The War Doesn't Matter. The Bubble Does. Damped Spring Round Table 5

Añadido: 2026-06-02

[00:00:00]Welcome back to the Damp Spring Round Table. This is our fifth episode. We have Andy, Jimmy, Nick, and I. So, let's start with the postwar. So, earlier this week or last week, depending on when you're watching this, Israel and Iran have come to a ceasefire. So, I'm wondering how you guys think the macro world is going to look over the next few months.

[00:00:31]Yeah, if you've watched the market pricing, if you watched it, the market wants to be over the war. Like they keep trying to frontr run the end of it. Is the end here today? Who knows? You can never know these things. People are obviously going to gesture online.

[00:00:44]They're going to gesture. It's kind of crazy to watch everything unfold on Twitter. You have actual real life leaders yelling at each other on Twitter and stuff. So, it's very surreal to see.

[00:00:56]But in general, just market pricing-wise, the market thinks it's over. So, is it over? We don't know for sure. But you have to kind of just respect what the market is doing. And then just kind of keep in the back of your head that there's that tail risk is still there. It's not gone. But if you look at the op if you look at oil curve, if you look at if you look at the pricing of stocks, if you look just most most people have looked past it just one because you can't stay focused on something for too long. You just can't say, "Oh, I'm never going to invest again unless this war is over." You'll just be left behind. And it seems that people have largely just moved on from the war. They're on to new things. And I think that's the right call. But at the same time, I certainly wouldn't be overleveraged here. The market is very extended as it is. Even if there was no war ever, just the market positioning now is very extended. So, you have that tail risk in the background. But in general, I think that you should ignore most the Iran headlines. I think you should have ignored them for a long time. And unless you're directly trading oil that you need or you're actually like a commodity hedger or something, um I really think that the war should be pushed to the background.

[00:02:08]>> Jimmy, what are your thoughts?

[00:02:10]>> I think like obviously even though there is not really a deal, but there's a deal and we keep going through all back and forth. I think that the market is basically saying that Trump wants out.

[00:02:23]He wants the deal. He He doesn't want any further escalation. So they that's I think maybe why they're looking past even though there isn't a concrete deal out there cuz they the market has gotten to know Trump. He's just going to basically [ __ ] his way from here out without basic without escalating because he can't escalate. Okay? Because if he escalates, crude goes to the moon, the eel curb dumps, and he's [ __ ] That's just a fact. So, and I think he's he gets that point at this at this juncture. I don't think he I don't think there's an amazing deal to be made because I don't I think Iran has some decent leverage here. So, a shitty deal will be be made, but a shitty deal is going to be made. So, then we have to look past that. So, what does the world look like after a shitty deal or what does the world look like when the straight opens up which is probably see a decent size at least knee-jerk reaction dip in in crude. I think everyone wants to buy or a lot of people I hear kind of want to buy that dip thinking that some of the damage to the infrastructure by the war will cause some crude to be pesky in the future.

[00:03:35]And what what does the I think most importantly what does the yield curve look like too after after things acquies here? Does is inflation an issue or is inflation going to be now that's in the past. We we've got an agreement here. You look at energy you that was the that was the problem that's coming off. So everything can be explained away. That's that's my fear. I know that like this re this week I know we're talking about the next 30 days but this week we do get back to a macro in a big way and I lost for the first time in my career I kind of lost touch on where the macro is because it's here it's there I'm looking at a bubbling stock market there's so many different moving parts but then I then you see stock like Walmart tanking and a K-shaped economy what who how's it going which way. And I and and the one thing I worry about over the next 30 days is that we're going to we may we I'm sure the I'm sure the numbers are going to are going to get uglier in terms of inflation numbers, but I'm also we could get some pretty decent numbers on decent reads on the economy. Uh does how does the Fed handle that? How does Worsh handle? They're going to test them.

