Why The Fed Rate Cuts Were A Mistake | Michael Kao
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Walk back to another ephod of four guidance and join me today. Is Michael cow a Michael? Great tab on the show, but a big fan of your work, your writings, your musings. You have some very interesting take. So it's belong every day to get you on the show is really good.

Happy on here. Yeah thanks for finally having me yeah apologize. But the scheduling snow for a couple weeks ago, so glad we could do this.

It's so good. Well, you know, likely they are the time to talk about. So we will have no shortage of that. All the red carpet feel a little bit because you know back in like late August, if you really win back then, we just think about what is the sentiment at the time of of the current mature and cages. There's a lot there a lot of concern about group is a lot of concern that we are trickling our way to participate even like a recession.

And this was around the time when when the fed actually came out and completed vases point, but you had a you put up, you publish an article that you know basically you mention that powers was gonna a mistake by going fifty bits um that there is no concern for a recession and you call them q stenius power basically um as as as a nice way to put that other ways essentially you know this this was August thirty first like at that time, the sentiment was very different than IT is today. And you mention that basically he was gonna a business mistake when we look back at IT. So I just want to give you poster that and then also unpack like what what was driving that analysis and then how was a panda a few months later since .

yeah I guess um yes, I proposed you tweet earlier about pronouncing cuisine animals. I I guess we could make today's session all about alliteration because I have a whole cast of characters is not just pushes pole. We now have both bowen and yellow belly yEllen as well to join the crowd. Um so so I think when I wrote that peace um I I highlighted a number of different factors.

Um you know the um one was that I think, well, first of all is I was very unusual um for I did I made the case back then that he should not when most people were calling for, oh my gosh, the fed is too late to cut I said is gonna be way too early to cut and and just everything i'm looking at um you know not just you know stock market metrics, but just um measures of core inflation, measures of liquidity. I just didn't seem to justify a cut measures of credit. I pay a lot of attention.

I spent most of my career analyzing um basically the credit markets um and you're just not seeing any sort of uh real any any real problem spots in any part of what I call the leverage credit try factor or which are in fact, we high yield leverage loans and and now private credit, which is just a virginal market that's growing like crazy. Um and even if you if you remember a during the days of I think he was early August, yeah early August when we had that uh scare on the yen Carry trade online. Um I faded that move.

I was on vacation in hawaii at the time and I remember fitting that more in buying know s vix um because I thought, you know i'm looking at all of these uh credit aggregates and they are totally well behaved and this is this seems like a very technical a technical wall blowout. So so and then the other thing I think that is very important in that pizza, a power piece on August first was that I pointed out that there are a number there was a whole confluence of supply in alaska ties some artificial sum real that um or I don't see many people mentioning those and i've mentioned them a couple of times before. Um but it's a it's a comfort.

It's not just one uh elastic in in sorry, one um in the city. It's several right. The first one is oil and you could say that that one is probably the most artifical of them all because it's been supported by saudi ous until cuts. But then you will also have a geopolitically driven analyticity and straight rates ah that's a immediate somewhat um you would get also driven uh elastically in in certain manufacturing uh segment beats because of the whole near showing boom.

We've got this uh analyticity in um longer dated coupon uh bonds uh orchestrated by yellow bali dealin um and then you've got this structural undersupply and housing um uh and and then also a demographic uh under supply in in certain parts of uh the labor uh cool. So all when you tie all of these things together, and I and i've always been a big fan of saying that the sort of supply analyticity cuts both ways. And when you have a inelastic supply ker that's getting more and more vertical, if you have if you then enact policies that are essentially right, shifting the agre get demand curve um which which pushes as pal did and did rather aggressively, um then you are going to get uh a resurgence in inflation.

And I think we're about to see that we haven't seen huge blow out in inflation numbers. Um but you've seen uh the various core C P I metrics uh basically staying very elevated for quite some time. You've seen five year inflation swap blow out. There have been a number of takes uh post you know uh on the um the um the inversion and the bear steeping that happened after um the fifty basis point move in september um he notes touting all sorts of reasons saying that h wasn't it's trump it's it's this is that but you know I just find that kind of it's too much of a tell that the trough and rates me on that day that that the fed made the pivot um and then also uh the other big toe was the the the five year inflation swapped blue way out pretty much on that day um and also so the last thing I mentioned about that islam's power pieces that I had.

