WEBVTT - Peter Tchir on the Markets (Radio)

0:00:00.040 --> 0:00:02.400
<v Speaker 1>Let's get to Peter Cheer, head of macro strategy at

0:00:02.440 --> 0:00:06.280
<v Speaker 1>Academy Securities. So Peter, thanks very much for joining us

0:00:06.519 --> 0:00:08.600
<v Speaker 1>for this half hour leading up to our interview with

0:00:08.680 --> 0:00:12.639
<v Speaker 1>David Melpass. So it should be good, well, inflation, I

0:00:12.640 --> 0:00:15.880
<v Speaker 1>wouldn't say it's exactly peaking, but it's in the process

0:00:15.920 --> 0:00:18.600
<v Speaker 1>of peaking, that's what it feels like. But the Fed

0:00:18.760 --> 0:00:22.200
<v Speaker 1>doesn't seem to be ready to be patient to see

0:00:22.200 --> 0:00:24.840
<v Speaker 1>what the effects of the rate hikes that they've already

0:00:24.880 --> 0:00:28.320
<v Speaker 1>made will be. So we're still expecting something aggressive. You

0:00:28.400 --> 0:00:30.880
<v Speaker 1>probably heard me say your Danny expects a hundred, the

0:00:30.920 --> 0:00:34.360
<v Speaker 1>market expects seventy five year thoughts on that. I think

0:00:34.400 --> 0:00:36.479
<v Speaker 1>we probably get seventy five. But I do think the

0:00:36.520 --> 0:00:38.680
<v Speaker 1>set is kind of pushing on making a mistake because

0:00:38.920 --> 0:00:41.320
<v Speaker 1>even you look at last week's CPI data was kind

0:00:41.360 --> 0:00:44.000
<v Speaker 1>of royal markets. A big part of it was the

0:00:44.120 --> 0:00:47.800
<v Speaker 1>housing inflation was point seven and that's based on owners

0:00:47.880 --> 0:00:50.680
<v Speaker 1>equivalent rent, and I think there's just a massive lag

0:00:50.720 --> 0:00:54.880
<v Speaker 1>effect when you look at any sort of contemparative contemporaneous

0:00:55.040 --> 0:00:58.000
<v Speaker 1>data on the housing market. It is softening. Here mortgage

0:00:58.040 --> 0:01:00.280
<v Speaker 1>rates are about six percent, so I think they risk

0:01:00.400 --> 0:01:03.120
<v Speaker 1>pushing this and no matter what they do, I think

0:01:03.800 --> 0:01:06.000
<v Speaker 1>they have to send a message that they want to

0:01:06.000 --> 0:01:08.000
<v Speaker 1>give some time to see how markets are going to

0:01:08.040 --> 0:01:10.160
<v Speaker 1>be impact from what's already been done, and that they

0:01:10.160 --> 0:01:13.520
<v Speaker 1>remained data dependent. If he comes across as aggressive as

0:01:13.560 --> 0:01:15.600
<v Speaker 1>he was at Jackson Hall, markets are going to be

0:01:15.640 --> 0:01:19.399
<v Speaker 1>in some severe trouble. Tell me something here, Peter, I mean,

0:01:19.520 --> 0:01:22.160
<v Speaker 1>ultimately is this you know? I think it was Daddy

0:01:22.160 --> 0:01:26.000
<v Speaker 1>Blancheut from Duman University as a professor talking about how

0:01:26.120 --> 0:01:30.240
<v Speaker 1>the FED is actually raising rates at a time when

0:01:30.319 --> 0:01:36.000
<v Speaker 1>he sees inflation dissipating, accused the FED of actually then

0:01:36.040 --> 0:01:40.959
<v Speaker 1>perhaps going in essentially pushing the U S economy into

0:01:41.000 --> 0:01:45.160
<v Speaker 1>a deep, deep dive and saying that they were really

0:01:46.240 --> 0:01:51.480
<v Speaker 1>victims of group think. Yeah, I would say along those lines.

