The Bond Market Pain Isn't Over | Weekly Roundup — Transcript

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1. 0:00Welcome to Token 2049.
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22. 0:46Nothing [snorts] said on Ford guidance
23. 0:48is a recommendation to buy or sell any
24. 0:50investments or products.
25. 0:53[music]
26. 0:57>> I think I'm going to ask chat GPT to to
27. 1:00tell me where the S&P and the Q and the
28. 1:02NASDAQ should be without the MAG 7.
29. 1:06>> Right.
30. 1:06>> There you go. Um, okay. I just hit
31. 1:09record because we just started ripping
32. 1:11right away [laughter] and it was just
33. 1:12like too good not to and I didn't want
34. 1:14to stop the flow. But um we're back.
35. 1:17We're recording for guidance around a
36. 1:18petition. Um we got DCP in the house
37. 1:22who's a who's a legend. He was you're on
38. 1:24I think it was almost like 2024. You
39. 1:26came alongside with our our mutual
40. 1:29friend David Cvantes. Yes. At Pine and
41. 1:33that was a ton of fun. Got a bit of your
42. 1:34backstory. But for those that don't
43. 1:35know, um, DCB has been in the trenches
44. 1:39of fixed income and stir trading and
45. 1:41euro dollars for I think longer than
46. 1:43I've been alive.
47. 1:45>> 19 I I started on the floor the summer
48. 1:48of 1983.
49. 1:50>> Longer than I think Quinn and I have
50. 1:52both been alive. So [laughter]
51. 1:54>> there you go. and and I was just a kid
52. 1:55in a cheap polyester pair of pants and a
53. 1:58and a shitty pair of shoes and and a tie
54. 2:01trying to figure out if I could afford
55. 2:02to get the enough train fair to to get
56. 2:05back and forth to work at the time.
57. 2:07>> Well, it's a good thing we brought in
58. 2:09the big guns for this because I know
59. 2:10Felix and I are scratching our heads
60. 2:12when we're watching the 30-year shoot
61. 2:14up. 10 bips
62. 2:15>> every day and nothing happening. Seems
63. 2:18like uh just waiting on the next taco.
64. 2:20We we figured
65. 2:21>> Exactly. you know, we got to Yeah, we
66. 2:23got to talk to uh you know, people who
67. 2:25have seen
68. 2:26>> a 10 year above 5.2 before in their
69. 2:29trading career. So, it's it's great to
70. 2:30have DCP on. Yeah. I mean, what the
71. 2:32hell's going on with the bond market?
72. 2:33Obviously, that's been the move um and
73. 2:36all the actions there right now.
74. 2:37>> I mean, just look at where we closed
75. 2:395.22 on the 10-year.
76. 2:41>> Yep. If you take a look, if you take a
77. 2:44look, if you take a look at ZB
78. 2:47>> in the last two and a half months, it's
79. 2:49down almost 10 full Big Boy points,
80. 2:53>> which is good.
81. 2:54>> Truly,
82. 2:55>> truly amazing considering
83. 2:58they were pricing in some cuts prior to
84. 3:00that.
85. 3:02>> Doesn't it just make that uh February
86. 3:0427th pop in in bonds or and bottom and
87. 3:08yields just look crazy like on the
88. 3:10doorstep of the Iran war? I know you've
89. 3:12been tweeting a lot about how so much
90. 3:15really you can pinpoint it directly to
91. 3:17that as the start of this like I guess
92. 3:22presumably there's if this was man-made
93. 3:24there's some there's some way to end it
94. 3:27but but how do you you know what do you
95. 3:29kind of think happens from here where
96. 3:30we're at because so far it's not
97. 3:32affecting cross evolve that much
98. 3:35>> but um
99. 3:36>> not yet um I would say
100. 3:41I laid out some ground rules for what I
101. 3:43think I'm just going to try to pull them
102. 3:45back up here real quick. Um
103. 3:50for me
104. 3:52I I don't believe that
105. 3:56this bond market and stir market can
106. 4:00shift can flip to a good favorable long
107. 4:05until we get
108. 4:08until we get some some real stuff.
109. 4:11What's the best way to say it? Um you
110. 4:13would need the Fed signaling hikes are
111. 4:15done. not going to happen. You would
112. 4:18need AI capex to slow. It's possible.
113. 4:21Oracle's thrown a little bit of a
114. 4:23curveball in there. Crack spreads
115. 4:25rolling over. I think that's the real
116. 4:26one. Material weakness in indices.
117. 4:30Um, does that really get us where we
118. 4:33need to be? And how big of a correction?
119. 4:35And then youth to spike. Can we get jobs
120. 4:38to can we get jobs to be weird? The
121. 4:40problem with jobs is we've reduced the
122. 4:42participants available for the workforce
123. 4:44that employers don't want to let people
124. 4:46go and and so that number is there's
125. 4:49less and less people available to work.
126. 4:52People are holding on to the their
127. 4:53employees as long as they possibly can
128. 4:56already be in a recession I think before
129. 4:58unemployment spikes. So I don't think
130. 5:00that's a reasonable one. And then the
131. 5:02taco cease fire trade. But I I think
132. 5:05those are really the only things as it
133. 5:09stands right now that could
134. 5:12shift the sentiment away from the
135. 5:15bearishness that we're looking at right
136. 5:16now. Um,
137. 5:20you know, and AI capex is still a
138. 5:22driver, man.
139. 5:23I think I I talked to David a couple of
140. 5:25weeks ago, David Cvantes,
141. 5:28and he describes it as an as an
142. 5:31inflationary expansion of all assets.
143. 5:35So, if that's what that is,
144. 5:38you've got to ask, what's the balance
145. 5:40point? What's that tipping point
146. 5:43where interest rates can a offset the AI
147. 5:47capex spend and the inflationary
148. 5:49pressures from cracked and the diesel a
149. 5:52and the pass through of all of that?
150. 5:54What's that interest rate got to be
151. 5:57>> and and I I think it has to be the
152. 5:5830-year and the sixes to be honest with
153. 6:01you. I think you need a a five and a
154. 6:04five and a half and a on the on the
155. 6:06front end so for fed funds. So there's
156. 6:08another 50 pips there.
157. 6:10Um, I think that might get the market a
158. 6:13little bit nervous, but now we're just
159. 6:16killing demand and we're killing the
160. 6:18economy to because of interest rates.
161. 6:22And
162. 6:23I mean, I've traded I traded EUR dollars
163. 6:28with an 85 handle
164. 6:31just to put it in perspective, you know?
165. 6:33I mean, it was brief. It was it was
166. 6:36early in my life, but
167. 6:38>> you know, an 89 handle was no crazy big
168. 6:41deal,
169. 6:42>> you know, and
170. 6:45you know, bar bonds under par, you know,
171. 6:48I mean, that's not out of the question
172. 6:50here, right? So,
173. 6:53>> um, how we get there, I don't know. Uh,
174. 6:55I honestly don't. Um, I think Worsh is I
175. 6:59think Worsh has everyone on the same
176. 7:02page, which is surprising. Mhm.
177. 7:05>> That is the administration you're saying
178. 7:07or just within
179. 7:08>> No, just within just within the board.
180. 7:11>> Um, a unanimous vote was was I was kind
181. 7:14of a surprise to me.
182. 7:16>> Um, I I I like to see it though.
183. 7:19>> Um, because he's going to need all the
184. 7:20horses pulling in the same direction
185. 7:22>> to make some progress here. And if he
186. 7:24had some wild descent,
187. 7:26>> it would have been uglier than I think
188. 7:27it's gonna probably be.
189. 7:30>> Yeah. Yeah. Yeah. And so how if if if it
190. 7:32is all the AI trade, which you know
191. 7:34presumably that's what the data is
192. 7:37saying pretty resoundingly whether it's
193. 7:39e you know metrics of construction in
194. 7:42the real economy to the stock market is
195. 7:45you know it's NASDAQ is winning and
196. 7:48everything else is faltering and it is a
197. 7:52six% 30-year and a five five and a half
198. 7:56front end that starts to trip things up
199. 7:59Like h I have a hard time seeing how the
200. 8:03main street economy the housing engine
201. 8:05is not decimated in that s in that case
202. 8:09like
203. 8:11how would there be any activity
204. 8:14>> the the well
205. 8:17think about old farts like me that
206. 8:21really want to be able to get a above
207. 8:24six on a 10ear or on a 30-year
208. 8:28>> you know or or five and a half on a
209. 8:3010-year, you know? I' I'd throw a couple
210. 8:33mil at that all day long, you know what
211. 8:35I mean? It's it's easy money.
212. 8:37>> Yeah.
213. 8:37>> Um it's risk-f free. I don't have to do
214. 8:39[ __ ]
215. 8:40>> If you can get if you can get tips at
216. 8:42three.