I had done A A kind of a deep dive on the yal curve uh in that one thousand nine hundred and eighty one period where I did like a month month analysis of that you curve and and basically you know analyze what happened when similar when volkers similarly um cut aggressively before um the inflation flight was over um there you could argue that had a legitimate reason to do so because you know with nineteen percent um that funds um he did put the economy into a recession um and so you could argue that legitimately his dual Mandates were in conflict um and but but in that case you saw that the the inflation flight was far from over and the bond market took over his job here even though we don't have the absolutely high levels of inflation or fed funds rate. It's a it's A A smaller version of the same thing. The difference is that I as I argued in my piece, his dog Mandates uh just have not been in conflict. They're still not in conflict in my opinion um so I think um yeah so I think that the chickens are onna come home to roost here yeah IT .

definite things that way um this is a very simple question, but like why do why do you say they cut fifty? You know you mention both bowen who was the only center at that time, and know he started like to be pret pretty correct at this at this. But like what did why did they cut fifty?

You think i'm still puzzled by that, to be honest, especially with the follow up twenty five afterwards. I'm also a little bit puzzled by why bowen accented and then SHE kind of SHE didn't dissent in in this last one SHE kind of made an excuse that uh SHE said that okay, she's pleased with uh the language where they left you know the door open you know the optionality to pause so and by the way, i'd proud of this illiterate I went from puel animist powles premature pivot and now pulling ious powers potential pause um so so so so so that's going to be an interesting dynamic, by the way because um I also wrote subsequent to that peace in August that just watch um he first of all by by cutting so aggressively he has Green lighted a global competitive cutting cycle and initially, if you remember the dollar took a big hit and um and um I actually faded that move too.

I increased my U S D C N H uh position when IT when I dropped like six ninety nine um because I said that, look, the fact that power cuts so aggressively didn't change the fact that the U. S. Economy is still the strongest in the world. Um I didn't change the fact that um the rest of the other central banks um IT doesn't behove them to have stronger local currencies. So if anything, uh at minimum they're going to still they're going to basically follow powers pace and at maximum they're gonna have to still out dove the fed um and so so and you saw that happened.

You saw central bank after central bank basically follow powers lead, right um but here's the issue again because we have the this unevenness in transmission of monetary policy and unevenness more importantly in in the amount of fiscal red bull that we are pouring onto the economy. Um the I I think the time is coming very soon where paul is going to be sime uh and might even come as early as december. I think there's a decent chance that they're going to pause in december um because of hot inflation, uh data.

And if that happens, ah that is going to i've written about this uh, many times, this global competitor cutting cycle going to turning into the global bin switch. And and and I think you're seeing that manifested in the U S. Dollar just Spike and you see dxy breaching one of seven today. Like one thing i've been saying is that I think you know this this twin recking ball of a strong dollar and still relatively high oil Prices, even the oil Prices have come down from the eyes twenty blocks from from, you know the seventy dollar, seventy to ninety dollar range. I think that oil Prices are still too higher because this this twin recking ball dynamic of relatively high uh oil Prices and high dollar is going to reach uh demand, especially in the emerging markets um and especially in place like china, which is already falling apart.

I have been trying to figure out is what has driven this is in resurgence in the economy in the last few months because obviously, you know as you mention, the fifty BBS got came and I was basically the bottom taking yields and they're just been surging ever since. But you know, i'm trying to figure whether that data in August was just the outlier where IT was just deceptively soft and now we're just back to this return to norm. so.

You know what how much of this resurgent in in the U. S. Economy has been due to the fed code? Fifty bits first is how much that was just the track we are on and the feed just got caught off guard by some outlier data in in the late summer. It's what do you think well.

as I made the case in that August peace, I don't think um there I do think that we had an outlier in in data and possibly due to you know um you know the large difference is like if you talking about the I believe I was like we had this weak unemployment report, right uh that um was really the the reason why you know pl um that was his excuse essentially writing upon that with great gusto and and um I think that was a total outlier um you know we ve we've got this uh he the huge amount of um illegal immigration that I I believe clouded IT um we ve had had a number of storms that have that have made introduced noise into the data. But again, you can't look at one thing. You have to look at they're so many other variables that are saying the opposite, corporate profits and they .

credit spreads to your point through that whole time, never out at all.

