00:00Does everything hinge on NVIDIA earnings when it comes to the AI trade and everything related to it, Matt?
00:07Well, a lot will, I think.
00:09And, of course, we have Chairman Warsh just speaking later this week as well.
00:13But, you know, like I said, we're heading into hurricane season in the U.S. and the Caribbean right now.
00:18And the one thing about that is if you live in Florida, you want to get insurance, it's ridiculously expensive,
00:26or if you can get it at all.
00:28Thankfully, in the stock market, as we're heading into the September-October time frame, which is seasonally a tough time
00:34for the stock market, the VIX is very low.
00:37So if people want to buy some insurance by buying, you know, some VIX options, whether it be VIX calls
00:42or maybe some puts on some indexes, you know, it's relatively inexpensive.
00:48So, you know, that's one thing that does bode well.
00:52But as you mentioned, what happens with NVIDIA and the chip stocks I think is going to be most important.
00:57Yeah, I mean, why is insurance so cheap at the moment?
01:00I don't mean insurance for Florida homeowners.
01:02I mean insurance on, you know, some kind of an equity market sell-off.
01:07Ed Yardenny asking this morning, you know, we could be at peak fear, peak yields, peak earnings, and peak AI.
01:12That's a lot of peaks in there that we're potentially meeting, Matt.
01:17Yeah, I mean, there are a lot of concerns out there.
01:19And I think that's a decent reason why to buy some insurance.
01:23But, you know, we have whatever it be with what's going on with the interest rates having, you know, moved
01:28up to, you know, basically its highest level.
01:30And, you know, we've all heard about, you know, the last 20 years, et cetera.
01:34And they have come down slightly, but, you know, they're still very elevated.
01:39And, you know, whether it be the situation in the Middle East, whether it be AI and, you know, why
01:44are these chip stocks underperforming the S&P in this recent bounce?
01:48The same thing with Korea, which was very similar to what we saw in 2000.
01:52And so, you know, I just think with what, you know, Ed Yardini talks about how we're seeing a normalization
01:58in interest rates, that they're back to levels that are more normal between 4% and 5%.
02:03Well, that's fine.
02:05But if interest rates are going to be higher, that tells me that valuations are going to have to normalize
02:09a little bit as well.
02:10And that's going to have to come to the downside.
02:12So, again, no guarantees.
02:15The market doesn't always go down in September.
02:18But I just think with the VIX as cheap as it is and insurance as cheap as it is, you
02:23can buy a little bit here just in case.
02:26So you talked about the semis retracing some of their decline but rolling over again.
02:31Is there any part of the AI trade that's most at risk?
02:34Obviously, the software trade could be at risk again today after Intuit and CRM yesterday.
02:42Yeah, I mean, there's a couple of things.
02:44First of all, you're right with what's going on with the software sector.
02:46Because, you know, the major indexes, the S&P and the NASDAQ, of course, are very highly weighted in the
02:53tech sector.
02:55And so if they start to roll over again, the indexes have to come down.
02:59And if the indexes come down, some of those people stop rotating and start rotating into cash.
03:04And so but the situation, again, we have with the chip stocks is that, you know, so many different companies,
03:13basically every company has reported great earnings.
03:15And everybody except for Broadcom has reported good guidance or very good guidance.
03:20And yet the stocks have sold off, you know, kind of in a sell the news reaction.
03:24Thankfully, in a way, it's weird because the recent weakness in NVIDIA is actually a pretty good setup.
03:29So hopefully that won't happen there.
03:31But if we get another sell the news move in the most important chip stock out there, that could create
03:37some problems.
03:37Well, the action in the run up to this earnings report has been fascinating.
03:40Yesterday was really the only day of gains after seven days of losses.
03:44Now, let's move to other parts of the market.
03:47Tom Barkin saying this yesterday.
03:48We're a global currency, rule of law, all the reasons people keep buying the debt.
03:52But at some point, people will stop buying your debt.
03:55And that's the risk out there.
03:57Sounding the alarm, and obviously this has been in the ether over the last several weeks, no more so than
04:04yesterday with the Stanley Druckenmiller op-ed, Matt.
04:06What do you think about what's happening with yields in the Treasury market and whether we should be concerned right
04:11now?
04:13Yeah, Vani, I mean, the thing that we have is that the situation with yields.
04:18I mean, everybody's been worried about for decades, you know, hey, what's going on with inflation?
04:23Is the economy overheating?
04:25Will that cause people to raise, for the central banks to raise interest rates or for long-term yields to
04:31rise?
04:32But now we have this, you know, issue of debt, excuse me, and the budget deficits.
04:37And so, you know, this is something that, you know, Dick Cheney, the vice president, famously said 25 years ago,
04:43deficits don't matter.
04:44And that was true for several decades.
04:46Well, that's not the case anymore, and it's not just here in the U.S.
04:50We're seeing, you know, rates move higher in Japan, in France, in the U.K., because people are starting to
04:57insist on getting paid more for the higher risks they're taking because of these big deficits.
05:02And so even if yields do come down with Secretary Bessett's program, how much are they really going to come
05:08down with these massive deficits?
05:10And so, again, if we're going to reprice what the normal value or the natural value is for interest rates,
05:18I think the stock market will have to do the same.
05:20Is it important that yields stay around the levels they're at now or lower, Matt, in order for, you know,
05:26stock performance to continue?
05:27Or is it the opposite if they continue on higher?
05:29Well, that just makes, you know, stocks potentially more attractive because obviously there's a little bit more risk being priced
05:35in.
05:38Yeah, I just think that if yields push higher, that's going to create a big problem.
05:43You know, everybody's been talking about 5 percent on the 10-year.
05:47Of course, the 30-year is already pushed above that level.
05:49But, you know, they have been saying 4.5 and then 4.6 and then 4.7 were the most
05:54important levels.
05:55Well, now it's 5 percent.
05:57They keep moving the goalposts.
05:58But, again, when you have a market as expensive as it is, and it's now 20, 22 times earnings, but
06:05much more expensive on price to sales and price to book, which are at all-time highs, it just makes
06:11it harder to justify those valuations if yields, you know, even just stay at these levels, but especially if they
06:18push higher.
06:19What do you brace for out of Jackson Hole, Matt?
06:22Is there a risk event that could happen as a result of what Chairman Walsh does or doesn't say?
06:31Well, there is, because there does seem to be a little bit – well, I guess the big thing is
06:35that Treasury Secretary Bessett and Mr. Walsh, Chairman Walsh, seem to be a little bit at odds.
06:43I mean, one of the issues is this whole issue of confidence.
06:48And it's like, why do we always have to come in when there's any little blip on the radar screen
06:53in the markets and support things artificially, whether it be through the Fed or through the Treasury?
06:58And, you know, why don't we just let the markets trade on their own, is what Walsh is saying, where
07:04Bessett is saying, well, we're going to help things and, you know, support things.
07:08And, you know, there's some political aspects to that as well with the midterm elections coming up.
07:13So, I guess my point is with what Walsh says this week is going to be very important, because if
07:18he backs off because he wants to support Bessett's programs, is that going to be – how positive is that
07:25going to be?
07:25Is that going to be something where people lose more confidence because the Fed seems less independent?
07:31Or does he, you know, really hammer home the idea that, hey, you know, we're the referee, not involved in
07:37the game, and that we're going to let the markets trade with it, where they're going to trade and only
07:41be at backstop if something serious happens?
07:44That's something that I think will create some fear.
07:46So, you know, Jackson Hole has been a bid market mover in the past, not every year, but it has
07:51in the past, so there's a good chance it'll be again this time.
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