[00:05:00]Personally, I still feel like even if we get higher prints o across the board, I still think he argues what what does raising rates do for that? So, do we do we get stuck in some limbo where everything keeps coming in hotter, but we know he's got his hands tied, so we the best case scenario is I'm not going I'm just going to do nothing. and maybe doing nothing. That's doing nothing in this situation while everything is running hot is bullish for the stock market. Even as overextended as it is, that could be a scenario that's really hard to fade.

[00:05:41]Dumping energy prices, yields coming off, a Fed that's saying, "Whoa, slow down." Even today best on Maria Berto Roma's show, he was explaining it all the way. That was Don't look in the rearview mirror.

[00:05:55]Energy's on its way down. We're going to That didn't sound like a They're I just don't think they're planning on tightening. I just think they're planning on laying low until they can ease. And that's in this scenario.

[00:06:08]>> I think that's what the curve is pricing. You had somewhat of a bull flattener. There was no movement really in stir off of this news. There was a little movement because it was just so deeply oversold. But it's kind of saying like, hey, those longer term doom scenarios are taken out of the picture.

[00:06:24]We are seeing some relaxing in the war, but at the same time, the front of the curve is just not responding at the way that so that it is saying, hey, uh, we don't think that there's minor cuts or minor hikes priced into the sofa curve, but it's pretty much saying, hey, they're going to hold it. We don't think that the hiking bias is gonna they're going to say stuff like hiking bias, but I don't think they're going to hike. I think hike is hike is very far away from the current structure and it doesn't do anything into a supply shock anyways.

[00:06:53]It's it's a counterproductive move. But I think that the the bond curve itself is kind of saying exactly what you just said. Andy, what do you think?

[00:07:02]>> So, from my point of view, firstly, I don't like talking about investing and the war in the same sentence. Uh there are wars that matter and there are wars that don't matter and the war in Iran doesn't matter and didn't matter. The war in Iraq in '91 didn't matter. The war in the Ukraine doesn't didn't matter. None of these things matter from a US economic or market perspective.

[00:07:29]They never matter. They're shiny objects and people get massively overfocused on them. When do they matter? when your country is experiencing a war on your grounds or you are primarily which is mostly world wars, Japan, etc. It hardly matters even for during World War I or World War II for the United States. The wars weren't anywhere near us. We're very isolated from wars. And so if you're making big investments based on firstly, if you think you can know which way the war is going to go, you're a [ __ ] idiot. And if you think you can then make money based on what you know, then you are just delusional. So let's be clear about that. The war doesn't goddamn matter. Now what it does matter to is front month oil.

[00:08:22]That matters. You know why? Because the oil isn't flowing. And so if you want to trade front month oil, you better e you either stay away or you better have a correct view on how the war is going to play out and how oil traffic's going to play out. If you want to play back oil, sure, it's tradable. It's going to be supported by the front and influenced by the front and there is some potential that the oil supply is damaged for an extended period of time. And of course, there's potential that it gets disrupted again, but that's betting on the war. So let's step back and say what's going on in the global economy. What's going on in the US economy?

[00:08:59]Answer is interest rates are by and large not moving.

[00:09:04]There was a period of time earlier this year when before when Bessant was when Wars had yet to be chosen and where economic numbers this is before the war were a little on the soft side giving some cover for modest easing and Trump was pushing on easing and all of the global central banks were by and large pause ease biased and now they're pause hike biased. By the way, the difference between pause ease and pause hike is nothing.

[00:09:39]That's just a that's just a little tilt.

[00:09:42]It's not a we're about to go into a major hiking cycle or and it's certainly not there wasn't a major cutting cycle priced in. So interest rates are basically stable.

[00:09:57]Why are they stable? There's an expectation that any sort of inflation is going to be returning toward target.

[00:10:07]There's the noise of oil inflation which off is often offset by disinflation and other things. So markets just are looking at that and say it's going to be fine.

[00:10:21]So bonds aren't going much doing much.

[00:10:24]>> They tested a little high yield. They didn't get to levels that we ourselves very much want to buy them at, but they got close. Maybe they'll go there again.