0:01:51.960 --> 0:01:54.160
<v Speaker 1>You know, there's a reason traders have stop losses, right,

0:01:54.200 --> 0:01:55.720
<v Speaker 1>if you make a bad decision, you want to get

0:01:55.760 --> 0:01:58.200
<v Speaker 1>stopped out. And I think if you look back, it

0:01:58.240 --> 0:02:01.120
<v Speaker 1>was pretty clear we probably should have ended QUE last summer.

0:02:01.360 --> 0:02:03.440
<v Speaker 1>And when they were giving reasons for keeping QUE last

0:02:03.480 --> 0:02:08.160
<v Speaker 1>summers about bondmarket liquidity, etcetera. And yet bondmarket liquidity, especially

0:02:08.160 --> 0:02:10.080
<v Speaker 1>in the treasury market, was better last summer than it

0:02:10.120 --> 0:02:13.239
<v Speaker 1>is now. I think they miss transitory and are now

0:02:13.280 --> 0:02:15.639
<v Speaker 1>making up for that. And two wrongs do not make

0:02:15.639 --> 0:02:17.919
<v Speaker 1>a right. So I think we're supposed to be, as

0:02:18.080 --> 0:02:20.440
<v Speaker 1>you know, Danny says, let's be a little bit cautious here,

0:02:20.520 --> 0:02:22.640
<v Speaker 1>let's see how things play out. And I think we're

0:02:22.639 --> 0:02:25.639
<v Speaker 1>going to find that the politicians and mainstream media are

0:02:25.680 --> 0:02:29.079
<v Speaker 1>going to realize that job losses and a recession are

0:02:29.200 --> 0:02:31.840
<v Speaker 1>far worse than a bit of inflation. But Peter, the

0:02:32.160 --> 0:02:35.519
<v Speaker 1>FED is looking at housing market that I mean, these

0:02:35.560 --> 0:02:38.239
<v Speaker 1>rents are not going to come down anytime soon, probably

0:02:38.280 --> 0:02:40.760
<v Speaker 1>because I mean it's part of the nature of things.

0:02:40.960 --> 0:02:45.360
<v Speaker 1>Rates are high, so nobody's buying now, and so you

0:02:45.400 --> 0:02:47.560
<v Speaker 1>know people will rent and there's demand, and so the

0:02:47.600 --> 0:02:49.880
<v Speaker 1>rents are going to stay high. And that's a third

0:02:49.880 --> 0:02:53.359
<v Speaker 1>of CPR, So it's gonna take some time. One there's

0:02:53.360 --> 0:02:56.360
<v Speaker 1>a lag effect on how they calculate the rental equivalent.

0:02:56.600 --> 0:02:58.920
<v Speaker 1>They basically, I think, take about one tenth of the homes.

0:02:59.240 --> 0:03:02.440
<v Speaker 1>So I they heavily understated the inflation that we're seeing

0:03:02.440 --> 0:03:04.880
<v Speaker 1>on the rent a year ago, but now they're going

0:03:04.919 --> 0:03:07.200
<v Speaker 1>to be overstating that for a period to come pet

0:03:07.320 --> 0:03:10.320
<v Speaker 1>we're just talking about about the fet just conclude on

0:03:10.480 --> 0:03:13.880
<v Speaker 1>that subject essentially by asking you whether j Pale has

0:03:14.000 --> 0:03:18.160
<v Speaker 1>turned and heaven for saying this taint turned tend Pool

0:03:18.200 --> 0:03:22.000
<v Speaker 1>Volca just at the wrong moment. Well, I think Jackson

0:03:22.040 --> 0:03:24.880
<v Speaker 1>Hole gave him the opportunity to sound very very hockeysh

0:03:25.200 --> 0:03:26.880
<v Speaker 1>there were no Q and A, there was nothing he

0:03:26.919 --> 0:03:28.880
<v Speaker 1>had to respond to. I think it's gonna be a

0:03:28.960 --> 0:03:32.440
<v Speaker 1>little bit more difficult, given where yields are, what we're

0:03:32.440 --> 0:03:35.560
<v Speaker 1>seeing in some of the economic data and even stocks

0:03:35.600 --> 0:03:37.680
<v Speaker 1>for him to sound quite as hockey. I expect he'll

0:03:37.760 --> 0:03:39.480
<v Speaker 1>kind of come across a little bit doubbish here, and