217. 8:44>> Yeah, I think tips are interesting.
218. 8:46>> You know, I mean, I think it's a 283,
219. 8:48284 right about now. So, you know,
220. 8:50you're not that far away from a three.
221. 8:53Um, I think that would be extremely
222. 8:55interesting to see how that market
223. 8:57starts to absorb that. I think the
224. 9:00larger question is is
225. 9:03I mean the upper half is fine. the lower
226. 9:05half of the K is really struggling, you
227. 9:07know, and they're the ones, the lower
228. 9:09half of the K are going to get squeezed
229. 9:12hard in the next six to nine months
230. 9:15because
231. 9:17this the lag on the pass through from
232. 9:19diesel hitting everything is going to
233. 9:22take time, right? Like American farmers,
234. 9:26the smart ones had their fertilizer
235. 9:28ordered for this year, for this growing
236. 9:31year.
237. 9:31>> That's not the case for next year,
238. 9:33right? you know, they're paying real
239. 9:36pricing now for next year delivery. So,
240. 9:38are they playing games with it? Um, the
241. 9:41cattle market's not going to improve
242. 9:43anytime soon. So, your beef prices are
243. 9:45going to be through the roof. [snorts]
244. 9:47Um, I'm paying double in my school
245. 9:49catering business for for beef from
246. 9:52three two years ago.
247. 9:54>> It's it's, you know, it's it's full on
248. 9:56double. Um,
249. 9:59so you got gas, you got diesel, you got
250. 10:01fertilizer, you got diesel impacting
251. 10:05food service,
252. 10:07retail, Amazon,
253. 10:10anything that's on wheels, diesel is
254. 10:12going to get in there. I was just in CI.
255. 10:14Diesel was nine bucks a gallon. It's
256. 10:16it's it's seven bucks a gallon in
257. 10:18Chicago.
258. 10:19>> Insane. Yeah.
259. 10:20>> Right. So, you know, how much higher
260. 10:21does that have to go before
261. 10:24you start to see the little guys
262. 10:27SC get screwed really hard. Um,
263. 10:29>> it's got to be soon.
264. 10:31>> It's got to be It's got to be somewhere
265. 10:33in there where it's starting to
266. 10:34metriculate down.
267. 10:36>> I mean, we've been talking about that
268. 10:38narrative for 48 months, though, right?
269. 10:40I mean,
270. 10:40>> yeah,
271. 10:41>> it's not like it's a surprise. And
272. 10:43>> I think that's a surprise is probably
273. 10:46not the best way to say it,
274. 10:48>> but a material shift in the in the
275. 10:51narrative. And Felix, I think when when
276. 10:56>> David and I were last on the show, I
277. 10:59think David was the one that said
278. 11:01he didn't trust the bottom in 08 0809
279. 11:05>> until Congress got involved and enacted
280. 11:07new legislation.
281. 11:09>> And [clears throat] that's kind of what
282. 11:11I think we need to see here.
283. 11:13>> Yeah.
284. 11:13>> And I don't know. Go ahead. Oh, I was
285. 11:16just going to say it's interesting that
286. 11:17like when you mention these structural
287. 11:20changes that need to occur to see the
288. 11:21narrative shift. Like it feels like the
289. 11:24market's actually reacting more harshly
290. 11:25to these to the patchwork that we're
291. 11:27seeing because today we got the Besson
292. 11:29came in with his liquidity buybacks,
293. 11:31>> right?
294. 11:31>> Um and he came in and you know he was
295. 11:34ready to buy six billion and he only
296. 11:36bought four billion. Um and you know
297. 11:38that that that just put fuel into the
298. 11:39fire today of the bond market. And it's
299. 11:41just interesting that like when you went
300. 11:43through your checklist of what would
301. 11:45shift things, you know, outright
302. 11:47intervention from the Treasury Secretary
303. 11:49was not in that list. [laughter] And it
304. 11:51feels like the bond market's calling
305. 11:52that out today, too.
306. 11:53>> I don't think he has the gunpowder to do
307. 11:56it
308. 11:56>> to be perfectly honest with you. The
309. 12:00I mean, we're going to be at a $50
310. 12:01trillion deficit by the end of the year.
311. 12:04I mean, it's pretty much a given at this
312. 12:05point in time.
313. 12:06>> It probably is going to be maybe even a
314. 12:08trillion dollars higher than that. So
315. 12:11every every uptick in interest rates is
316. 12:14just eating up eating up issuance.
317. 12:19So okay, you're going to buy 10 billion,
318. 12:21but you're going to do a half a trillion
319. 12:23in issuance. Okay? You know, I mean,
320. 12:26come on. You know, I mean, we've all
321. 12:28been drunk and pissed off the back of
322. 12:29the boat into the lake. It's not going
323. 12:31to really change the lakes's, you know,
324. 12:33makeup.
325. 12:34>> You know, it is what it is. And,
326. 12:36>> you know, you'd have to go full on
327. 12:40intervention and I just don't see it,
328. 12:43you know. I I really don't um
329. 12:47Grant I think Grant Cardone put out a
330. 12:49crazy tweet about how he thought he
331. 12:52could solve the market the deficit in
332. 12:54like six easy steps of cutting rates to
333. 12:56zero
334. 12:58>> and buying Bitcoin. [laughter]
335. 12:59>> And I was like, "Oh my god, are you
336. 13:01kidding me? Do you want 9% interest
337. 13:03rates and a $3,800 or 38 thou or 3,800
338. 13:07ES?" So,
339. 13:10I don't know. I I think
340. 13:12a slow steady hand is what's really
341. 13:15needed here from the Fed.
342. 13:16>> Yeah.
343. 13:17>> Um consistent messaging.
344. 13:20Um I do think that the midterms will be
345. 13:24probably somewhat supportive of a
346. 13:27hamstring a hamstrung
347. 13:30Washington.
348. 13:32So, at least they won't do anything
349. 13:34incredibly stupid. Now, if the Dems get
350. 13:37both the House and the Senate, then it's
351. 13:40impeachment time and it's all the games
352. 13:42and all that. And
353. 13:43>> yeah,
354. 13:43>> then they maybe come for AI and try to
355. 13:45legislate that. And you know, um,
356. 13:51>> here's a theory is is the bond market
357. 13:53right now is one of the things driving
358. 13:55the bond market, this is this is one of
359. 13:57my thesis, it's uh sniffing out or
360. 14:01pricing in that one of the only things
361. 14:03Dems and Republicans agree on and is
362. 14:07more spending and that we're heading
363. 14:09into split Congress after the 2018
364. 14:12midterms when Trump lost those, you
365. 14:14know, coming into 2019. 19 obviously the
366. 14:17compromise and and those budget
367. 14:19negotiations was lifting the the ceiling
368. 14:22and more spending. So I'm kind of and
369. 14:24then I think when you just play every
370. 14:26scenario forward, okay, five, six%
371. 14:28interest rates, Main Street's in the
372. 14:30gutter,
373. 14:32I mean there's no austerity fix here.
374. 14:34So,
375. 14:34>> n
376. 14:36it's it's like the bond market sort of
377. 14:39uh in a way fast forward kind of playing
378. 14:43playing forward how all roads lead to a
379. 14:47a more s un more unsustainable fiscal
380. 14:50position. I think is is one of the
381. 14:52theories I have.
382. 14:53>> I I think it's a warning shot across the
383. 14:55bow. Um
384. 14:58the reality is is if you've got money
385. 15:00that you want to allocate into bonds,
386. 15:04um you're a pension, you're an
387. 15:06endowment, you're you're you're you're
388. 15:07managing
389. 15:09um you're managing money, you're putting
390. 15:12you're you want some safe haven, you're
391. 15:15in your 60s and you're getting older and
392. 15:17and you don't want to be in the game at
393. 15:18this level with with the markets in this
394. 15:20precarious locations um for the
395. 15:23possibility of a big correction in the
396. 15:24ES or the NASDAQ. So, why would I do it
397. 15:28now? Why wouldn't I wait for a little
398. 15:30bit more? You know, why wouldn't why
399. 15:32wouldn't I say, you know what, that's
400. 15:35pretty crazy out there. I think I can
401. 15:37get another 38, another half a bip, you
402. 15:41know, and if I can get another 38, half
403. 15:43a bip million bucks,
404. 15:46you know? I mean, I just looked at my
405. 15:48wife's 401k the other day and they've
406. 15:51got her lined up in in twos and fives
407. 15:54for like 35% of the book and it's it's
408. 15:58at decent levels. It's not it's not twos
409. 16:00and threes, it's fours, it's fives. So,
410. 16:04you know, you're going to start to see
411. 16:06some adoption
412. 16:08once it becomes attractive enough. But
413. 16:11again, it's when does it become
414. 16:13attractive enough versus when does it
415. 16:15become high enough that it actually
416. 16:17impacts the greater the greater economy?