[00:10:33]Markets fluctuate, but bottom line, bond markets are pretty damn stable. Currency markets pretty damn stable. The euro's been 115, 114, 118. The Dixie's been 98 par. Yen is Yen's a little weak.

[00:10:50]Yen's a little weak. That's because their economy still has not yet taken off.

[00:10:58]But man, the stock market has been ripping. Now, generally, stock market likes stable bond markets, stable currency markets, relatively central bankers that aren't going to [ __ ] you by raising rates hard.

[00:11:15]But in the end, that's not what's driving the stock market. What's driving the stock market is the potentially generational change in what it means to work, be a human, and consume technology. And that's a big deal right now. What's happening, everybody that sells a chip is making a fortune, and everybody wants chips for ever more. And somehow people can afford to buy them.

[00:11:51]Now one day chips will get so expensive no one can buy them or they'll be that'll continue to rally chip stocks or they'll be a glut because production create is created. But in the end we have to know whether these all these chips are going to pay off. Are these chips going to help you and me keep our jobs, increase our wealth via labor, or are they going to kill us?

[00:12:22]And that's the big story here. And it's been the big story since I don't know, I like to point at January 2023. Same story. Been no change in the story, but prices have gone parabolic.

[00:12:36]And so that tells me that we're in a bubble.

[00:12:40]How long will the bubble last? Hard to say.

[00:12:47]>> Yeah. So, what do you think? What do you think when you say it's a bubble? Like what could cor what type of correction would be necessary to like eliminate something like that or what type of action would be required to to make it so it's no longer a bubble?

[00:13:04]>> The things that I think are bubble in nature. one while pees and things like that are a terrible measure of valuation valuations are somewhat stretched but the big thing is earnings earnings expectations are extremely high. So the answer to that is if earnings expectations don't continue to grow at the pace that they're growing and god forbid start disappointing that will destroy a bubble. Um now is that my call? No, I don't expect that in the near term at all. So I don't expect necessarily the bubble to pop. The other thing is speculative frenzy. At some point, people will own all the chip stocks they want on leverage and their draw down will be a self-fulfilling prophecy because you can have great earnings and still be and have a semiconductor stock be 60% lower easily.

[00:14:06]Uh it's happened all the time in all the bubbles. So when I think about a bubble, I think we could rally 20, 30, 40% from here and fall from wherever it pops, 40, 50, 60%.

[00:14:21]This is not just not this is just not your normal B. If I thought we were in a normal bull market with a potential of a 10% correction, I'd have a completely different answer for you. This is not that thing. No, I'm just curious about because when I think bubble, that's I think 50% correction. Something would be it would have to be like a quite quite the correction to to solve the thing.

[00:14:46]>> 20% a 20% correction wouldn't do it essentially. That would be that wouldn't be a bubble. That would just be a cooling.

[00:14:52]>> I think I think we'd be back to a month ago.

[00:14:56]>> Yeah. Usually it's usually It's usually at least a 38% pullback. That's 38.

[00:15:04]>> As good as it gets for you. Like if you if >> you're looking at your Fibonacci, huh?

[00:15:08]>> Yeah, >> that's as good as it gets. I'm telling you, I' I I've I've seen these pull back. I've seen things get overheated and pull back. That's as good as it gets for you. And seriously, it's 60% if it's a [ __ ] show. Right. And so the question is how did you break the >> the structural bull market from I don't know about the technical analysis but from the buy the dip mentality and from the options flows that guarantee success of this buy the dip those have to break and they don't break with the 5% down week.

[00:15:46]>> They break it. We had a little taste of it in the tariff tantrum in Q went down 30%. So we have had a taste of the of that flipping a little bit like where where the options flipped a pretty good call during the tariffs ahead of it. We were short, bought the bottom there any so that but that was a that wasn't noise right the war thing >> that was mostly noise but the tariffs thing Trump was really trying to do some big things >> and he got his dick whacked when he did them.

[00:16:20]>> Yeah >> and so had to completely pull back. Now, if he let me tell you something. If he had not t if he had been able to legally tariff at the rates that he tariffed on liberation day and did not return, we would be nowhere near where we are in the stock market. The bond mark I think the the two-year note would be 2 and a half%. I think the stocks would be struggling still, mightily struggling.