That's right. And and the fiscal red ball has been continuous, absolutely continuous because again, the the three uh bills passed over the last several years, the sorry by paran infrastructure act, the chips act and the inflation reduction act, collectively the amount to two point two trillion of fiscal air Marks right over over the next you know ten years or whatever um and so that never stopped.

That can still very little of that has been actually sort of spare on tizz or what everyone to say to answer your question was IT the fifty that goose IT. Well, I think I think it's hard to actually pass out exactly what specific variable account for um the seeming reactive elerson. But I would say the forward guidance that was given, no one intended, of course, but the forward guides that was given in that pressure was extremely significant because you saw the market completely take the ball and run with IT and do essentially, if you remember, I mean really the the the the beginning of the juice happened in december.

That was that that I call that the december retorted pit that was the dome's thing that he did um because that one uh really the if you think about IT from a pure risk reward standpoint, right he got nothing uh for the government in terms of any sort of interest savings and just boost a animal spirits unnecessarily. And then we saw this q one resurgence in inflation, right? And then as soon as uh, things looked like as soon as he got a another excuse this time he made the second worst mistake which was this aggressive um you know applause sorry aggressive uh pivot with fifty basis point front moving IT um and now tell me five basis points so so I think that's a that's going to be an issue yeah okay.

So I feel like you know basically the impact of everything three months is know the two biggest thing to me has been a major the dollar. As you mentioned, we're getting some pretty key levels here and also just a pretty significant response long on yields.

And so now starting to think about, okay, if if we're cutting rates into what is looking like a much more reason in a we thought in August, at least what the fed thought um at the same time that what feels like the rest of the world is is not nearly as rosy. That started to create a situation where i'm starting to think about this idea of the dollar red that you ve talked to times. So what's your perspective there? Like does like where does this go on? What's your view on the dollar and how does an impact the rest of global markets?

I thought about this a great deal. And so usually what happens is that when you when you have these economic imbaLance between countries, it's it's the foreign change mechanism that evens out those baLances, right? I've always called the the, the dollar or the dollar recking wall. Ultimately it's a um self correcting phenomenon. A it's a it's a um equilibration mechanism, the equilibration mechanism that allows us to export our inflation, if you will, and um import uh deflationary forces from without right um but but because of this this dynamic where power essentially Greenlighted this global competitive uh cutting cycle, to me that was the potentially the most inflationary scenario of all. Where if everybody now goes into this massive easing cycle at the same time, you're just going to goose aggregate demand everywhere versus just appear in collection tion econic m now though, I think because the U S.

Is still the strongest economy um the this notion that if if power is was to pause sooner than later um this if this global competitive psyche, this global competitive cutting cycle goes into what I call a global bin switch where you know pile now has to stop or pause his his cuts but the rest world still needs to continue right? We go back to that dynamic where the U. S.

Dollar becomes the collbran mechanism. So where I mean, there's so there are so many moving pieces right now that it's a little bit hard to to figure out how to position in a way because you know, the other thing is that in addition to my long dollar positions, I did have puts on the on the long year. In fact, well, I I had T L T puts to play along and bear steep er but I also was short um you know sofa z twenty five futures because I think that the the number of cuts that the market had Priced were just ridiculous and on unrealistic.

I've since taken off both because with the election of trump and this this a new sort of islam and vivid doge uh thing I think it's it's there there's an interesting angle here that I actually tweet about today and I said that, look, even if the jan know in a speech that alone gave at the medicine where a garden rally know seems like ions ago now, right where he first talked about doge and how he wanted to cut two trillion, mean, that was obviously a very hyperbolic claim. But I think they put out a press release yesterday how they said, you know, their first step is would be to target five hundred billion in savings from a bunch of these non congressionally Mandated ed, you know, government expenditure and what not. Well, that in and of itself doesn't necessarily do that much to the I mean, that would be significant.

But I think if you combine something like that with now, now that there's been a red sweeten congress and there's the potential for a rolling back of certain of the a biden bills, especially in parts of the inflation reduction act. I think when you combine some of these things and you reduce this this fiscal red ball, right? The other mental model i've used often is that we're in this waste vod cored ble economy where you've got this monetary depression counteracted by this fiscal red ball, you can withdraw some of that fiscal red ball.

