Speaker 1: We are so honored. In short notice, she came into
Speaker 1: a Rebecca Patterson is with us with all of our
Speaker 1: work at Bridgewater over the years, and of course at
Speaker 1: best in her trust as well. What does boring quiet
Speaker 1: money do given the shock of a two hundred and
Speaker 1: fifty six thousands to woe is me, doom and gloom
Speaker 1: America forget about it? What does quiet money do this year?
Speaker 2: I think quiet money is already invested in equities, and
Speaker 2: as long as the consumers holding in and they have
Speaker 2: jobs and the confidence to spend in today's data says
Speaker 2: they do, then I think you can stay in equities now.
Speaker 2: Given valuations, the upside's going to be a little more
Speaker 2: limited unless we keep getting positive surprises. The challenge, I
Speaker 2: think is where do you go in the equity market?
Speaker 2: Right small cap initially rallied on the Trump win, thinking deregulation,
Speaker 2: lower rates, it's going to be great, and they've given
Speaker 2: back all of those gains right after the election because
Speaker 2: of rising yields. Small cap needs strong growth and lower yields,
Speaker 2: and right now they're not getting enough of both.
Speaker 1: Lisa, thanks for doing that report. Sweeney was occupied. I
Speaker 1: saw him on the phone with his realtor. Yeah, I
Speaker 1: got a thirty year bond four point nine to ninety percent. Wow,
Speaker 1: does that change the landscape?
Speaker 3: It does, Tom, and you we got big movement on
Speaker 3: the front end of the curve, the two years up
Speaker 3: ten basis points four point three six percent. There. So, Rebecca,
Speaker 3: how do you think the Fed is going to digest
Speaker 3: this data that received today? Because wait, the labor market
Speaker 3: looks pretty solid.
Speaker 2: Yeah, I mean, I agree with Ellen who has just
Speaker 2: done before me that January pause is baked, fully baked, gotcha,
Speaker 2: And now the market is discounting that the first or
Speaker 2: next i should say cut or the first cut this
Speaker 2: year doesn't come till October. Who the heck knows? Right,
Speaker 2: It's going to depend on all the policies that get
Speaker 2: rolled out. If the economy slows, if something cracks with
Speaker 2: the upper income consumer to hurt their confidence and cause
Speaker 2: them to pull back spending, this picture can change. If
Speaker 2: immigrants fall sharply, wage costs go up, that could. I mean,
Speaker 2: there's a lot of variables that could move us in
Speaker 2: either direction. So to me, in October cut doesn't seem crazy.
Speaker 2: I'm more interested right now and what's going on in
Speaker 2: the long end. The tenure yield going up, pushing up
Speaker 2: mortgage rates, which is hurting the housing market, but also
Speaker 2: what's causing it, right, and we should talk about term.
Speaker 1: Pre Well we're gonna do that right now. We're going to
Speaker 1: talk about term premium because doctor Patterson said, Tom, we're
Speaker 1: talking about term premit. Look, let me cut to the
Speaker 1: chase you have been vetted. Is a FED governor, a president,
Speaker 1: I don't know, somebody you know carrying coffee at the
Speaker 1: Echos building. Whatever you've been vetted, Rebecca Patterson. This, this
Speaker 1: live tweet says it all. The last cut was a mistake.
Speaker 1: It killed the Santa rally. Fold the last cut into
Speaker 1: your concern about rising yields.
Speaker 2: Well, it's fascinating that as the Fed has cut a
Speaker 2: hundred basis points, the tenure yield has gone up more
Speaker 2: than one hundred basis points. It's highly, highly unusual. What
Speaker 2: I'm worried about now is if the rise and yields
Speaker 2: is not a reflection of growth. I think today's move
Speaker 2: right now in the ten is stronger labor markets, so
Speaker 2: a higher Fed funds rate and strong growth. That's not
Speaker 2: a bad thing. But if the tenure is going up
Speaker 2: because of uncertainty around policy, around FED independence, around inflation,
Speaker 2: then you are going to see rising yields hurting stocks.
Speaker 2: And we've seen that pattern over history. That's what I'm
Speaker 2: worried about, not the level of the yield. What's causing
Speaker 2: the rise in the yield.
Speaker 3: Well, just to that point towardst the slock just in
Speaker 3: a matter of minutes was out with a little note here.
Speaker 3: Higher for longer continues to be the key theme in markets.
Speaker 3: Higher for longer in the front end because of the
Speaker 3: strong economy, higher for longer in the long end because
Speaker 3: of a strong economy and fiscal worries, which goes to
Speaker 3: your point. So I guess that kind of goes to
Speaker 3: the question when are higher interest rates a real problem
Speaker 3: for stocks?
Speaker 2: Again? Psychologically maybe if we crack five percent, that could
Speaker 2: do some damage in a short term basis, but I
Speaker 2: think I think the bigger deal is going to be again,
Speaker 2: what's causing it. I'm watching things like Economic Surprise Index.
Speaker 2: If growth prizes are disappointing, that's bad for term premium,
Speaker 2: i e. Term premium goes up in a bad way.