[00:16:48]But he gave up and so that's all happened. But if central bankers or policy makers do big things to make big changes and follow through on that, you can have extended up moves and extended down moves.

[00:17:07]But that's not the president we have.

[00:17:09]The president we have is puss pussied out. He didn't do any anything that he said he would do. Not a damn thing.

[00:17:22]So, how much of the actual bubble do you think is a GPU supply constraint? Because as of now, every GPU that Nvidia has made is >> supplies aren't constrained, Ben. There is no supply constraint.

[00:17:40]>> There's more demand than they could poss means you your plant has gone on fire. A war has happened that's preventing you from doing it. There is as much they're running their factories is fullon it's a demand problem. Demand is through the roof.

[00:18:00]>> Okay.

[00:18:00]>> So let's just call it what it is.

[00:18:02]>> Yeah. So maybe I misermed it.

[00:18:06]None of these hyperscalers can buy enough GPUs for now. Is there a moment in the future where GPU de creation has become so large that these companies aren't buying all of the GPUs anymore? And it how does that affect the situation?

[00:18:30]>> By definition, that's going to happen.

[00:18:31]It's not if it's going to happen like that. At some point, you just don't need anymore, right? like a like I could go buy another car, but I don't need it.

[00:18:39]After I do that two or three times, I'm I'm out. I don't need to do it anymore or a watch or anything else. It's going to happen to where like Nvidia is not going to be supplying the same level of chips. It just matters at what speed it happens. Is it going to happen gradually or is it going to happen fast? And I think the thing and and it's beyond how many chips can one guy actually have.

[00:19:03]It's what do they cost?

[00:19:06]There one thing about a supply shortage relative to demand or astounding demand positive demand shock where everyone has to own something is the price rises and so the way that the way so there's a couple of question there's a couple of dimensions right is there a literal physics problem where they can't make trips chips and the answer is no. There's plenty of sand for them to turn into silicon and they're all they need is more capacity nor more factories. So when you have a supply shortage relative to demand, if you have a supply break something broken, then you have to fix what's broken. But if you just can't make enough stuff, you build a factory to make it. And that solves the supply issue because demand meets supply. And at some price, they're going to be building foundaries like you hear about.

[00:20:10]And you can tell because the one of the best semiconductor stocks is the one who makes the chips, Taiwan Semi. The equipment manufacturers, they're doing well. So, but right now the pricing power is held with the memory chip. It's not even with Nvidia.

[00:20:30]The stock isn't acting that particularly great. They have the only thing you need. But that does that's not where the bubble is happening. The bubble's happening in memory and storage. And those things are literal commodities.

[00:20:43]>> What about one thing that could trip this up that I'm reading about a lot is the fact that they the more that they construct these data centers, the less popular they are. Now there it's raising issues. A lot of states are like no more. I don't want them. There's energy issues. they've overpromised on a lot of this stuff. Maybe that's where some of the air gets let out when they when it when we realize maybe they're a little bit over their skis on a lot of these promises and they don't need that many chips because they don't have the energy for them or they don't have the space for them. I'm maybe that's and I'm not sure. Maybe that's a year off, two years off. I don't know. But I know those issues exist.

[00:21:26]The social issues to me those are [ __ ] that if the corporations want to make these [ __ ] chips and want to make these data centers, all they have to do is pay the right people off in the locality they want to make it happen.

[00:21:44]Like >> there is no there's I I just want I can't wait to see literal hippie protesters chaining themselves to data centers to block them. It's just not going to happen. That's just not the way the world works. Give me a break.

[00:21:59]>> Did you say what will happen? What you will have a revolution >> when everybody loses their [ __ ] job.

[00:22:08]>> That's the other thing.

[00:22:09]>> Ain't going to be because of water. Go protest the almond farms or having people water their lawn. Don't tell me about water and data centers. Give me a [ __ ] break.