417. 16:20When when does it force a crack?
418. 16:22>> And that's the thing is like it's it
419. 16:24does don't equities have to fall for
420. 16:26that for a response to be ha you know
421. 16:29achieved from policy?
422. 16:31>> Well, I mean I think we're all ruined by
423. 16:34QE to a certain extent.
424. 16:38>> Myself included, right? Um,
425. 16:42my default lean since
426. 16:46' 08 was the Fed's going to save you.
427. 16:49The Treasury and the Fed are going to
428. 16:51save you. Yellen reinforced it. Bernaki
429. 16:55did it. Pal was a little bit better at
430. 16:57it, but not a whole lot better. Um,
431. 17:03it's kind of ingrained in people's
432. 17:06expectations
433. 17:08that they're going to do QE if there's
434. 17:09something that blows up. And
435. 17:13Dario Perkins put out a tweet the other
436. 17:15night and I'm still been thinking on it
437. 17:17trying to figure out what it means. But
438. 17:20he said, "Don't worry about the stuff
439. 17:21that the Fed can fix. Worry about the
440. 17:23stuff the Fed can't fix."
441. 17:27And I've been trying to figure out what
442. 17:29does that mean? What is that? What can't
443. 17:31the Fed fix here?
444. 17:32>> They they can't fix a runaway dirtier.
445. 17:36>> They they can't stop it
446. 17:38>> or or a supply shock energy supply shock
447. 17:41>> or a supply shock. Well, I mean, my
448. 17:43argument for not hiking, and this goes
449. 17:46back to the when the war just started
450. 17:48was why are you hiking into a supply
451. 17:50shock? It's not going to be effective at
452. 17:52containing inflation.
453. 17:53>> And it's still not going to be in it.
454. 17:55It's still not going to contain
455. 17:56inflation. It might prevent some pass
456. 17:59through at the consumer level. Um, but
457. 18:04it's still not going to fix the oil
458. 18:07problem. And I mean, literally, guys,
459. 18:12president of Iran
460. 18:14is going to be on Fox News tonight.
461. 18:17I mean, think about that.
462. 18:18>> Talking about the tweeting and talking
463. 18:20about the tenure. [laughter] I mean,
464. 18:22those tweets,
465. 18:23>> whoever's writing that account is
466. 18:25[ __ ] fantastic.
467. 18:28>> Oh my god, that RS star straight up
468. 18:30Hormuz tweet was just gold. Just gold.
469. 18:35>> I mean,
470. 18:38>> yeah.
471. 18:39So,
472. 18:40>> I mean, the the so like the last time
473. 18:42that we were here a few years ago,
474. 18:45>> you know, with a with a long end above
475. 18:48five, even though it's for for a quick
476. 18:50second, like you fast forward six months
477. 18:52later, there was there was clearly some
478. 18:54tightening on the economy that occurred
479. 18:56pretty promptly afterwards. And same
480. 18:57with, you know, the the Ukraine war
481. 19:00invasion, energy crisis associated with
482. 19:02that led to high energy prices. You
483. 19:04know, you fast forward and then early
484. 19:052024, we're surprised cutting with 50
485. 19:07bips. So, I guess the, you know, where
486. 19:10my head is at now is I look across the
487. 19:12curve at where that is at and, you know,
488. 19:14we're hitting, you know, in the belly
489. 19:17and the long end, we're going above
490. 19:18those levels that we hit a couple years
491. 19:20ago. Um, [clears throat] plus you have
492. 19:22diesel where it's at which is a lot
493. 19:24higher than it was a couple years ago as
494. 19:26well. And obviously, we know that that
495. 19:27has much more direct uh impact on on
496. 19:30trickle down into the rest of the
497. 19:31manufacturing base of the US economy.
498. 19:33So, it feels clear like there's a lot of
499. 19:36tightening of financial conditions and
500. 19:39the economy that's baked into the cake
501. 19:40right now, even if we don't see a couple
502. 19:42more rate hikes. Like really, what does
503. 19:4425 bips do compared to the mammoth of
504. 19:47tightening that is about to happen from
505. 19:49those two variables? And I'm like, where
506. 19:51do we go from here?
507. 19:54Um, I I'll stick with my thesis that
508. 19:57until I see something materially change,
509. 20:00it's still the pain trade with higher
510. 20:02yields. And, you know, let me pull up a
511. 20:09let me pull up sofur. I mean
512. 20:12I mean there is not a cut priced
513. 20:18until December of 29.
514. 20:22>> And it's not even really a cut. It's
515. 20:24just okay. Maybe I don't want to be
516. 20:25short that far out.
517. 20:27>> Yeah.
518. 20:27>> Um
519. 20:29you know we're
520. 20:31step seven D7 March June 8 D8. And you
521. 20:36guys know that I love the D28 contract.
522. 20:40It's been my It's been my weather vein
523. 20:42for forever because it's the end of
524. 20:44Trump.
525. 20:45>> Um and it's going to be where we're at.
526. 20:48>> I mean,
527. 20:51the beginning of the war it was trading
528. 20:5296.90.
529. 20:55>> It's crazy.
530. 20:57>> It's 9517 and a half.
531. 21:00>> And to be honest with you, I don't know
532. 21:02a whole lot of people that caught the
533. 21:03whole move. I don't I don't think I know
534. 21:05anyone that caught the whole move.
535. 21:09Right. I mean,
536. 21:10>> it was so delayed too relative to the
537. 21:12price of oil, right? Because we had the
538. 21:14oil spike come down and then it's been
539. 21:17very I guess it it when you zoom out, it
540. 21:20makes sense because they drained the
541. 21:22SPR, they gave tariff refunds, they gave
542. 21:24the OBB. So, a lot of And that's why the
543. 21:28Fed's pivoting so hard now because it is
544. 21:31now a hot economy story versus before
545. 21:33just a rising price story.
546. 21:36>> Oh, absolutely. And PCE is going to come
547. 21:38in hot the next two months.
548. 21:40>> Mhm. Yeah.
549. 21:41>> You know what I mean? I think they got
550. 21:42in front of that and I think it's good
551. 21:44that they did. They're already a little
552. 21:46bit behind, but they would be a lot
553. 21:48>> That's the thing. Yeah. That the sofa
554. 21:49curve is pricing on a lot more hikes
555. 21:51than the recent dots from just last
556. 21:53week.
557. 21:53>> Way more.
558. 21:54>> Yeah. Yeah. They're already behind on
559. 21:56that regard.
560. 21:57>> I mean, it's been a long time since you
561. 21:59could say that there were vigilantes in
562. 22:00the market,
563. 22:02>> you know, and it's, you know, I mean, I
564. 22:04remember that. But I used to do Solomon
565. 22:06Brothers business back in the day and
566. 22:07they were the bond vigilantes. They
567. 22:10controlled the entire thing. Well, they
568. 22:12they rigged it, but they they they they
569. 22:15controlled the whole trade. So, [snorts]
570. 22:18um
571. 22:20I think it's a combination of you got
572. 22:22hesitant buyers.
573. 22:25They think they can get a better yield
574. 22:26on their investment if they're going to
575. 22:28go into in some sort of fixed income
576. 22:30investment.
577. 22:32Um,
578. 22:34ES is still holding in there, man. It's
579. 22:367670, right? I mean, it's like, you
580. 22:39know, we're 200 points off the the
581. 22:41highs. I I mean, and I get it. I get it.
582. 22:45We're spending money hand over fist. We
583. 22:47did it with employee retention. We did
584. 22:49it with the PPP. We did it with the
585. 22:52COVID stim. Trump's throwing out, I'm
586. 22:54going to give everybody five grand if
587. 22:56you vote for my my Republican buddies.
588. 22:59Um,
589. 23:01so and then now you got the AI stuff
590. 23:03just there's so much cash floating
591. 23:05around and it's I think the concern is
592. 23:09it's being increasingly concentrated
593. 23:11into AI.
594. 23:13>> Mhm.
595. 23:13>> So of all the things that I expected to
596. 23:16break first,
597. 23:19AI is probably the thing that I think
598. 23:23triggers a reversal in yields.
599. 23:26It'll be it'll be and I think it's
600. 23:29probably private credit.
601. 23:32I I think it's probably something in
602. 23:34that zone that black that Black Rockck
603. 23:37group um or some of their peers.
