00:00For investors, Mark, you say the reason why the Fed is doing what it's doing, whether it's a hold
00:05or a hike, is more important than the actual move. Explain why.
00:12Sure. So, you know, what we've seen has been this tremendous growth and capex from AI that's driven
00:21corporate profits that's driven wealth. And so those are, you know, good factors that are giving
00:30the Fed an indication, well, we're probably not that restrictive. So to the extent those are
00:37reasons, that's a bullish, that could be bullish for a hike. On the other hand, you know, if we
00:44just get inflation and then we get falling growth and we lose this AI capex investment,
00:53that's a very different story. That's more of a stagflation story. And so, you know,
00:57investors are watching every data point now because Chairman Walsh told us, you know,
01:04don't watch the referee, watch the ball. And so that's why we're getting these moves around
01:09every data point. And of course, we have another one around the jobs today.
01:12Yeah, absolutely. Now, the thing is, how will we know what the backdrop is? We're expecting that AI
01:19is going to have an impact on the economy one way or another. So it could be at some point
01:25disinflationary, but for now it's inflationary. And at some point it could be helpful to growth.
01:29That's certainly what the chair is expecting. But doesn't timing matter for these things?
01:36Well, you're right. I mean, timing matters in so many ways. And of course,
01:42probably the most immediate timing issue is, you know, when do the hostilities end in the Middle
01:49East? And when does oil begin to flow at similar levels? Right. And that's also opened up more
01:57concerns for the Fed as this war is dragged on. And that is part of the problem, right, which is
02:03that,
02:04you know, when you have this CapEx expenditure, the companies maybe are adding revenues and expensing
02:11things right away. But on the other hand, of course, we've seen it drive up a lot of the prices
02:16around all things AI. And and so you're right how these things time out matters and then how
02:23willing the Fed is to kind of put those together into different narratives. And that's why the market
02:30was so interested in what Mr. Waller had to say yesterday, because he gave some indication around
02:38where the piece, you know, if the PCE is below point three, then he's probably on the side of
02:46we can wait. So, yes, the the the information matters and then how how these things are getting
02:54put together now as we get into this September meeting. Yeah. And interestingly, Mark, you also
02:59suggest that if slash when the Fed does move on to a rate hiking cycle, that you would actually be
03:05more interested in the belly of the curve to the long end. We're not hearing a whole lot of appetite
03:10for the long end right now. Are you saying that at that point it would be time to get in?
03:17Yes. I mean, we're we're trying to say, you know, we're very much trying to set up what we would
03:24do
03:24under these different scenarios. And, you know, probably like people worry, for example, about
03:31a real disconnect at the long end. Well, that would be the time when we would be very sure that
03:38that's a trade we want to put on because we know that there has been and there's very likely to
03:45continue to be financial repression to keep yields at the long end artificially suppressed.
03:51And so there we're saying, you know, if we start to get something that looks, you know, say more like
03:59stagflation and we start to get these hikes, then we're going to shift. And that's where we think the
04:05puck is going to go. And we want to be there to meet it. You know, sovereign wealth funds have
04:10been
04:10doing interesting things and also central banks have been doing interesting things with gold. I want to
04:14give you what the Norges Bank has said about what it's doing, cutting down just sovereign debt
04:19generally. It says a government share of 50 percent provides a comfortable margin to the estimated upper
04:23limit for the liquidity needs and reduces the risk of significant market impact in the event of a liquidity
04:28event. Curious as to what the view out there at UBS is on not just government yields globally, but U
04:37.S.
04:38government yields in terms of whether there should be a concern in investors' minds about fiscal
04:42sustainability and so on. You know, this is something that that does come up from time to time. And
04:54and certainly, you know, the current path, the way the numbers all line up, it's not sustainable
04:59for forever. And that's, you know, and that all fits into this stagflation scenario. Or do we get
05:06this A.I. uplift scenario and we get increased growth? So, you know, people make these discounted cash flow
05:13calculations 100 times times a minute. But I think, again, that one of the there's there I would make
05:21two points. Number one is under most scenarios, we think that it's not prudent to bet everything that
05:30this is going to get away from the U.S. government because they know this is existential and they have
05:36a variety of tools, which Secretary Besant seems like he would not be shy to deploy. That all said,
05:45you mentioned gold, you know, trying to find diversification away from from these big,
05:54difficult problems, one of them being debt sustainability, or, you know, the potential
06:01the potential risks around how people are reading what the Fed is saying, also around getting away from
06:09everything being an A.I. trade. All our clients for are looking for that. And some of our most
06:15sophisticated clients have started to go back into gold because, you know, it's off its highs. And
06:21they do think that at least it's going to give them some diversity in some of these scenarios that
06:27we haven't seen before. Definitely a portfolio hedge. Can I ask about the dollar as well? A more hawkish
06:32Fed would that be supportive for the dollar, particularly at a time we're seeing a lot of volatility in
06:37currencies when things have been quiet for a long time, Mark? I mean, I think that people should
06:48expect that Fed hikes would be, you know, helpful for the dollar over the shorter term. But, you know,
06:57as you all were saying before, two hikes are kind of priced in, right? So it may not respond that
07:05much.
07:05And I think over time, as we see this A.I. trade broadening out to the rest of the world,
07:13and then we also do believe that inflation will fall in the United States. And so,
07:20you know, over the longer term, I think many clients have all the dollars they need.
07:27And we think that, you know, they should probably start to diversify again.
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