[00:22:21]But so anyway, social issues ain't going to do it. What's going to do it is the damn chips don't deliver the productivity that they need to at the price they're being bought at. And that kills it. And when will that happen? I don't know. By the way, if I remember Motorola, 1993, I'm short. I have a bunch of basically puts on Motorola and they say they're that cell phones are going to cause brain cancer.

[00:22:55]>> Greatest dip buy in my lifetime of a single name. Now, if if AI stocks have a correction due to a social issue, just buy them with both [ __ ] hands.

[00:23:14]How about if everyone loses their job?

[00:23:17]>> Everyone loses their job. That's >> that's going to create a [ __ ] revolution.

[00:23:23]>> I don't think I don't think I don't think it would ever happen because of the human condition. There will find something else to do. There has to be jobs. There has to society has to design. I certain I 100% am against the idea that AI will replace everybody's job or that it's even possible.

[00:23:38]But you've heard guys like Ken Griffin say that he drives home depressed thinking that all that he's about to fire all these like highly educated guys in his >> I think the reason why that happens that I by the way I agree with both of you. I believe humans will accept a disruption and adapt. They may have they may literally have fewer babies to make the biggest adaption.

[00:24:05]Right? If there are jobs to do, humans will find the jobs and do them because that's who we are. We don't want to just sit around and accept a paycheck. We want to because then somebody else controls our destiny. We as humans want to do better than we could when than we our current circumstance and the only way to do that is to find something productive. So I am certain 20 years from now humans will have adapted. On the other hand, if this technology is as disruptive as many other major technologies have been, the path to 20 years from now is going to have some extraordinary pain for the people that are currently doing jobs that are going to get disrupted. and and I'm talking 10 15 years of pain mostly until they age out, right? Where they leave the every day we get a new person entering the workforce. Those are the ones that adapt to the new world. It's not the 45year-old lawyer who is out of a [ __ ] job for life. They never adapt.

[00:25:23]>> I I watched this firsthand, by the way, with the the death of the trading floors.

[00:25:27]>> Sure. Yeah, that was an perfect example.

[00:25:32]Highly educated guys making crazy money and then all of a sudden their world's gone and how did they adapt? And >> they never adapted. They just became 10.

[00:25:42]They just started making 10% of what they used to make >> and some of them like you said died of attrition. They just slowly were moving away from these guys and this big issue that once was and all these people out of work and it just some guys are selling cars, some guys are entrepreneurs that pivoted and are making millions in a different industry now like all all sorts of life but like you said then you just slowly move away where it doesn't [ __ ] matter anymore.

[00:26:09]They get old and die. It's just and the new kids it's you mentioned floor training to a new kid is what the [ __ ] are you talking about? Or a young guy.

[00:26:17]it's not even an issue anymore.

[00:26:19]>> So the big question for me is does a voting block and there's there a lot of people out there talking about populism and I don't see it. I think the perfect cure to populism is a bipartisan is two a two-party system in which the people that control those parties just have them fight amongst each other.

[00:26:46]The only way we actually have a revolution is somebody who is a MAGA and somebody who is woke both say [ __ ] arguing between us us. We got to argue with that. And I don't know. I think it's going to be very hard for it to be controlled. So we may not get a revolution but we will get an economic downturn when that has to be dealt with in some way when the aggregate population is in transition from working to less working and then eventually to more working and that period of time it's going to be ugly.

[00:27:33]>> Okay. two two two comments I wanted to say is first of all I remember the argument used to be like when when fixed income got up in around four and a half 5% it it gave a real competition to equities and but in this environment where you're you're seeing stocks up 850% over the year like Micron and stuff it it's not we're not in that atmosphere right now especially for people that have never seen the market get pounded and stay pounded for years. You're an entire younger generation of investors and traders now are they're just like, I'm not 5%. What are you crazy? And going back to what Ben was saying about interest rates. A question for Andy. If so, the econ economy stays hot. this week we get a bunch of decent numbers, decent payroll numbers, and then they turn to Worsh and they're like, "Hey, when they start putting heat on them, don't you think you should be raising rates here?" And he probably should be, but he's under strict rules to deflect or pause everything he can. And part of that has to manifest into him saying, "Listen, we're going to instead of raising rates, I'm going to tweak the balance sheet." And this, what happens to the yield curve? What happens to bonds? What do you think under that circumstance if he has to pivot there before?