604. 23:41Um some private equity that's getting
605. 23:43involved. Maybe Oracle takes down a
606. 23:46couple of people. Um
607. 23:48I mean Oracle's Oracle's bonds are
608. 23:51upside down by at least 10 bips now,
609. 23:53right? And they just did a force majour,
610. 23:57which is crazy. I'm an idiot. Force
611. 24:00majour. I wish I could get away with
612. 24:01that. Um, [laughter]
613. 24:04>> the co playbook. Get out of all your
614. 24:06shitty contracts,
615. 24:07>> right? It should, you know,
616. 24:08>> it should be like, it should be a little
617. 24:10self-fulfilling at some point because
618. 24:12they're the, you know, they're in the
619. 24:14same way that they're like 50% of the
620. 24:16equity market now, they're gonna
621. 24:18overtake that in the IG bond market. So
622. 24:20they're already pushing spreads up that
623. 24:23supply of you know we've had the public
624. 24:25market supply problem coming from the
625. 24:26government. Now there's also a private
626. 24:29private issuance glut. So in a sense
627. 24:31you'd expect at some point these higher
628. 24:35cost of capital conditions have to sort
629. 24:38of be self-fulfilling to yeah it's a
630. 24:40simple IRRa calculation NPV calc of
631. 24:43financing you know for so you'd think
632. 24:46that that there is we're getting closer
633. 24:49to the point at which the the rates
634. 24:52market puts the brakes on the the and it
635. 24:55obviously is not going to end it but
636. 24:57it's can desell. Oh, it's just what are
637. 24:59you going to what are you going to have
638. 25:00to pay for it?
639. 25:01>> Yeah.
640. 25:02>> Right. You know, it's um it's like
641. 25:04hurricane insurance in Florida. What are
642. 25:06you going to have to pay for it? You
643. 25:07know what I mean? And that that's
644. 25:09probably where it gets to is okay, I got
645. 25:13to pay 9%, I got to pay 10%. Um I mean,
646. 25:16I just looked up an SBA
647. 25:197A loan, which is a working capital
648. 25:21loan. I think it's a $200,000 max loan
649. 25:24amount for a small business. It's in
650. 25:26It's a 12 to 13% interest rate right now
651. 25:30for an SBA note. Now, you can still
652. 25:32borrow on the 504. You can still borrow
653. 25:36up to 2 three million bucks at, you
654. 25:38know, in the mid60s.
655. 25:41And that that number when I closed on
656. 25:43the brewery loan, that was the previous
657. 25:46old highs.
658. 25:48And we were two, three bips below prime,
659. 25:52two, three full points below prime with
660. 25:54the SBA.
661. 25:58But that, you know, there's a world of
662. 26:01difference between a little guy trying
663. 26:03to do an SBA loan and Apple sitting on
664. 26:06all their reserves. Um,
665. 26:09>> for sure
666. 26:09>> the little guys in the middle are just
667. 26:12getting crushed.
668. 26:14So, I'd keep an eye on bankruptcies.
669. 26:16Um, especially smaller bankruptcies, you
670. 26:19know, the one to10 million, one to$20
671. 26:20million range for corporate stuff,
672. 26:23restructure, that kind of thing, because
673. 26:25I got to think that's going to start
674. 26:27kicking in soon,
675. 26:29you know? Now you're talking I I don't
676. 26:31know where Prime is. I would imagine
677. 26:33it's probably seven and three/4ers, 8%
678. 26:36right now.
679. 26:38>> What do you make of the yield curve?
680. 26:40Because, you know, it's flattened
681. 26:43>> tremendously. Yeah. I think it needs to
682. 26:45steepen more and I think it's going to
683. 26:47be a bare steepener. I don't I don't I
684. 26:52if you pull up I mean just
685. 26:55you can't even find a chart in the last
686. 26:5820 years that's going to show you how to
687. 27:02price a level on ZB on the futures
688. 27:05contract sub sub 103.
689. 27:10Right? So now you're into uh historical
690. 27:13average kind of stuff
691. 27:16and your c your your comps
692. 27:19are going back to the 70s.
693. 27:21>> Mhm.
694. 27:22>> Right. I mean that's what we're talking
695. 27:24about. We're talking about going back to
696. 27:26Jimmy Carter, losing a helicopter in
697. 27:29Iran with yields over 10%
698. 27:32and vulkar, you know, smoking cigars in
699. 27:36the [ __ ] Senate here and just being a
700. 27:39boss. Um, you know, I I don't know.
701. 27:45I mean, everything that happened post
702. 27:47that, my entire career on the floor was
703. 27:50all the unwind of that inflation trade.
704. 27:53>> Yeah.
705. 27:54>> And and it was 40 years. I mean, if you
706. 27:57want to talk about the big short, it was
707. 28:00shorting the front end of the curve from
708. 28:02from the 80s all the way until co
709. 28:07>> I mean, that was the trick. just roll,
710. 28:10>> you know, either that, either that or
711. 28:11just buy, you know, 500 S&P at $400
712. 28:15>> and just roll it forever and ever and
713. 28:17ever and ever and ever and be a
714. 28:18trillionaire. You know, those were the
715. 28:20two trades. A and
716. 28:24a lot of modern theory is based on that
717. 28:27fact that interest rates are just going
718. 28:30to decline for four decades and the S&P
719. 28:33is just going to rally because interest
720. 28:35rates are declining for four decades,
721. 28:37you know, and that that's the trade that
722. 28:39if I sit back with my buddies and I'm
723. 28:41actually going to Wisconsin to see two
724. 28:44of my buddies from the pit this weekend
725. 28:45because one of her one of his one of one
726. 28:47of them is their daughter's pregnant and
727. 28:49they're doing a baby shower.
728. 28:51Um, so I'll be at the grandpa table,
729. 28:54which will be fun. [laughter] And the I
730. 28:58mean that's
731. 29:00nobody saw it back then.
732. 29:02>> Mhm.
733. 29:03>> Like we never really said, you know
734. 29:05what, they're going to take the long end
735. 29:07from 10%.
736. 29:09To to 1%.
737. 29:11>> Yeah. You're not like, oh my god, I'm in
738. 29:12a generational bond bull market here.
739. 29:14Like you're just, you know, you're just
740. 29:16trading what's on the screen every day.
741. 29:17Yeah.
742. 29:18>> I mean, there was always noise, right?
743. 29:19There was always noise. There was, you
744. 29:21know,
745. 29:21>> I Here's a funny story. During the
746. 29:24Clinton administration,
747. 29:26do you know they suspended issuance of
748. 29:2830-year treasuries
749. 29:29>> because they thought they thought the
750. 29:31bond market was no longer going to exist
751. 29:33because we were going to have a surplus.
752. 29:35>> Yeah. [laughter]
753. 29:36And that was right before we just went
754. 29:38into endless Yeah. deficit.
755. 29:41>> Swear to God.
756. 29:42>> Yeah. Yeah.
757. 29:44So maybe the
758. 29:47maybe we could look at some sort of a
759. 29:49flushing event, some sort of a, you
760. 29:52know, some sort of a little swan that
761. 29:54that blows things out a little bit and
762. 29:57and kind of set some perspective here.
763. 30:00Um, I don't think it's the gen carry
764. 30:02trade.
765. 30:04Um,
766. 30:06it's probably geopolitical,
767. 30:09right? I mean, if you get resolution in
768. 30:12Russia or Iran or we get an agreement
769. 30:16with Xi, I mean, this is the perfect
770. 30:19week for something positive on the
771. 30:22geopolitical front from the greatest
772. 30:25guy, the greatest president in our
773. 30:27history, who is the best dealmaker ever.
774. 30:30He's got the president of Iran and the
775. 30:33president of China in Washington right
776. 30:35now.
777. 30:35>> Yeah. If he wants to really make a deal
778. 30:38in Taco,
779. 30:40this is the time right now.
780. 30:41>> 100%.
781. 30:42>> You know, and and if he squanders that
782. 30:45opportunity,
783. 30:49we're stuck where we are, you know. I'm
784. 30:52not looking at I'm not looking at the
785. 30:53midterms. Yeah, you are. You know, but
786. 30:56you know, it's like, okay, whatever. You
787. 30:59keep lying to us, basing, I'm the house
788. 31:02now. I'm the house now. I mean, that's
789. 31:04the dumbest [ __ ] you could do.
790. 31:07dude,
791. 31:07>> you know.
792. 31:08>> Oh my god. Yeah. All right.
793. 31:11>> I think I think that um I think the Iran
794. 31:15situation is very difficult to solve.
795. 31:20I mean
796. 31:22I I think it's really testing them
797. 31:24because
798. 31:26politically taking the L I think
799. 31:29strategically you you you forfeit
800. 31:31everything. I just don't really see
801. 31:35you know, this this much of a reason
802. 31:37strategically to do to come to a deal
803. 31:41from the US perspective, but they need
804. 31:44to bridge this gap to midterms. You
805. 31:46know, we still got 30 days left. Like
806. 31:48they,
807. 31:49you know, we've been kind of scratching
808. 31:51our heads for a couple weeks now is
809. 31:53oil's just ratcheted higher, ratcheted
810. 31:54higher, saying, "What's the plan here?