0:03:39.520 --> 0:03:42.360
<v Speaker 1>they're not massively but just enough to spur a little

0:03:42.360 --> 0:03:44.360
<v Speaker 1>bit of a relief rally. And the other thing I'm

0:03:44.360 --> 0:03:47.600
<v Speaker 1>looking for him to talk about is quantitative tightening and

0:03:47.600 --> 0:03:50.000
<v Speaker 1>if they can do something to address the market's concern

0:03:50.080 --> 0:03:52.760
<v Speaker 1>about needing to sell mortgage backed securities. That's been a

0:03:52.760 --> 0:03:54.600
<v Speaker 1>big part of the rise in mortgage yields, which is

0:03:54.600 --> 0:03:56.839
<v Speaker 1>really hit housing. So look for him maybe to say

0:03:56.880 --> 0:04:00.240
<v Speaker 1>something about that where maybe quantitative tightening switches a little

0:04:00.280 --> 0:04:03.080
<v Speaker 1>bit more to the treasury side of things rather than

0:04:03.120 --> 0:04:06.280
<v Speaker 1>the mortgage side. It feels like we do have some

0:04:06.360 --> 0:04:10.120
<v Speaker 1>residual strength in the US economy, and I'm curious how

0:04:10.200 --> 0:04:13.720
<v Speaker 1>we can measure the slow down. The slowdown in housing

0:04:13.760 --> 0:04:16.680
<v Speaker 1>for instance, is it prices falling, is it the number

0:04:16.760 --> 0:04:22.159
<v Speaker 1>of transactions dropping general activity? Is it rents? And then

0:04:22.279 --> 0:04:24.760
<v Speaker 1>when you look at the economy, it seems like both

0:04:24.800 --> 0:04:29.200
<v Speaker 1>consumers and companies their balance sheets are looking okay. So

0:04:29.240 --> 0:04:33.320
<v Speaker 1>I'd agree that consumers and companies the balance sheets look okay. Um,

0:04:33.360 --> 0:04:36.440
<v Speaker 1>particularly investment grade companies. I'm fine with that. You look

0:04:36.440 --> 0:04:39.040
<v Speaker 1>at some of the retail spending numbers, though they were

0:04:39.080 --> 0:04:42.640
<v Speaker 1>okay but not great. You saw some and what's concerning

0:04:42.680 --> 0:04:45.120
<v Speaker 1>me is on the retail sales, you also saw it

0:04:45.160 --> 0:04:48.680
<v Speaker 1>in the jobs numbers. You're starting to see revisions to

0:04:48.760 --> 0:04:51.760
<v Speaker 1>pass data. So maybe it was too optimistic and I'm

0:04:51.760 --> 0:04:53.560
<v Speaker 1>stuck in this is we're really trying to figure out, Okay,

0:04:53.600 --> 0:04:55.440
<v Speaker 1>where's the ball going to be? Where should we be

0:04:55.480 --> 0:04:59.440
<v Speaker 1>moving to, not where we're at. And you start looking

0:04:59.480 --> 0:05:02.000
<v Speaker 1>at mortgage rates, what you're seeing in the housing data,

0:05:02.040 --> 0:05:05.799
<v Speaker 1>what you're seeing in terms of um confidence, whether it's builders,

0:05:06.400 --> 0:05:08.960
<v Speaker 1>you look at the inventory overhangs, you start looking at

0:05:08.960 --> 0:05:11.520
<v Speaker 1>the Baltic dry shipping. Things to me that are better

0:05:11.640 --> 0:05:14.400
<v Speaker 1>leading indicators have all rolled over a little bit. So

0:05:14.440 --> 0:05:18.480
<v Speaker 1>I think you're gonna see the So you'd rather see

0:05:18.600 --> 0:05:20.359
<v Speaker 1>I mean, let's let's put it this way. You just

0:05:20.640 --> 0:05:22.880
<v Speaker 1>much rather see a little patience from the Fed. That's

0:05:22.920 --> 0:05:26.360
<v Speaker 1>your basic point. Yes, I think I'm really concerned. They've

0:05:26.400 --> 0:05:29.320
<v Speaker 1>already gone too far, and let's not push it even further.

