00:00Well, I mean, it's further complicated by the fact that the market's responding to things it shouldn't respond to.
00:06I mean, the data we got last week was, you know, way back in the day, I was the desk
00:11economist at Lehman Brothers.
00:12And my job was to interpret all the data as it came out.
00:15And I would have completely ignored the data we got last week.
00:19And I think everyone at the time also would have.
00:22So I think something's changed in the market in terms of, like, looking for that one piece of information that
00:28no one else understands or no one else is going to get.
00:31And, of course, everyone seemed to think they understood it and reacted to it.
00:35So this week is going to be kind of a roller coaster ride, I think.
00:38If you look at the relationship between the data that came out last week and the data, the better data
00:45that's coming out this week, and look at the correlation there, it's not usually one.
00:48So it's not like it gave us some indication of what might happen this week.
00:53And so, you know, we get, is the consumer okay?
00:57Are firms still hiring?
00:59You know, where are they hiring?
01:01And then we'll also get, you know, data on manufacturing and other activity, which is actually really quite interesting because
01:08you can announce a trillion dollars in CapEx.
01:11You can't actually spend a trillion dollars in CapEx, right?
01:14And so how much of this is actually getting put to work as opposed to just kind of the order
01:18book is extending out the back end?
01:20And that, of course, changes GDP estimates.
01:22So what's the data telling us, in your opinion?
01:25The data is telling us that there is basically what I'd call a hinge economy.
01:31We are one, we are a one tune note, one note tune.
01:37I don't know.
01:37I'm not a music major.
01:39But it is all about the AI story.
01:41And if it's not about the AI story in terms of CapEx, it's about the AI story driving equities, which
01:46is then helping to bolster the U.S. consumer, which feels depressed but has a job and is doing reasonably
01:53well in most cases.
01:56So we've got rates are higher.
01:58I mean, they're higher again today.
01:59Hey, there's two ways to look at it, I think.
02:02One, be freaked out that you've got a 520 on the 10-year.
02:05Another one is to say, hey, put it in the context of nominal GDP, which is 6 plus.
02:11This yield environment is not that crazy given that economic growth.
02:14How do you think about it?
02:16Well, so it should be kind of forward looking over the next 10 years, right?
02:19You take a 10-year yield.
02:20And, you know, we saw that, right?
02:22When the Fed came out with their announcement, the expected average Fed funds rate for the next year effectively went
02:29up by 50 basis points, and 10-year yields went up by 5, one-tenth of 10.
02:34Even economists can do some math.
02:37But, you know, one of the curiosities right now is that most of this move is occurring in kind of
02:42the, you know, the two-year space or whatever.
02:45It's kind of like real yields in the very front part of the curve.
02:49If you look at things like term premium, you know, it's all kind of a short move, not a longer
02:54-term move.
02:55So, you know, people talk about 10-year term premium.
02:57But you can break it down into smaller buckets.
02:59And when you look at it, it's really all kind of the front-end story, which suggests that it's not
03:04like a real yield AI solving everything story.
03:07It's something else.
03:08The something else, unfortunately, sometimes can be something like a liquidity event that we're not kind of recognizing in real
03:14time.
03:15How that would play out, how that would kind of, like, you know, disperse throughout the system, I don't quite
03:21know.
03:22But, you know, these move in yields has made me nervous because, you know, it's too early for kind of
03:28the AI-driven productivity story long-term yield move, in my opinion.
03:33To Paul's point, looking at the Atlanta Fed GDP Now model, it's at 5% for the current quarter GDP
03:40growth.
03:41What's the most important data point that you're watching when we're getting so many right now?
03:47So, we know there's going to be a lot of capex, and that capex is pretty much interest rate insensitive.
03:53The thing that matters most to me is consumer behavior, right?
03:56So, we know consumers are really depressed, but they keep spending money.
03:59So, it's how do they keep spending the money?
04:02You know, in my mind, I guess, the most important data point that I want to see is the savings
04:05rate.
04:06You know, how is the savings rate behaving?
04:08And then in terms of the spending, what's the breakdown between goods and services?
04:12Because if you start to see services bend in the spending model, services tend to be very low volatility spends,
04:19right?
04:20You tend to spend the same amount every month on services.
04:24Where your spending tends to vacillate is when you go, you know what, I need a new car.
04:28And then all of a sudden, you're spending surges, and then it drops off the next month because you don't
04:32need to buy a new car every month.
04:34So, I'll be looking at how consumers are spending the money and how much of their money they're choosing to
04:39spend.
04:40And then it'll be on Wednesday, actually, when we get that next personal spending report and income.
04:46Do I lock in yields here?
04:47I mean, I can get a 10-year treasury yield, 520.
04:50Just, I'm done.
04:51I mean, do I do that or do I, how do you think about the bond markets and maybe credit
04:55risk and things like that?
04:56Well, so, you know, I mean, look, if, you know, I'm not like a financial advisor for America, but, you
05:04know, I know what's kind of gotten my attention as kind of an investor.
05:07And, yes, you know, I look at those yields and I'm starting to think to myself, you know, maybe instead
05:10of just rolling my T-bills, maybe I should think about, you know, just taking a 10-year note and
05:15calling it a day.
05:16And so, I think that that is increasingly a question people are asking.
05:19You know, I think another thing that might be going on in the bond market that, you know, historically is
05:23more of an equity market story, though, is tax loss selling, right?
05:27Like, you know, we don't tend to think of that in the bond market, but if you kind of look
05:30at the behavior of yields in recent months, you know, it's not inconceivable that some of that's going on.
05:37So, when you're speaking with your clients, what's their biggest concern?
05:42Their biggest concern really is kind of like how does the AI story play out?
05:47And, you know, how does the investment pan out?
05:51Because it seems like any time I talk to anyone that's on the strategy side or people that are also
05:56managing money, that's always kind of one of the top questions that they have.
06:00Yeah.
06:00So, it's, you know, we've seen a buildout like this before.
06:03How does it play out this time?
06:05And, of course, you know, the buildout we saw last time was for the Internet.
06:08And it turned out fine for people who use the Internet, right?
06:12And, you know, there is value in the buildout.
06:14The question is kind of is there as much value in the buildout as people think there is value in
06:18the buildout?
06:19And I think that's kind of the open question.
06:22Who's financing this?
06:23You know, that's another thing that, you know, people are having a really hard time.
06:27Unless you can devote all of your time to figuring out where all the money flows are.
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