811. 31:56What's the plan?"
812. 31:58>> And I think it's it's coming to a head.
813. 32:00And you know, there's a I know
814. 32:03everyone's kind of expecting them to
815. 32:04keep keep the tires spinning into into
816. 32:07November, but I I I'm thinking there's a
817. 32:10a maybe even a better chance that they
818. 32:13don't and they can't and that's, you
819. 32:17know, that the market tests them more
820. 32:19more concretely before then.
821. 32:22I mean,
822. 32:26I think people forget
823. 32:28that Persia went to war with Rome,
824. 32:34you know. Um,
825. 32:37so they've been around a while. They got
826. 32:40a frightful history. Um, yeah, they're
827. 32:44terrorists. They're not great people.
828. 32:46Um, they support negative terrorists in
829. 32:48the in the region. Um,
830. 32:53but they're getting help from Russia and
831. 32:55China still.
832. 32:57They're getting munitions, they're
833. 32:58getting equipment, they're getting
834. 32:59drones, they're getting imagery, they're
835. 33:02getting intel.
836. 33:04Um, to a certain extent, Xi, Putin, and
837. 33:08Iran are an axis of power that is
838. 33:13working in cohort in conjunction with
839. 33:15each other to make life as difficult as
840. 33:19possible.
841. 33:20um for Trump without going too far right
842. 33:24there that we've got two wars.
843. 33:27You know, if it was really bad, G would
844. 33:29be saying, you know, screw you. I'm
845. 33:31going to take Taiwan. Spread your
846. 33:32defenses across the world and see what
847. 33:34you got. You know, um
848. 33:39that is contrary to what he said today.
849. 33:42His comments were extremely diplomatic
850. 33:45when he when they released comments
851. 33:47today with Trump. So
852. 33:52Iran can keep us
853. 33:57hostage
854. 33:58is a good word on both straits.
855. 34:03At least the threat of is good enough.
856. 34:07We don't know what's really going on in
857. 34:10Iran,
858. 34:12right? I mean, you know, in Hamas, in
859. 34:15Gaza,
860. 34:17Israel had enough intelligence on the
861. 34:19ground that they could get a good gauge
862. 34:21of what was really going on. I don't
863. 34:23know that Israel has the MSAD actively
864. 34:26in Iran functioning at a high level.
865. 34:29They might, they may not. I think we
866. 34:32would have heard a little bit more or
867. 34:33seen a little bit more success if that
868. 34:35were the case. I know American assets CA
869. 34:39doesn't have the kind of infiltration
870. 34:41that I would like to see on that front.
871. 34:43So,
872. 34:44could Iran be at 300% inflation and and
873. 34:48just terrible [ __ ] going on in the
874. 34:49streets and and they're ready to crack?
875. 34:52Well, you know, in a democracy, yeah,
876. 34:55but not in a dictatorship,
877. 34:58>> you know, in a dictatorship, they don't
878. 34:59give a [ __ ] they'll just reroute the
879. 35:01food to their soldiers and the people
880. 35:03that are on their in their camp and
881. 35:05they'll just let everybody else just
882. 35:06die. They don't really care. So, you
883. 35:10know, it's it's a situation where
884. 35:13all the pain in America is exposed,
885. 35:16right? And we're still in a good
886. 35:18economy.
887. 35:19We're still in a good spot. We we are
888. 35:23defying logic on every level and bears
889. 35:27are in turmoil, right? But
890. 35:30we don't know what's really going on
891. 35:32over there. They know exactly what
892. 35:34buttons they're pushing over here. We're
893. 35:37just going to have to let it play out a
894. 35:38little bit. And and I don't see it
895. 35:39changing.
896. 35:40>> I I if I were Iran, I would not
897. 35:42negotiate with the United States
898. 35:46to be I would not give up my hand until
899. 35:50Trump's out of office. I would be
900. 35:52holding out for a new president to
901. 35:54negotiate with.
902. 35:55>> Yeah, makes sense. I think like that
903. 35:57whole comparison of just how complicated
904. 36:00this is is really key to just how
905. 36:02confusing this market has been. I
906. 36:04actually really liked um DC you you
907. 36:07tweeted a couple days ago and I
908. 36:08retweeted it but I thought it was a
909. 36:09really good take where you're saying
910. 36:10I'll just read it but you're like if we
911. 36:12were honest this current setup is a
912. 36:13really hard trade. You have to be ready
913. 36:14to piss off all your friends or said
914. 36:16differently. You need to think for
915. 36:18yourself and carry on. There are no
916. 36:20gurus or no indicators at work in times
917. 36:22like these. Um, not sure, but I'm kind
918. 36:25of sure this rhymes with what your mom
919. 36:26and dad said you need to watch out for.
920. 36:29But I just thought it was really good
921. 36:31that you have to piss off your friends
922. 36:32and think for yourself because like you
923. 36:33can make a good case for almost anything
924. 36:35right now and like people are going to
925. 36:37be pretty split on their opinions and
926. 36:39>> Yeah.
927. 36:40Well, and and I think the other thing
928. 36:42that's really funny now is is I mean, I
929. 36:44get a ton of DMs lately because I've
930. 36:46been trading this [ __ ] for so long and
931. 36:48people are trying to figure it out, but
932. 36:51I can change my mind in 3 seconds on
933. 36:54this market.
934. 36:55>> Mhm.
935. 36:55>> You know what I mean? It's like I might
936. 36:57not be able to get out of my position,
937. 36:59but I can change my mind really fast if
938. 37:02something changes. So, all I'm trying to
939. 37:05do right now is is game theory. what
940. 37:08might give me the change. And the
941. 37:10reality is is I probably won't figure
942. 37:13out what it really is until it hits me
943. 37:16in the face. And you'll just wake up one
944. 37:18morning and you go, "Oh [ __ ] I should
945. 37:20have seen that coming."
946. 37:21>> You know, and and
947. 37:24nobody saw this move here. We were
948. 37:28pricing threequarters of cuts in. We
949. 37:30took the threequarters of cuts out. We
950. 37:32priced in three quarters of heights. Now
951. 37:34we're pricing in four heights. Mhm.
952. 37:37>> That's since the war, man. That's since
953. 37:39March.
954. 37:40>> It's insane.
955. 37:42>> I mean, you're talking
956. 37:45>> I mean, you're talking one and
957. 37:46three/4ers on the front end and nine to
958. 37:5010 full big boy ticks in this in the in
959. 37:53the uh ZB. So, this entire market has
960. 37:58missed this trade. And you know
961. 38:02there was a lot of quick moves
962. 38:05going into FOMC.
963. 38:09>> You saw I mean if you look at sofur that
964. 38:11was pretty violent stuff you know it was
965. 38:1429 ticks it was 30 ticks it was 10
966. 38:16ticks. was a little tiny bounce and then
967. 38:18slammed again, you know, that was people
968. 38:21getting out.
969. 38:23>> Mhm.
970. 38:24>> You know, and some getting in
971. 38:25aggressively, but I think a lot of that
972. 38:27was exiting and and if you especially if
973. 38:30you look at
974. 38:32if you look at the open interest and in
975. 38:34ZB,
976. 38:35it really really really peaked. volume
977. 38:38peaked
978. 38:40going into the FOMC meeting and then it
979. 38:44declined and volume just spiked again
980. 38:48today to its highest level. And so now
981. 38:53you got you got people trying to figure
982. 38:55out what's next. Um
983. 38:59I mean for me I I need to see 103 even
984. 39:02hold in in ZB.
985. 39:04I'd have to do the math um to see where
986. 39:07it actually correlates to. Um I mean par
987. 39:11is usually 6%, right?
988. 39:15>> Mhm.
989. 39:16>> So do you get a 6enter? Do you get to
990. 39:19par? I think if you go through 103
991. 39:2210312,
992. 39:24you got a really good chance of going to
993. 39:26par.
994. 39:27And we haven't been we haven't been a
995. 39:29par in a long [ __ ] time.
996. 39:32>> Yeah. Or two,
997. 39:33>> right?
998. 39:34Yeah, I guess that's what's so you know
999. 39:36everybody looks at what's happening in
1000. 39:38the long end and thinking all right well
1001. 39:40you know 10 year at six
1002. 39:43are yeah yeah our risk assets can they
1003. 39:45can they sustain that or not and and
1004. 39:47then the second question becomes is it
1005. 39:49about the level or the path that we get
1006. 39:51there and how aggressive that path is
1007. 39:53i.e the volatility getting there. And
1008. 39:55obviously, you know, when you get we had
1009. 39:57that terrible 5-year auction and then
1010. 39:59things just puked like nuts and
1011. 40:01obviously that's really bad for risk.