Speaker 2: If inflation expectations we have data Monday, we have CPI
Speaker 2: coming up. If those things are moving in the wrong
Speaker 2: direction and also earnings. Look what these CEOs and CFOs
Speaker 2: are saying, if they're highlighting fiscal worries, if they're highlighting rates,
Speaker 2: that could get reflected pretty quickly in term premium also
Speaker 2: pushing up you.
Speaker 1: Yes, that's right, we wanted to go. I'm gonna pick
Speaker 1: on Brian moynihan. I could be James Diamond or Frankly
Speaker 1: any other C class officer out there. They've got the
Speaker 1: bright lights of inflation. I got a two hundred and
Speaker 1: fifty six thousand jobs report four point one percent. I'm sorry,
Speaker 1: that's an anominal GDP locked in. Do we underestimate the
Speaker 1: revenue growth that we're going to see. I'll a Delta Airlines, Yeah,
Speaker 1: six percent up in business class because Rebecca's flying around
Speaker 1: the country on Delta.
Speaker 2: Well, Delta's great. I mean, if you have to pick one,
Speaker 2: that's that's the one that goes domestically.
Speaker 1: That's my first seat's taken.
Speaker 2: Yeah, it's true.
Speaker 1: In France and the fistfights exactly, they're all talking in French.
Speaker 1: I don't know what they're saying.
Speaker 3: So what are we doing here? I think with the
Speaker 3: equity markets, one of the concerns is boy, we really
Speaker 3: have to If we're not going to get a rate
Speaker 3: cut until October, then boy, earnings really come front center
Speaker 3: to support this market. Is that a risk issue for you?
Speaker 2: Yeah, because again there's a smaller and smaller chunk of
Speaker 2: the consumer that's holding everything up. Right. The lower end consumer,
Speaker 2: we know, is hurting. So you need the upper middle
Speaker 2: class and the upper income consumer to continue spending. They
Speaker 2: can they have the jobs, they have, the income, they
Speaker 2: have wealth creation from housing inequities. Do they have the
Speaker 2: confidence and willingness to keep spending? And that can change quickly.
Speaker 2: Right now, it looks good.
Speaker 1: But with a nominal gd I mean, where would you
Speaker 1: model out nominal GDP? I don't want you to do
Speaker 1: it because I know you're not doing it, because you
Speaker 1: know you're on in this wonderful garden leave. But if
Speaker 1: you had an Excel spreadsheet in front of you, you've
Speaker 1: got you've got to model four point eight percent, five
Speaker 1: percent five percent plus nominal GDP.
Speaker 2: Right, Yeah, yeah, No, it's hard to get barish on
Speaker 2: equities in that environment. Again, the question is given valuations,
Speaker 2: where do you go and the other thing beyond just
Speaker 2: the consumer and the job market, think about tech, right,
Speaker 2: we know, forget about Navidia. The rest of the mag
Speaker 2: seven this year next year are going to be spending
Speaker 2: two hundred and fifty billion. Yeah, the Microsoft eighty billion
Speaker 2: number less Friday exactly, and that's money that's going into
Speaker 2: the economy, also supporting this big nominal GDP number.
Speaker 1: One of your family members calls in time lose the
Speaker 1: jobs report. Talk to her about the dollar. Oh, the dollar,
Speaker 1: call for remilglam Patterson.
Speaker 2: I think we have another strong dollar year. The thing
Speaker 2: I'm focused on really is the Chinese Rememby. They intervened
Speaker 2: today to try to slow the depreciation. They need to depreciate.
Speaker 2: But if they depreciate in a Trump administration, he's going
Speaker 2: to come right back at him. And so what do
Speaker 2: they do. They have to They have to stimulate the consumer.
Speaker 2: That is are only way out and so far President
Speaker 2: she is not willing to give on that.
Speaker 1: Can you model a vector of depreciation back to where
Speaker 1: they were with weakness pre two thousand and five. I
Speaker 1: think it was hoof. That's a big move.
Speaker 2: That's a big movie trying to make some news.
Speaker 1: Look.
Speaker 2: In twenty eighteen, the rememby fell ten percent against the dollar,
Speaker 2: during the trade war. Most economists and strategists I'm talking
Speaker 2: to think that is very likely to happen again. So
Speaker 2: here's your headline. The Chinese rememby if the PBOC, if
Speaker 2: the central Bank lets it, is going to fall ten
Speaker 2: percent or more this year. The question is will they
Speaker 2: allow it? Are they are they going to avoid capital
Speaker 2: flight worries and prevent it, or are they going to
Speaker 2: do it because they need it for exports, they need
Speaker 2: it for manufacturing.
Speaker 3: Did to change your outloc at all? Just real quickly
Speaker 3: with its new administration coming in.
Speaker 2: I want to see which policies get pushed forward first
Speaker 2: and the size that matters so much to me. So
Speaker 2: I think we're all going to know a lot more,
Speaker 2: probably by early February.
Speaker 1: Thank you so much, are coming into the Rebeccan yours
Speaker 1: and