0:05:29.440 --> 0:05:32.080
<v Speaker 1>Let's see where this things plays out. And look at housing, right,

0:05:32.279 --> 0:05:35.520
<v Speaker 1>the cost of carry was negligible, inventorious, cost of carry

0:05:35.600 --> 0:05:38.200
<v Speaker 1>was minimal. All those now have real cost of carry.

0:05:38.480 --> 0:05:40.080
<v Speaker 1>Let's see how this goes out. Let's see how the

0:05:40.080 --> 0:05:41.720
<v Speaker 1>winter plays out in Europe, because that could be a

0:05:41.760 --> 0:05:45.320
<v Speaker 1>disaster economically as well. So rather than pushing this too far,

0:05:45.720 --> 0:05:48.679
<v Speaker 1>let's say we've done a lot. We're going to not pause,

0:05:48.760 --> 0:05:51.000
<v Speaker 1>but we're gonna be very very data dependent, and we

0:05:51.040 --> 0:05:52.760
<v Speaker 1>want to see where this is playing out. And I

0:05:52.800 --> 0:05:56.120
<v Speaker 1>think that's necessary to keep the economy on pace. But

0:05:56.320 --> 0:05:59.039
<v Speaker 1>as the strength of the dollar been hinders or help

0:05:59.279 --> 0:06:01.479
<v Speaker 1>for the US of con me you know, I think

0:06:01.480 --> 0:06:03.680
<v Speaker 1>it's been good in respect that it's been driving down

0:06:03.720 --> 0:06:06.200
<v Speaker 1>commodity prices since most of those trade in dollars, but

0:06:06.240 --> 0:06:08.440
<v Speaker 1>I think it's going to be tough for companies who

0:06:08.480 --> 0:06:10.600
<v Speaker 1>have to translate earnings back to dollars. So right now,

0:06:11.080 --> 0:06:13.360
<v Speaker 1>I would say it started the summer as being good

0:06:13.400 --> 0:06:16.120
<v Speaker 1>because it helped push inflation pressions down. Right now, it's

0:06:16.160 --> 0:06:18.479
<v Speaker 1>about neutral. If it continues, I think people are going

0:06:18.560 --> 0:06:22.239
<v Speaker 1>to be really worried about US earnings because we've moved

0:06:22.279 --> 0:06:27.039
<v Speaker 1>so far in certain directions, particularly with the dollar, but

0:06:27.160 --> 0:06:29.840
<v Speaker 1>also with a pretty broad sell off in equities. So

0:06:30.360 --> 0:06:33.360
<v Speaker 1>if you look at the equal weight e t F

0:06:33.640 --> 0:06:36.840
<v Speaker 1>for the SNP, those valuations are not high at all.

0:06:36.880 --> 0:06:42.440
<v Speaker 1>Those those stocks have suffered a lot. I mean, really, um,

0:06:42.560 --> 0:06:45.400
<v Speaker 1>you wonder whether or not if the FED pauses, or

0:06:45.520 --> 0:06:48.520
<v Speaker 1>if it does fifty instead of seventy instead of fifty,

0:06:48.800 --> 0:06:52.760
<v Speaker 1>whether or not it's just kind of unleashes revenge reversals.

0:06:52.800 --> 0:06:55.800
<v Speaker 1>So what are you thinking about in that area. I'm

0:06:55.920 --> 0:06:58.000
<v Speaker 1>less concerned about how much they hike and more about

0:06:58.040 --> 0:06:59.800
<v Speaker 1>the messaging. And I think that the messaging is that

0:06:59.839 --> 0:07:01.400
<v Speaker 1>we get a pause. I think we get a very

0:07:01.440 --> 0:07:05.920
<v Speaker 1>nice relief. Rally, what I'm seeing it's we switch from

0:07:05.920 --> 0:07:08.840
<v Speaker 1>over brought to oversoul that record pace two weeks ago,

0:07:08.880 --> 0:07:11.240
<v Speaker 1>we felt overbought and now we feel all oversould. So yes,

0:07:11.280 --> 0:07:14.080
<v Speaker 1>I think that could raise a really nice rally. But

0:07:14.120 --> 0:07:15.440
<v Speaker 1>then I think we're gonna have to sit back and

0:07:15.480 --> 0:07:17.600
<v Speaker 1>say what are earning is gonna look like? Where is

0:07:17.640 --> 0:07:20.080
<v Speaker 1>cash flow coming from? And I keep looking at crypto.