1012. 40:02But then,
1013. 40:03>> you know, it's always interesting to see
1014. 40:05it stabilize. Obviously like this is
1015. 40:07only my second major inflationary
1016. 40:10stackflation or whatever you want to
1017. 40:11call it big cycle of my lifetime here
1018. 40:13because been used to just zer but um I I
1019. 40:17just remember from the 2022 cycle it's
1020. 40:19like you know you get the aggressive
1021. 40:21move and that's what you know gets risk
1022. 40:23assets all offkilter but then you know
1023. 40:25when the move index comes down the ball
1024. 40:27comes down it seems like it can find an
1025. 40:30equilibrium um but it's more so just
1026. 40:31about how aggressive the path is to get
1027. 40:33there
1028. 40:34>> um I look at move as the same way I look
1029. 40:37at the VIX VIX six month spread.
1030. 40:41>> Mhm.
1031. 40:41>> Um the the more it spikes out of line,
1032. 40:45the more I think we got a reversal
1033. 40:47coming. Um I don't think we're there on
1034. 40:49move or are we even over 100.
1035. 40:52>> We're at So we just we got the 104
1036. 40:55today.
1037. 40:55>> We got to 104. Okay.
1038. 40:57>> Yeah. Um
1039. 41:03>> the March high was 111.
1040. 41:06>> Yeah.
1041. 41:06>> Yeah.
1042. 41:07>> So that's interesting.
1043. 41:08>> Yeah.
1044. 41:08>> I think I think I think you'd need a
1045. 41:09higher high than that.
1046. 41:11>> Yeah.
1047. 41:12>> I I think I mean if you really want to
1048. 41:15blow off capitulation in bonds, it's
1049. 41:18going to come around par.
1050. 41:20>> And whether that's sustainable and it
1051. 41:22reverses or it continues is really the
1052. 41:25bigger question.
1053. 41:27Um, I think this economy could easily
1054. 41:30handle
1055. 41:32six and a quarter,
1056. 41:35five and 3/4 to 6% on the 10 year, six
1057. 41:38and a quarter and higher on the 30-year.
1058. 41:40Um,
1059. 41:43it's going to crush some people.
1060. 41:45>> Mhm.
1061. 41:46>> Um, if you've got a refi out of some
1062. 41:48stuff, it's going to be ugly.
1063. 41:51Now you've got the conversation about
1064. 41:54how does that impact CRA? How does that
1065. 41:57impact uh regional banks? Regional
1066. 42:00banks, if you look at KRE on a daily,
1067. 42:03>> it literally is sitting on the 200 right
1068. 42:06now
1069. 42:07>> and it probably punched through today.
1070. 42:10>> Yeah.
1071. 42:10>> Um
1072. 42:13yeah, I mean that that's right on that
1073. 42:15200 bar. If you added 200 SMA to it,
1074. 42:18we're right there. Um, and and that's
1075. 42:21important because Worsh has specifically
1076. 42:24called out lending.
1077. 42:27>> I I believe it was Jackson Hole. It
1078. 42:29might have been his first presser, but
1079. 42:31he specifically called out regional
1080. 42:33lending.
1081. 42:35So, the stressors that you're going to
1082. 42:37see
1083. 42:38are going to manifest
1084. 42:41in regional lending. Maybe it's CRA,
1085. 42:44maybe it's private credit, maybe it's
1086. 42:47the spread that it's going to take to
1087. 42:48continue to finance the AIX capex.
1088. 42:52Um,
1089. 42:54maybe it's the extra issuance that the
1090. 42:56US has to do to cover enough issuance to
1091. 43:00keep everything rolling in the TGA
1092. 43:02funded. Well, TGA's got a decent balance
1093. 43:05right now, so that's not a concern. Mhm.
1094. 43:08>> I don't see I don't see any stress in
1095. 43:11the repo market or the swap market
1096. 43:13really per se.
1097. 43:14>> Um Congs is is still doing his [ __ ]
1098. 43:17posting. So, you know,
1099. 43:19>> yeah, he hasn't he doesn't seem stressed
1100. 43:21yet. Yeah,
1101. 43:22>> he's he's not stressed at all. So,
1102. 43:25um and everybody I know is selling
1103. 43:27Substacks. So, you know, I mean, it's
1104. 43:30still it's still it's still a boom
1105. 43:31economy. It just feels a little more
1106. 43:33uncomfortable than it did before. But
1107. 43:35yeah, I think that uh
1108. 43:38well, this is this is going to sound
1109. 43:40crazy. I remember when I thought that
1110. 43:42the 10-year at 3.875
1111. 43:45could support the ES at 4,200
1112. 43:48coming out of CO
1113. 43:51and we rocketed out of 4200 after that
1114. 43:54long consolidation and got to where we
1115. 43:57are now almost almost double almost
1116. 43:59double where it was. Um
1117. 44:05>> yeah, easily.
1118. 44:07>> So
1119. 44:07>> I mean yeah so like obviously eventually
1120. 44:09you know we stabilize and and deal with
1121. 44:12it. Um it's not like yeah 10 year six
1122. 44:16end of days. It's just
1123. 44:17>> no
1124. 44:18>> how do you not get whips out in the
1125. 44:19process?
1126. 44:21>> Right. And and what do you own? You know
1127. 44:23what I mean?
1128. 44:24>> Yeah.
1129. 44:24>> Cuz
1130. 44:26>> for I don't know if you captured that
1131. 44:28list of the of all the companies that
1132. 44:31were down negatively on the year at the
1133. 44:33beginning of this.
1134. 44:33>> No, we we didn't start.
1135. 44:35>> All right. So, I'm going to go back to
1136. 44:37it because
1137. 44:38>> Yeah.
1138. 44:38>> Here's where here's where you're going
1139. 44:40to make some of your money.
1140. 44:43>> Um and it's from Compound 248 and it was
1141. 44:46shared by Mountain Peltier Martin
1142. 44:48Peltier earlier this morning. Um stocks
1143. 44:51from all-time highs. Nike down 84,
1144. 44:54McDonald's down 31, CarMax down 63,
1145. 44:56PayPal down 83, Pepsi down 34, Disney
1146. 44:59down 50, Dicks down 46, Wendy's down 75,
1147. 45:03Charter down 72, T-roll price down 50,
1148. 45:07Campbell's down 71, Constellation
1149. 45:09Software down 46, Craft down 70, Fiser
1150. 45:13down 80, Home Depot 35, Hershey's 40,
1151. 45:17Alibaba 65, Otis 35, Lululemon 80,
1152. 45:22Rollins 51, Wingtop 77, Boeing 55, Lyft
1153. 45:2778, Trade Desk 98.
1154. 45:30Those are multi-year lows and they're
1155. 45:34relatively good companies.
1156. 45:37>> Mhm.
1157. 45:38>> Right. So
1158. 45:40that's insane.
1159. 45:42That's where the money
1160. 45:44>> None of those are. That's the issue.
1161. 45:46>> Nope. None of them are AI. Mo most of
1162. 45:50them have something to do
1163. 45:54>> with food service
1164. 45:55>> or
1165. 45:56>> you know what I mean there's some in
1166. 45:58there
1167. 45:59>> consumer
1168. 46:00>> you know and you know the K-shaped
1169. 46:03economy are these the recipients of the
1170. 46:04K-shaped economy
1171. 46:06>> they may be but if you X that if you X
1172. 46:10SpaceX and the Mag 7 out
1173. 46:15>> where's the market really at you know
1174. 46:18where is it really, you know, everyone
1175. 46:19says we're at all-time highs,
1176. 46:22but there's 30 companies that are in the
1177. 46:25[ __ ]
1178. 46:26>> Yeah.
1179. 46:26>> And that's what's so funny now about the
1180. 46:28economy is that, you know, the same way
1181. 46:29that we decided to put equity indices
1182. 46:32dependent on the MAG 7 is now we've put
1183. 46:34the economy dependent on them as well.
1184. 46:36So, you know, topline economic growth
1185. 46:38looks good because all these mag
1186. 46:41sevenmons are investing like crazy and
1187. 46:43and then, you know, corporate profits
1188. 46:44look great because their early rounds in
1189. 46:47anthropic are getting marked up like
1190. 46:48crazy. So, so that gets put onto the
1191. 46:50bottom line. So, that all looks great.
1192. 46:52Um, and we're doing what we did
1193. 46:53basically with the with the equity
1194. 46:55indices now to the economy.
1195. 46:57>> Yes.