[00:29:02]>> So, you had two reasonable points, which is does anyone need bonds in their portfolio?

[00:29:09]And the second question is uh does will the central bank's actions change the yield curve? And I would start with the first thing which is anybody who's watching this round table is almost certain to have found us via Twitter and almost certain to be a consumer of a bunch of nonsense from us and from everybody else regarding markets that favors equities all the time, that focuses on equities all the time, that doesn't care about long-term portfolio construction, that is looking for the hot thing. Whether it's a random crypto that's $15 billion that's going to go to a hundred billion or a semiconductor stock or a market like Korea which is just a semiconductor stock. All that stuff is sells clicks, makes people money, but isn't what investing is about. And so when I hear stuff like that, everybody's bullish or everybody's short, I just to step back and say, what's Twitter?

[00:30:37]How's Twitter positioned?

[00:30:40]And does that in any way reflect actual end investors that matter positioning, which is not retail matters, don't get me wrong, retail matters, but relative to what and accomplishing what. So, I'd just like to step back and say most of the world is invested professionally.

[00:31:07]It isn't focusing on Twitter for the next 15 minutes or the next two two months. It's long-term allocating assets in a thoughtful way.

[00:31:20]wealthy. I have many clients. We have many clients who are fast money that trade intraday and a bunch of people that rarely talk who invest hundreds of billions of dollars for extended periods of time and manage big pools of high- netw worth people. And they care about bonds. And they care about bonds for exactly the reason that they always have cared about bonds, which is when stocks fall, chances are bonds are going to do okay.

[00:31:53]And so I don't want to I want people to recognize that if you're trying to sell a trading service or you're trying to sell a clicks, you're going to want to be talking about all the things that are moving 50% 100%.

[00:32:11]And so that's what people do.

[00:32:13]That's not what we're doing or that's not what I'm doing. And that is bonds are useful for a variety of way a variety of reasons because I don't bet my entire life stop my entire net worth on a semiconductor stock. I don't do that. Nobody I know does that. Nobody professionally on the planet does that.

[00:32:35]And so when I step back and say, what are real investors doing today?

[00:32:42]They're all relatively clinging to benchmarks. No one is, no real investor is sitting there and saying, "AI is in a bubble.

[00:32:55]I'm going to short 50% of my portfolio in semiconductor stocks." No one's doing that. Maybe they're a little bit underweight. 1% 2% underweight.

[00:33:05]Something they don't that they hate.

[00:33:07]Something that they absolutely hate.

[00:33:09]They're underweight. one or 2%. Things that they absolutely love like semiconductors for instance from another cohort maybe overweight 2%.

[00:33:19]That's the way the world and as it relates to bonds people are a little underweight relative because they've been such a lousy performer and the fundamentals aren't great. The economy is roaring hot. Why would you own as much bonds as you can? So when I think about all these things, I want to just step away from Twitter's nonsense and focus on what big pools of money are doing with your retirement, with your mutual fund, with your hedge fund. And there's just not a bunch of people that are saying, "God, I'm way short. I'm going to have to chase or I'm over long and I have to dump.

[00:34:05]Most people are seeing this situation and saying I'm going to let it run. Just I'm not going to touch this thing. I'm going to let it go. And that's what most investors are doing today. But to answer your question on Worsh on the bond market, I don't know. I don't know what he's going to do. I think he is not going to be So, we hear from him soon on the 17th. He's going to have his first press conference and those [ __ ] in the news media are going to try to get him to misspeak.

[00:34:42]You You know, every question is going to be trying to get him to oppose what Trump has said, to make a statement that looks more hawkish than Trump.