0:07:20.080 --> 0:07:21.720
<v Speaker 1>I think we get a short term bounce in crypto,

0:07:21.960 --> 0:07:23.400
<v Speaker 1>but if that falls off, I think it's going to

0:07:23.480 --> 0:07:26.160
<v Speaker 1>be a symbol that all these very aggressive assets that

0:07:26.320 --> 0:07:29.880
<v Speaker 1>rose from almost nothing too really high could continue to

0:07:29.920 --> 0:07:32.680
<v Speaker 1>go down. And yes they're down, but many are still

0:07:32.760 --> 0:07:36.360
<v Speaker 1>up fift or from two years ago, so I think

0:07:36.360 --> 0:07:39.440
<v Speaker 1>there's more room to fall. And if we are headed

0:07:39.480 --> 0:07:41.920
<v Speaker 1>towards a nominal recession in the US, not just a

0:07:41.960 --> 0:07:44.120
<v Speaker 1>real recession, but a nominal recession, which I think is

0:07:44.120 --> 0:07:47.600
<v Speaker 1>a real possibility, no pun intended, we will see further

0:07:47.640 --> 0:07:50.560
<v Speaker 1>pain in equity markets while yields fall. So we have

0:07:50.640 --> 0:07:53.600
<v Speaker 1>not yet seen a really good risk off type moment

0:07:53.600 --> 0:07:56.520
<v Speaker 1>where yields go much lower and equities fall, And I

0:07:56.560 --> 0:07:58.560
<v Speaker 1>think that's going to be the final capitulation. I think

0:07:58.560 --> 0:08:01.600
<v Speaker 1>we get that sometime eight to this fall. Peter, what

0:08:02.040 --> 0:08:05.640
<v Speaker 1>is the deal in your view of quantitative tightening and

0:08:05.760 --> 0:08:08.480
<v Speaker 1>how is it playing out with regards to liquidity in

0:08:08.480 --> 0:08:12.360
<v Speaker 1>the economy itself. So I find it easier to think

0:08:12.360 --> 0:08:15.680
<v Speaker 1>about quantity of easing easing first and to me, quantity

0:08:15.720 --> 0:08:18.680
<v Speaker 1>of easing pushed people out the risk spectrum. So when

0:08:18.680 --> 0:08:21.120
<v Speaker 1>the FED came in and bought treasuries, whether it's ten year,

0:08:21.200 --> 0:08:23.720
<v Speaker 1>twenty year, or thirty year, whether they bought mortgages, it

0:08:23.760 --> 0:08:26.600
<v Speaker 1>made people along the curve have three decisions. You could

0:08:26.600 --> 0:08:29.440
<v Speaker 1>either take on more duration, you could take on more

0:08:29.480 --> 0:08:32.439
<v Speaker 1>credit risk, or you could take on less liquid assets.

0:08:32.440 --> 0:08:35.320
<v Speaker 1>And I think that pushed everyone out. And I use

0:08:35.400 --> 0:08:37.280
<v Speaker 1>this example. It's called Newton's cradle, but I don't know

0:08:37.280 --> 0:08:38.880
<v Speaker 1>if you've ever seen those little things that have six

0:08:38.920 --> 0:08:41.559
<v Speaker 1>balls hanging on strings, and even with the one ball,

0:08:41.880 --> 0:08:43.880
<v Speaker 1>it hits the first one and it's the last one

0:08:43.920 --> 0:08:45.840
<v Speaker 1>that moves out. So I think that's what we saw

0:08:45.880 --> 0:08:49.360
<v Speaker 1>when they were doing quantitative easing. That risk got pushed out,

0:08:49.400 --> 0:08:51.720
<v Speaker 1>and you saw the cryptocurrencies of the world. You saw

0:08:51.760 --> 0:08:54.560
<v Speaker 1>the arch type stops of the world really just skyrocket