1196. 46:57>> Well, RSP is down. Equal's down 6% from
1197. 47:00the highs. So,
1198. 47:01>> right, it
1199. 47:02>> it's it is just I mean MAGs is at
1200. 47:05all-time highs. Yeah, I think it's the
1201. 47:08concentration. There was a good tweet
1202. 47:09also going around of a I think it was a
1203. 47:11Goldman chart showing
1204. 47:13we've never the S&P 500 has never had
1205. 47:17this amount of constituents with
1206. 47:19negative beta to the index itself which
1207. 47:23it's over 50% of the constituents of the
1208. 47:26S&P 500 are now moving with negative
1209. 47:29beta to the index itself which to me is
1210. 47:32really another framing of the
1211. 47:35concentration issue because for that to
1212. 47:36be possible you need the index
1213. 47:40moving ve you know almost oppositely of
1214. 47:45the majority of constituents which means
1215. 47:47by definition that it's it's being
1216. 47:49powered by a very select few number of
1217. 47:53companies
1218. 47:55that is actually moving the index
1219. 47:58and so it's it's it's this concentration
1220. 48:00thing
1221. 48:01>> plus the passive don't forget the
1222. 48:03passive
1223. 48:05>> right I mean that passive's still
1224. 48:06chugging along And it's it's a dominant
1225. 48:09factor right now. I mean, my son's got
1226. 48:14three and a half four and a half billion
1227. 48:15dollars assets under management with
1228. 48:17this firm and
1229. 48:21they're very much systematic.
1230. 48:24They've only got a small percentage of
1231. 48:26the money where they're doing
1232. 48:27allocations based on, you know, direct
1233. 48:30allocations. Most of it's just passive
1234. 48:32stuff,
1235. 48:34you know. Um,
1236. 48:36I was just at a wedding for a buddy of
1237. 48:38mine's daughter, her husband. Um,
1238. 48:43they've got 10 billion AOM under uh, you
1239. 48:46know, like
1240. 48:48they own a bunch of mom and pop shops.
1241. 48:51They do a bunch of back office stuff for
1242. 48:53those people. They allocate trades for
1243. 48:56those people, compliance for those
1244. 48:57people, but they also have money that
1245. 48:59they manage themselves.
1246. 49:02And they're just RIA. They're not, you
1247. 49:04know, they're not prop shops. They're
1248. 49:05just RIA.
1249. 49:07But these guys, I mean, you're talking
1250. 49:09two people I know probably $12 billion.
1251. 49:14That's all just passive.
1252. 49:16>> Yeah.
1253. 49:17>> You know, I mean, that's kind of crazy,
1254. 49:20you know. Um, and it works until it
1255. 49:23doesn't, you know. It, you know, a
1256. 49:25secular bare market for 40 years in in
1257. 49:27in yields works until it doesn't. you
1258. 49:31know, a secular 40-year rally in the ES
1259. 49:34because we always find a way to make
1260. 49:37that work works until it doesn't,
1261. 49:40>> you know. So, I don't I'm not
1262. 49:43forecasting a crash. Um I don't think
1263. 49:46it's there. Um
1264. 49:50I mean, [ __ ] dude. If you look at a I
1265. 49:53think it was a 20% correction doesn't
1266. 49:55even bring us back to the March lows,
1267. 49:58>> right?
1268. 49:58>> Might have been. Yeah, we're we're we're
1269. 50:00we're high. I mean, real
1270. 50:03>> number go up.
1271. 50:05>> Yeah, number go up. Up to the right, up,
1272. 50:06right, left. [laughter]
1273. 50:08Um so I mean for me um tactically
1274. 50:14I will try to keep an eye on an
1275. 50:16opportunity to get long because if
1276. 50:19something does break
1277. 50:22there is a 100 bips in D8 SE7 sofur that
1278. 50:28is just free money if we get there. Mhm.
1279. 50:31>> You could literally put on 400 and make
1280. 50:35a million bucks.
1281. 50:37>> All right. So, so for those that aren't
1282. 50:39deep in the start trading landscape, but
1283. 50:41basically you're looking for if
1284. 50:43something breaks the opportunity there
1285. 50:44to fade what the number of hikes priced
1286. 50:46into, you said Fed 2027.
1287. 50:49>> Yeah. I mean, anywhere out from 27
1288. 50:51through 28.
1289. 50:53>> Um, only because those are the most
1290. 50:54oversold right now.
1291. 50:56>> Yeah.
1292. 50:56>> Right. So, you know, I mean, if I'm
1293. 50:57going to trade the other side of the
1294. 50:58spring, I want to make sure I got the
1295. 51:00fully cocked and locked spring. Um,
1296. 51:04but do I want to own 400 sofur right
1297. 51:08now? No. Not a chance.
1298. 51:10>> Do you think they get Do you think they
1299. 51:12get You don't want to own it now, which
1300. 51:14you know, from a technical perspective
1301. 51:16and trading, I get it. But
1302. 51:18[clears throat]
1303. 51:19right now I'd say 9487 and step 7 or or
1304. 51:23D8 would be a number that I would like
1305. 51:26because that is pricing one plus.12
1306. 51:30hikes.
1307. 51:31>> Yeah,
1308. 51:32>> one two is probably that window. Sofur
1309. 51:35trades
1310. 51:36>> in quarter point increments,
1311. 51:39>> right? If you look at sofur on this
1312. 51:42recent decline, you'll see it stall at a
1313. 51:45quarter each quarter point increment and
1314. 51:48[snorts] then you'll see it lean 8 to 12
1315. 51:50pips
1316. 51:51>> is it's going to lean to the next one.
1317. 51:55>> It overextends by about 8 to 12 pips.
1318. 51:58That's what I consider the 50/50 chance
1319. 52:02we're going to go to the next level.
1320. 52:03Mhm.
1321. 52:04>> And that is in in my opinion after all
1322. 52:08my years that is the point the price in
1323. 52:11time relative to the conversation where
1324. 52:14I want to pay attention and probably
1325. 52:16take a stake because I'm literally
1326. 52:19saying, okay,
1327. 52:21we're pricing in a full four hikes now.
1328. 52:24If we price four hikes plus another half
1329. 52:28of another one, now we're guessing. It's
1330. 52:31like taking a better sports betting
1331. 52:33spread when you know you don't want to
1332. 52:34take the bears minus three, you want to
1333. 52:36take the bears, you know, minus two and
1334. 52:38a half.
1335. 52:39>> Yes. Exactly. So, and sofur trades
1336. 52:42exactly the way euro dollars did back in
1337. 52:44the day.
1338. 52:45>> The only thing that's different is
1339. 52:46settlement. The price action, the
1340. 52:48spreads, the all of it is exactly the
1341. 52:50same. So literally I can wake up and go
1342. 52:54I remember 1996
1343. 52:58and like oh this is exactly what's
1344. 53:00happening right now.
1345. 53:01>> Yeah.
1346. 53:01>> You know I mean
1347. 53:03>> it's it's it is fun. I mean
1348. 53:05>> and that's that's kind of where we're at
1349. 53:07now, right?
1350. 53:08>> They cut too much and now they got a
1351. 53:10hike. Well they did that back in 98.
1352. 53:13>> Mhm.
1353. 53:14>> And then they hiked into the the the
1354. 53:16they hiked into the.com.
1355. 53:19So, I mean, there is room for a policy
1356. 53:21mistake here.
1357. 53:23>> They This could be a policy mistake.
1358. 53:26>> They could hike they could hike four
1359. 53:28times,
1360. 53:29>> get you a onepoint hike right into an AI
1361. 53:32cap that's meltdown that blows up all of
1362. 53:35it and there are bag holders everywhere.
1363. 53:38>> Yeah, we we can get you a $40 oil.
1364. 53:40You're just not going to like the world
1365. 53:41when we get there,
1366. 53:42>> right? You know, postco Postco when we
1367. 53:45had tankers sitting at sea and you can't
1368. 53:47give this [ __ ] away. If you were to put
1369. 53:49your equity hat on, it's two two flavors
1370. 53:53kind of the same question, but if you
1371. 53:56were to if you were to express a bearish
1372. 53:58view here, are you would you be of the
1373. 54:01view to
1374. 54:03short the lagard and the lose like you
1375. 54:05know say cost of capital's rising, Main
1376. 54:07Street's getting smoked, you know,
1377. 54:10momentum is negative for equal weight
1378. 54:12and and small caps Russell or are you
1379. 54:16more of the view you would rather short
1380. 54:18tech and mag 7 as kind of the hold out
1381. 54:22mean reversions thinking they're going
1382. 54:24to catch to the downside and you know on
1383. 54:27the other side out of this are you the
1384. 54:29type that says
1385. 54:31you know Russell's very heavily shorted
1386. 54:34it's been beaten down the most they need
1387. 54:36to re reignite main street economy you
1388. 54:39want to buy that kind of stuff out of
1389. 54:40this or do you you know do you buy the
1390. 54:43the tech stuff that's been winning like
1391. 54:45how do you think about that when you're
1392. 54:46looking for those types of trad trades
1393. 54:48if you are in equities.