[00:34:52]>> Yeah. to call on him when he makes a statement like Trump's to say, "Are you independent?" They're just going to be and what he's going to do, in my opinion, he's going to try to not make news.

[00:35:08]He's going to say, "Hey, economy is pretty strong. I think long term oil prices are going to return to to lower levels." I think long term AI is a disinflationary impact which is going to increase productivity which is going to allow us to lower rates because inflation is going to be transitory and then he's going to and then they're going to say are you cutting rates and he's going to say no what what are you talking about did you hear what I just said I'm not I don't think I'm going to hike but I'm not I'm not coming in there to we're going to see how it plays out and what will that mean for the long-term bond They're going to say, "Fuck, I wanted to sell off because the guy's going to be overly dovish.

[00:35:58]He's not hawkish enough for me to buy long-term bonds because he's going to kill the economy and it's just going to be another noisy press conference." That's what I think is going to happen.

[00:36:09]>> Yep, that sounds right.

[00:36:11]>> That guy's not [ __ ] >> It's It's like It's not like it's not a prestigious job. The guy who is the fed chair is he's somewhat smart. Even if you don't like him, like he obviously has played the game well. So he's not just going to go up there and be like, "Yeah, go up cutting."

[00:36:27]>> It would be funny as [ __ ] if he did. But he's not going to >> But he's not going to do that. Like he's going to he's going to play the game behind the scenes. He's going to go, "Hey guys, relax. Relax.

[00:36:37]>> I'm not coming in here to do anything.

[00:36:38]He's going to go talk to Pal. He's going to he's going to get out.

[00:36:42]some ass there going to it's going to be a normal he's going to be a normal fed dude.

[00:36:45]>> I agree. You can be cool right now. You can play all those games or whatever.

[00:36:51]But if there's any if like crude say this straight opens up and crude bounces and stays really big and then the curve starts getting nervous and starts going back down to the lows and stuff and we start cracking those lows like it's going to be difficult for him.

[00:37:09]You know, then we're going to see how crafty he is at towing the line. It's easy to tow the line now, >> but but he doesn't have to do nothing.

[00:37:17]It's easy to do nothing when there's nothing to do. Yeah, but he's but every guy who's got in there has had this like Powell was supposed to be somewhat of a game changer, right? Like he he was going to come in far from neutral like he Trump put him on, you know? So once he has the job, he's got the job. So he doesn't have Trump's ass as much.

[00:37:40]>> He was never really te I guess he was tested in a different way. He was tested by the stock market. I think was it 2019 when he was hawkish in December ruined >> 2018 when he said QT was on autopilot and the market fell from Thanksgiving to the literal lows. I don't know how much >> and Christmas Eve was a [ __ ] show. I remember there was like no liquidity.

[00:38:08]>> Yeah.

[00:38:08]>> And he was forced to say maybe we'll >> in pivot and I think listen Powell was tested in one way co and he did what every chairman before him has done ease the [ __ ] out of things. what he failed at.

[00:38:33]And I think it you have you can't possibly say he succeeded. You can blame transitory things done by the Trump administration. You can blame Janet Yellen for muting QT.

[00:38:46]Inflation is 4% 3 and a half 4% well over target and it's five years later.

[00:38:55]He failed that test. So the qu the whole thing is a new chairman is tested by the markets.

[00:39:02]Not necessarily.

[00:39:05]Not necessarily.

[00:39:06]>> But what if the what if this chairman gets tested by the bond market? I' honestly I don't know if I've really ever seen a Fed here tested by the bond losing control of the long end or something like that. I it's I'm 30 years in and I really have never seen even the maestro like back in the day he was he made some mistakes but he was always in control of the curve whether I've never seen a guy that that would be fascinating you because he's not coming out and saying oh I'm we're going to raise rates in order to save the back end he's going to come out and say hey everyone calm down I'm going to do this through you know >> your point is I If 30-year bonds go to 5 a.5%, 10 years go to 5%.

[00:39:58]>> Okay, >> what's he going to do? And the answer to that is >> he has to be hawkish.