Can we get to a place where IT means that we can also withdraw some of that monetary depression without an inflationary outcome? There remains to be seen. It's gonna. It's gonna A A hard left right between this potential pause in december and at least the sight guys starting to shift a little bit with with attention to uh, reducing some of that fisco red ball.

I i've taken off my both my tie t POS and my um my so far zy five um just thinking about that, i've kept in my long dollar positions, however, because I think I think that the tariff hawkish ss is going to a still fourth A A china into this cornered animal status where you know they their their economy is so dependent on exports. And there there have been many, many uh takes that you know china's already running a record trade surplus and you know they don't care about exports to uh the U S. Necessarily because they've shunted IT to the rest of the world.

By this morning I retweet a thread that um uh someone named uh training economics posted on terrace, which I thought was an excEllent thread. But um I I I I point that out that even if the restless world is now taking the bulk of these chinese exports, a large part of those exports are being redirected um back to the U S. You you cannot you cannot escape the fact that the U S.

And the E U combined or the two largest and markets for for these exports um even if they first go to vietnam first or malaysia first or taiwan first um and and so and china's in this situation where for the last forty years this growth miracle we've seen has been predicated upon them essentially just overbuilding massively over building their real state stock there to the point where they've you know my good friend alex dovo has done great work on this. They have they now have like ninety million unoccupied housing units and another one hundred and twenty million um units that are in various um phases of of incompletion, right. So they clearly cannot go back to stimulating this GDP growth um through the real state sector.

So I I say that you know the C C P ee of saw on has now turned from the real state sector to its I call IT the running away assembly line where you know they have to keep this this assembly wine uh uh turning out goods at all costs because is the only way that they can keep their uh rest of masses gainfully employed and and when you have a situation like that, you're going to force your n consumers um the the U S. In the E U. Into increasingly protectionist measures, especially with the advent of trump in and and probably by tizer are having having a significant role. So I think more and more, china is going to feel the pressure to do a significant a devaluation scale is shaking up the block train .

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This is not a investment advice. Crypto trading involves risk of loss and has offered the U. S. Customers through payment interacting few legal disclosures I crack and dom slash legal slash disposed. I want to ask a lot of the context that you just characterizes there when you compare IT that where the market is currently pricing such turns long on deals.

And as you said, he took off your your til t puts um IT feels like and and there's a couple other points on here well but I feel like the market has has maximum pricing this this a inflationary concern because you just mention these potential disasters lation ary tailwinds from what can happen from you on a couple of the ones as well as that. You know you mentioned earlier about just the situation with the oil, you know at sixty nine box, and you see IT up that you are having lower. When I look at what's going on there, when I look at the current labor market dynamic in terms of potential wage pressures, IT IT doesn't feel to me as strong in terms of this wage pressures that was a couple years ago.

Um so based on these dynamics, IT almost feels like the market has has max Price this this inflationary concern. Would you agree with that? Really feel like this .

is more i'm not sure about that because I I rote I wrote another peace um again going back to this idea of there being such a confluence of supply in, alas, cities, I wrote a peace a couple of months ago.

Um I call that and this is when you know the dollar took that dump right after after actually know this is before the dollar really, really took um took dump after the pivot I called that this was a peace stated on july twenty years and I call that you know from U S. Dollar cking ball to U S. Doll pick ball meaning of the doll recking ball could what are the path that the uh dollar recking ball could take to get to get downgraded ticket balls status.

So you know at the time I said, okay, there are three paths. There's there's this overt devaluation path or um you know something like uh the um the plays one thousand nine hundred eighty five plays accords, right um but that would be you know that would require um the U S. To overly want um a week or dog and I also required h requires our uh large allies to want um A A weaker dollar which they currently IT doesn't behove them to to want that right that hurts them.

So so so that I can mix that. The second uh scenario was this premature policy pit that I point out a big way, way, way back in july. And I said, you know, even then that that would be a mistake but the third path, a potential golden path, is is that I said book if they did some sort of, uh, deal with saudi arabia to have them help a essentially roll back there three million barrels per day of unattacked ts and youth drop oil into the forties fifties um and by the way, there are some geopolitical um reasons for that too.