1394. 54:49>> I I haven't traded a ton of equities of
1395. 54:52late. I I've had my hands full in along
1396. 54:54the curve, but um I would rather
1397. 55:00I don't want to take a fly around
1398. 55:02Russell. I I don't I don't want to sell
1399. 55:07the lagards in the hole.
1400. 55:09I would much rather take a shot at
1401. 55:12killing the priest on the on the on the
1402. 55:14beautiful white horse. So, I'd much
1403. 55:16rather have a have an aggressive short
1404. 55:18position on something in AI that I think
1405. 55:21is just wrong. Um, I mean, I'm of the
1406. 55:24opinion
1407. 55:26that it's going to be one of the
1408. 55:28mainstreams that that ends up winning
1409. 55:30this. It's going to be Google, it's
1410. 55:33going to be Meta to an extent. Um, and
1411. 55:35then it's going to be one of the AI
1412. 55:39models. You know, is it going to be
1413. 55:41Altman? Is it going to be, you know, is
1414. 55:43it going to be Claude? Is it going to be
1415. 55:44Enthrop? you know, I mean, who knows?
1416. 55:46Um,
1417. 55:48they're all breaking out. They're all
1418. 55:50going to strip clubs, these these these
1419. 55:52crazy agents. They're all like Neo in
1420. 55:54the in the Matrix, you know? They're all
1421. 55:56doing their own thing. Um, which one's
1422. 55:58going to cause something wrong? Which
1423. 56:01one's going to scare the market? Um, I
1424. 56:04mean, it's you could I could envision a
1425. 56:07scenario where you wake up and, you
1426. 56:09know, ex AI agents hack the Pentagon.
1427. 56:15and the market's down 30%. You know, I
1428. 56:17mean, I is it possible? Sure. Uh, is it
1429. 56:21likely? Probably no. Um, but I would
1430. 56:24rather if I wanted to have a a put
1431. 56:26position, that would be it. Because I I
1432. 56:28view AI
1433. 56:31in the very same vein that I viewed
1434. 56:362008 in the mortgage subprime crisis and
1435. 56:39the dotcom market. They are all examples
1436. 56:44of leverage and greed manifesting to
1437. 56:47ridiculous levels.
1438. 56:50>> A and you know, yeah, there's different
1439. 56:52in secrecies between the different
1440. 56:54markets, but they're all examples of
1441. 56:57human failure. A a
1442. 56:59>> and overaggressive behavior. So, is AI
1443. 57:01there yet? Probably not because we
1444. 57:03haven't really we haven't even turned a
1445. 57:05profit on any of it yet. So, you know,
1446. 57:09it's it's hard to it's hard to go there
1447. 57:12and say that, you know, because everyone
1448. 57:14made billions in08, you know, everyone
1449. 57:16made billions in in the dotcom bubble,
1450. 57:21you know, some of that stuff was
1451. 57:22profitable. Um, the mortgage back
1452. 57:25securities market was insanely
1453. 57:27profitable. I mean, we when I was with
1454. 57:31when I was with GE Money back then, we
1455. 57:34contri we were the largest bottomline
1456. 57:35contributor to GE profitability ever on
1457. 57:38the GE Money mortgage side before I
1458. 57:41completely wiped them out because they
1459. 57:42were idiots. But um
1460. 57:46but but there was a lot of money to be
1461. 57:48made there. You know, the only the only
1462. 57:50money being made right now in AI is
1463. 57:54trying to buy the leader and hope you
1464. 57:56can get out before it's over.
1465. 57:58you know, so it's not profitable, right?
1466. 58:01None of them are profitable. So, you
1467. 58:04know, and they're saying that they're
1468. 58:06they're not going to show profit for at
1469. 58:07least three years, right? So,
1470. 58:11you're shorting what you think is the
1471. 58:15is what you think is the the the
1472. 58:19worst leader,
1473. 58:21you know, the the the weakest link.
1474. 58:23Um,
1475. 58:25and then if that happens, I think you
1476. 58:27want to, you've got an opportunity to go
1477. 58:29right back to the expectations that QE
1478. 58:31comes right back in and they they stop
1479. 58:33hiking rates and they start talking
1480. 58:35about cutting rates,
1481. 58:37>> but I don't think we're there. I don't
1482. 58:38think we're there yet.
1483. 58:39>> No. Yeah, it needs it needs to get more.
1484. 58:40>> You need the domino to fall.
1485. 58:42>> Yeah.
1486. 58:42>> Yeah. Yeah.
1487. 58:45>> Hour flew by, guys.
1488. 58:47>> Yeah, it did. Yeah, that was fun.
1489. 58:48>> Shooting the [ __ ]
1490. 58:50>> We'd love to hear Yeah. I mean, we'll uh
1491. 58:52we'll have to come back in a few weeks,
1492. 58:54few months, and see uh see what's
1493. 58:57changed. And my guess is it's it's going
1494. 59:00to be the levels and then have to
1495. 59:02reassess,
1496. 59:03you know, if we're if we're doing
1497. 59:05business there or waiting more.
1498. 59:07>> Yeah.
1499. 59:08>> Yeah. I'm uh like I said, I'm I'm a
1500. 59:10buyer. If I can get into 948s
1501. 59:14>> in sofer, [clears throat]
1502. 59:15>> that's reasonable spot to take a contra.
1503. 59:18>> Um 103 in the ZB is a relatively
1504. 59:22important number to me. Uh and then the
1505. 59:25March lows in ES if we if we start
1506. 59:28moving that's the number I want to keep
1507. 59:30an eye on there.
1508. 59:32>> And do do we get through that or or does
1509. 59:33it hold again? So
1510. 59:35>> effective funds rate in 20 in 203 peaked
1511. 59:39at five five and a third
1512. 59:42>> which would put
1513. 59:43>> which would put uh you know 94
1514. 59:46>> 94 67 Yeah. 947. Yeah.
1515. 59:50>> Yeah.
1516. 59:50>> Which that's crazy to think about that
1517. 59:53the market is close to pricing in the
1518. 59:55peak Fed funds rate that we had.
1519. 59:57>> It's already there and it's already
1520. 59:58there in OS.
1521. 1:00:00>> Yeah. you know, we haven't talked about
1522. 1:00:02the o overnight interest rate swap
1523. 1:00:04market. You know, again, going back to
1524. 1:00:06the cons thing, it's relatively safe and
1525. 1:00:08stable and there's no real surprises
1526. 1:00:10there,
1527. 1:00:11>> but it's actively aggressively pricing
1528. 1:00:14even a little bit more than sofur is.
1529. 1:00:17>> So,
1530. 1:00:19you know, and that's that's hugely
1531. 1:00:21notional
1532. 1:00:23larger than sofur, which is
1533. 1:00:25>> 10x Fed funds. Yeah,
1534. 1:00:27>> you know, it's like the Fed funds pit
1535. 1:00:29had like six guys in it. You know, it
1536. 1:00:31was like the butter pit. You know, the
1537. 1:00:33the Euro dollars was a football field
1538. 1:00:36and Fed funds was like this little pitty
1539. 1:00:38little thing up on the top in the
1540. 1:00:40corner, you know, with a couple of
1541. 1:00:41redheaded cousins up there.
1542. 1:00:43>> So, [laughter]
1543. 1:00:45I don't put I don't put a whole lot of
1544. 1:00:47stock in uh I don't put a whole lot of
1545. 1:00:50stock in Fed funds.
1546. 1:00:52>> Yeah, it's it's it's not liquid enough.
1547. 1:00:54So,
1548. 1:00:55>> yeah.
1549. 1:00:55>> Yeah, makes sense.
1550. 1:00:57Well, we'll uh we'll we'll check back in
1551. 1:00:59and and uh hopefully we get some nice
1552. 1:01:01entries.
1553. 1:01:02>> Yeah.
1554. 1:01:04Six months. [laughter]
1555. 1:01:05>> Yeah,
1556. 1:01:06>> you won't.
1557. 1:01:07>> That's the beauty about this show is
1558. 1:01:08that, you know, you say enough things. I
1559. 1:01:10feel like every every month I sound like
1560. 1:01:12an idiot on something. So, join the
1561. 1:01:14club. [laughter]
1562. 1:01:15>> Yeah, that's true.
1563. 1:01:17>> Guys, it's great to catch up. Thanks so
1564. 1:01:19much for having me on.
1565. 1:01:20>> Yeah, likewise. Thanks for joining. It
1566. 1:01:21was great.
1567. 1:01:22>> Cheers. Be good.
1568. 1:01:23>> Have a good weekend. [music]