[00:40:06]And I don't know whether he can be, but if we have a long-end bond market that is making new highs, people are fed up with inflation at that point, people are at. Now, does that mean that that's do I am I projecting that's going to happen?

[00:40:26]What the way it'll happen is he'll cut into a he'll cut first, right? If you just remember what happened since the Fed began cutting, rates began rising.

[00:40:40]That September 2024 cut resulted in a even twos rallied yields rose when they cut.

[00:40:48]>> So I think he can I think he can lose the bond market by being dovish when he shouldn't. But I don't know that he can lose the bond market doing nothing.

[00:41:00]I I just don't know. I just don't know what would cause the bond market to sell off and >> and and honestly right now that's what the charts are saying to me and that's what the price action is saying with energy backing off and the straits about to open up. The yield curve is really speaking that hey this guy's got some room. We're I think yields actually probably come off a little bit this week. We've been bumping up against this resistance for all last week. there's not much left. So I think he's he has an opportunity to do exactly that and nothing >> right. And so the big question for me bringing this back to the other things that we were talking about is say he gets so are we can you imagine a world at the moment in which we're on the verge of a multi- central bank rate change fed funds change multi like I'm not talking about a 25 basis point tweak or something or even 50. I'm talking about a hiking cycle or an cutting cycle. And I don't see it.

[00:42:16]I don't see I don't see I don't see a commitment for a hiking cycle. They're I think what they do and this is to your point about losing the long end of the bond market. I think it's possible that they play the same game that Pal played which is in oil is transitory and a tax which may hurt growth. and AI is disinflationary despite it being extremely inflationary upfront. We're patient and so they don't hike. But even if they were to hike, are we talking about a significant hiking cycle? No, we're talking about a tweak.

[00:42:52]>> Yeah.

[00:42:53]>> So for me, when I'm thinking about the central banks at this stage, I'm thinking about not whether they pivot around neutral. I'm thinking about the next extended rate change. If not, the bond market's going to just bounce in between its range, tethered by that relatively stable two-year note. And I don't have personally like the fact that so many people are lit like I think it's a coin flip out there amongst professional economists, traders, etc. regarding not the Twitter nonsense, but professionals about whether they cut or hike 50/50.

[00:43:37]That tells me we're not on the verge of a major hiking cycle and we're not on the verge of a major major cutting cycle. And so to me, it's like, okay, I think you're just supposed to until we're until it's more obvious that we're on one of those things, I think you're just supposed to fade bond market moves in either direction.

[00:43:57]I did go on Twitter and suggest that you walk your fat ass into oncoming traffic if you're looking for a hike next. So, I got a little skin in the game. I >> listen, I agree with you. I think all three of us agree that this hiking cycle nonsense is nonsense. But I don't know.

[00:44:18]Even if we've pivoted to it not being nonsense, would we think that they're going to hike a 100 basis points?

[00:44:24]>> No [ __ ] way. Yeah.

[00:44:27]>> They're not going to cut a 100 basis points. They're not going to hike a 100 basis points.

[00:44:32]>> Yeah.

[00:44:33]>> And so now we're talking about little leans of 25 basis points around neutral. Just put me to sleep.

[00:44:42]>> Yeah.

[00:44:43]>> Now that just means that there's not much to do in in bonds and stock and currencies. And it's why you're going to get money traveling higher velocity, high return seeking money. It's going to travel to equities. And that's what we have been seeing for months now.

[00:45:02]No reason to trade bonds because they're dead and boring and not going to make a trend. They're not none of them are going to make a trend move.

[00:45:12]>> Yeah.

[00:45:12]>> Until we get a trend move, any money is going to find its way to equities. And it has.

[00:45:20]And the question is when does it take it too far? Bull markets end for two reasons.

[00:45:27]Central banks kill them or on their own gravity.

[00:45:40]>> Good place, I think, to end it.

[00:45:41]>> Yeah, that's what I was going to say.

[00:45:44]>> All right.

[00:45:45]>> Thank you guys for watching. We'll be back next month with our next round table.