Right because you also wind up wounding uh uh iran and russia cy multi eusden, which is why I think there's there's a lot of potential benefit to to situation like that. Well, could that then be the excuse that gives the inability to reduce that monetary depression? And I said, look, it's I I think lower oil Prices because of the significance in the global economy, right, is not just a transportation, a fuel, but goes into petrol chemicals that goes into you know, factors of manufacturing and all parts of the economy.

I think that low oil Prices are a necessary but insufficient condition for A A A winning the inflation fight because you still have these these uh, demographic chAllenges with respect of the labor pool and structural under supply chAllenges with respect of housing and the demographic chAllenges with respect of the labor pool. I think are are worth mentioning again because you i've pointed out in the past that you know my my own theory on why we're seen elevated um uh labor pressure and uh in ordinate sort of bargaining leverage on on behalf of labor unions. You've seen rolling strikes over the last two years across industries in the U S.

right? You don't. That doesn't happen in a world of labor slack, right? That doesn't happen.

I just can't happen in a world of labor slack. So what what is? What is that, that we are seeing.

And I think that if you look at the demographic permit of the U. S, what I find interesting is that the U. S. And somewhat closely followed, followed by some of the some of our allies in western europe.

We we had this baby boom after the world war two, but then after the baby boom came ua somewhat of A A baby bust like my generation gene. X was a, was a much smaller birthday ve than the baby boomers, right but now my generation um Janet call IT the forty five to you know fifty nine age bucket. You could argue like the most highly tender part of the workforce.

And there's a relative trough of works there. And I I I think you can see in some of the a employment statistics how that particular demographic has been very, very sticky with respect to uh, employment at the same time, I think and this goes into the the housing issue, right? There's there's a structural under supply of housing that is not easily corrector very quickly.

But at the same time, if you look at that same demographic, pym ID the the the age cohorts of thirty to thirty nine right, is at a huge um uh it's kind of like another baby boom period. And that age cohort is is is essentially demand inelastic when IT comes to buying homes because they are in the process of forming households. So so I think you have to pay attention to some of these like longer term demographic factors um and so so again, going back to oil, right? Oil is a this is low.

Oil is unnecessary but insufficient condition in and of itself. Uh, in terms of allowing us to to really say that we've won the inflation like because there are all these other in alex cities that don't go away overnight. That's an interesting .

dyna because this sounds like, you know from your perspective, there's some secular pressures on inflation that really like the way I been digging. How is characters that there is that if you look at cynically data like the old data, you know job openings and in quiz race, that looks like it's a pretty you know it's a very different labor market from before where the employee had a lot of negotiating power.

But what you're saying is that these are more second changes. And on the the housing side of things, you know I was looking at potentially one truth comes in and and starts some. You do mass deportations on on immigration that could be an excess of for for potential just rent supply, which would ease that .

the potential shelter inflation IT could ease the shelter inflation.

But then I could exercise the labor inflation from the quick basis. But overall, there's some much bigger issues ahead .

is what you are say, I think they're deep issues. I don't think I think some of these are structural and some of them are sync. Again, in my that in that August piece, I pointed out that it's it's very significant that you have a confluence of like seven or eight of them at the same time. And so when when you have that right, when you have everything a lining like that, what what you don't want to be doing is guzy the aggregate of and curve.

I want to talk a little bit about all these and they talking about how starting reflect to the market. Obviously, we have talked a bit about the board market, but we love to hear your perspective. You know maybe starting with with equity at that junction.

You if you look at, say, a stronger dollar, you would potentially think that, that would be an a negative, negative headwind for for potential risk assets. But if you do OK um you know we can see yeta hard. So what's review there in the context that we've talked about .

maybe in the in the and this is partially just the a rational zone of the Price action, right? And just basically witnessing how this market has just been the teflon market. Any potential headwind.

But you know when you see that we have these like these mag seven super uh mega caps that are essentially tech and cash heavy and not indeed um and they're also not um exporting product right um in the traditional sense, you began to see why our our equity market has essentially been so resilient, right? And um one thing I point that out so so almost two years ago now, I presented this paper uh at west point talking about the role of the dollar in in an economic fare. But but one of the points that I I made there in in for the case of having a strong dollar policy took to pressure china was that you know we don't the the U S.