0:08:54.559 --> 0:08:56.680
<v Speaker 1>because there was no more risky asset for people to

0:08:56.720 --> 0:09:01.000
<v Speaker 1>invest in. So that creates the opportunity. I think quantitative tightening,

0:09:01.000 --> 0:09:02.760
<v Speaker 1>you're going to see the opposite, and you're gonna see

0:09:02.760 --> 0:09:05.360
<v Speaker 1>people be able to move down the risk spectrum take

0:09:05.480 --> 0:09:07.800
<v Speaker 1>less risk for the same returns. I don't think it's

0:09:07.800 --> 0:09:09.320
<v Speaker 1>going to be quite as dramatic because one thing to

0:09:09.320 --> 0:09:12.000
<v Speaker 1>remember is the set was buying ten year treasuries, thirty

0:09:12.040 --> 0:09:15.720
<v Speaker 1>year treasuries, laundated mortgage backed securities. By and large, they

0:09:15.760 --> 0:09:17.720
<v Speaker 1>are going to allow things to mature, so you're not

0:09:17.760 --> 0:09:19.880
<v Speaker 1>going to have that duration impact, So it's not going

0:09:19.920 --> 0:09:21.880
<v Speaker 1>to be quite as dramatic. But I think you're gonna

0:09:21.880 --> 0:09:23.560
<v Speaker 1>see on the fifteenth of the month and the thirty

0:09:23.800 --> 0:09:25.360
<v Speaker 1>month or the end of the month, because that's when

0:09:25.400 --> 0:09:28.600
<v Speaker 1>treasury is mature, you'll see pressure on markets as people

0:09:28.600 --> 0:09:30.840
<v Speaker 1>have to deal with that lack of liquidity. So there's

0:09:30.840 --> 0:09:32.959
<v Speaker 1>still pressure on the stock market. But does the bond

0:09:32.960 --> 0:09:35.640
<v Speaker 1>market look fairly well supported here with a two year

0:09:35.720 --> 0:09:39.640
<v Speaker 1>yield really pushing fo Yeah, I think it's very well supported.

0:09:39.679 --> 0:09:42.400
<v Speaker 1>I really think you want to own yields here. Even

0:09:42.440 --> 0:09:45.120
<v Speaker 1>if the economy stabilizes, we do well and more and more.

0:09:45.160 --> 0:09:47.080
<v Speaker 1>I'm looking for that big risk off move, so I

0:09:47.080 --> 0:09:52.120
<v Speaker 1>do want to own treasuries. YEA. Looking at the treasury

0:09:52.120 --> 0:09:54.600
<v Speaker 1>market itself, and you know, do you think it's bottomed yet.

0:09:55.480 --> 0:09:57.720
<v Speaker 1>I think it's very close. And you know, we're talking

0:09:57.800 --> 0:10:00.400
<v Speaker 1>and we've seen people talk about say ten percent return

0:10:00.480 --> 0:10:02.360
<v Speaker 1>for the long bone of people. Well, that seems aggressive

0:10:02.400 --> 0:10:04.000
<v Speaker 1>in the next month or two. But if you look

0:10:04.000 --> 0:10:06.240
<v Speaker 1>at the current US long bone, the thirty year, it

0:10:06.320 --> 0:10:08.720
<v Speaker 1>was issued around ninety eight cents on the dollars trading

0:10:08.720 --> 0:10:10.560
<v Speaker 1>at ninety one and less than a month and a half.

0:10:10.640 --> 0:10:13.760
<v Speaker 1>So that sort of potential return is there. And I

0:10:13.800 --> 0:10:16.880
<v Speaker 1>think the upside is much better in the rates market

0:10:16.960 --> 0:10:19.160
<v Speaker 1>right now than the downside. So yes, I want to

0:10:19.200 --> 0:10:22.360
<v Speaker 1>own that. All right, Peter, we will close it. There

0:10:22.160 --> 0:10:25.280
<v Speaker 1>are interesting discussion. Thanks very much for joining us here.

0:10:25.400 --> 0:10:29.400
<v Speaker 1>Peter cheer, and of macro Strategy at Academy Security said