8: think he's just trying to uphold the integrity of the committee,
Speaker 8: because I really think he's trying to do the best
Speaker 8: he can.
Speaker 3: So you think he's trying to protect the institution, But
Speaker 3: he in the end, if he were to do that,
Speaker 3: he would end up become almost a shadow fed chair.
Speaker 3: How can the market deal with that?
Speaker 8: That's a great question. I think we just have to
Speaker 8: understand that. Again, there's a lot of committee members, so
Speaker 8: whether he's I wouldn't say he'd be a shadow fed chair.
Speaker 8: He would just be one other voting member. I think
Speaker 8: he has the respect of a lot of his colleagues
Speaker 8: out there.
Speaker 3: We're a senator saying that they're going to run for Congress,
Speaker 3: for the House.
Speaker 4: I think if he was there to do that, you know, he'd.
Speaker 8: Be a voter, and he would vote based on what
Speaker 8: the mandate suggests and what the data suggests. We have
Speaker 8: a lot of time before next May. I think it's
Speaker 8: going to be a really exciting couple of months.
Speaker 6: Well, we have a lot of time, but we have
Speaker 6: so much information to digest before that time. And this
Speaker 6: week we had both a ten and a thirty year auction,
Speaker 6: and both of them were pretty weak, or at least
Speaker 6: just lackluster. Let's say, do you look at that and say, Okay,
Speaker 6: this is real concerns about a bloting deficit and fed
Speaker 6: independence or is it just yields have been lower.
Speaker 4: Since the payrolls data, there was less demand.
Speaker 8: I'd say all he above, you know, when we look
Speaker 8: at the fifth concerns which are clearly there, and there
Speaker 8: doesn't seem to be anyone on either side that wants
Speaker 8: to fix this right now from in the grand scheme
Speaker 8: of things. And if we have this you know, rising deficits,
Speaker 8: rising debt, you know, we need to find more buyers there.
Speaker 8: So I think that's one of the reasons why we
Speaker 8: think yields could stay elevated for a little bit. We're
Speaker 8: not worried that they're going to shoot significantly higher to
Speaker 8: say six percent levels, seven percent levels, But if there
Speaker 8: are concerns and weak auctions like we got this week
Speaker 8: week at the margin, nothing crazy, but it shows that
Speaker 8: maybe there is a slight pullback in demand. That's another
Speaker 8: reason why yields can stay elevated and we see a
Speaker 8: sleeper yield curve.
Speaker 6: Okay, So to that point, bringing the whole conversation around,
Speaker 6: if you have an appointment to the Fed, that in
Speaker 6: practice doesn't matter because it's already going dubvish, but gives
Speaker 6: that appearance, especially to foreigners, to seem to be one
Speaker 6: that kind of chips away at the FED independence. Does
Speaker 6: that then matter because it makes foreigners less willing to
Speaker 6: fund the twin deficits of the US.
Speaker 8: I think it would matter, and this is something we
Speaker 8: talk about a lot about the idea of FED independence.
Speaker 8: We're not worried right now now that they're going to
Speaker 8: lose that. I mean, there's a lot of headlines about it,
Speaker 8: but we've talked to d Nausey in this morning about it.
Speaker 8: It's a committee, but that would be a concern for us.
Speaker 8: You know, if there was a lack of independence, we
Speaker 8: think we'd likely see a week er dollar. We think
Speaker 8: we'd likely see long term meals rise because of that
Speaker 8: loss of confidence in the markets. And when we look
Speaker 8: at what we've seen in the TICK data, basically from
Speaker 8: Liberation Day, initially the first month, we actually saw foreign
Speaker 8: private investors sell a lot of a lot of their
Speaker 8: treasury holdings that then reversed in May. So we kind
Speaker 8: of have a cloudy picture right now. We're not really
Speaker 8: sure what the long term trend will be. But what
Speaker 8: that shows us is maybe more volatility, and that in
Speaker 8: and of itself would result in kind of that higher
Speaker 8: term premium colin.
Speaker 3: As we close out the week, what are you looking
Speaker 3: for next week. Is everything just gonna be dominated by CPI?
Speaker 8: I think so. I think we'll have to look under
Speaker 8: the surface. I mean, the headline gets a lot of
Speaker 8: or gets a lot of headlines, but we'll have to
Speaker 8: see what the difference is between goods and services. And
Speaker 8: we'll have to see how much passed through we're seeing
Speaker 8: in terms of goods, the imported goods, but are we
Speaker 8: seeing a slowdown in services? Because I think that's the
Speaker 8: big dichotomy right now.
Speaker 3: Colin, thanks so much for your time this morning, Colin
Speaker 3: Martin of Charles Schwabe.
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