Among the the g five is the least export dependent country there is. So if there's if there if there's any country that can a essentially uh stomach A A strong dollar and still be okay. And even with all of these like near near sharing initiatives as well, um it's gonna the us. So so I think I think that's part of the um you know I I think that used to be I mean that the the U S. Economy of several decades ago certainly was more export um dependent, but we clearly are not nearly as export dependent as we were.

They might make you know that might make um you know I I think initially I think I I think trump's maybe flip lopped on this idea now uh but yeah he he at first on the campaign trail, he talked about one in a week dollar, right but then I think he kind of stop talking about that because he he realizes that you know what we we might need a strong dollar to pressure china uh and terrors will probably uh strength in the dollar. So I think he's since sort of you know not at least not talked about uh, week dollar anymore. But it's also, I think probably a realization that a week dollar doesn't really help the E O S. That much.

Yeah, that's fair. Um yeah you think that that. Obviously, you think that domestic I could to be OK, but I imagine in this this dollar recordable world, emerging markets are are not nearly as as rosy and especially china.

You know you mention how that the stronger dollar is potentially going to be too much keeping a cap on china to be able to meaningfully stimulate economy. So do you feel like dashes like a continued cap on china? Would you see there? You know, you mentioned that obviously they need to devalue, but can they have another question?

The point that we made in that paper was that, you know, china has not been a friendly actor, obviously on a number of different fronts, right? And the the part of the reason why there has been A, A, A search for a dollar alternative has been this this much tilted in seizure of russian assets after after their invasion of ukraine two and five years ago, right? And so this is spd, all this bricks talk, and all all this of this search for an alternative to the U.

S. dollar. The point that we made in that paper was that we actually we over the over the last several administrations during during biden, during job even, uh, going back to obama, we if you look at the number of financial sanctions we've are imposed, they have been significant.

That's the reason why you're seeing this active search for a replacement. And and we made the point that look there, there are many reasons why the the world chooses the dollar as reserve assets. There are so many reasons, you know, whether it's like our rule of law, our military power, uh, the liquidity of the dollar, the liquidity of underlying bond markets, which is a very, very significant aspect of IT.

Um so even with all of those uh, financial sanctions IT, they'll be very, very difficult to dislodge the role of the dollar. But why why encourage that search when we don't even have to? And our point was that if you I think I like in a to a financial judeo, right the the art of judeo, a martial art where you're kind of leveraging your opponents mass against them, right? You don't you don't go head to head with somebody that waste three times you're weight.

What you do is you kind of like trip up up and you you let their you let their mass work against them and their weight work against them. So what we said was that you know, if you had if you just naturally allow the dollar to be strong here, china is in a vulnerable state because they are very, very levered. Most of their a debt is off down on cheap, but it's gonna get increasingly consolidated onto the baLance sheet because they they are off baLanced financing vehicles.

L, G, F fees are pretty much tapped out, right? Um um china is unlike the U S is short on natural resources. Um so we are in a long natural resources um by through various dum policies we have kind of shackled ourselves and handcuffed selves and developing some of those natural resources.

And the first thing is do no harm til oneself we need to stop with those with those artificial hand cus take off those artificial handcuff with respect to energy develop right um and and you know coupled with certain um industrial policy is like news sharing. Um I think you can you can have an economic warfare or economic defense strategy where you don't really need to rely on so many over sanctions. You can just let the strength of the U.

S. Dollar reckin ball do its job uh and and Frankly again going back to the U S. Dollar writing bold's role as an cool bring mechanism.

IT serves a dual purpose right? IT serves a purpose of dealing with our domestic inflation issue while you know hamstringing a large job, local versus adversary, whose whose you know underlying what if their short dollar denominated commodities. Obviously, you see where the vulnerability comes .

just as we began to wrap up here and circle back. I just want start to look a little bit more towards the future here in the rest of the year. Um obviously, there's the fed meeting in december.

And as you mention earlier, the odds of whether they cut or not or something split. I just looked at the fords right now, it's it's like like know fifty five percent chance cut, forty five percent part. So it's it's up in the air.

And i'm just curious, I do think markets react depending on what how happens here. So let's say how poses, you know, do you see long bond rally on the same thing that they cut? Do you see the long bond not really in that juncture? Or do you feel like they would just keep IT elevated?

I feel like if he if he pauses that there are I I think they've been a number of markets that have Priced in this this very, very aggressive easing cycle. Um but but it's also a coffee at that was saying that you know the bond market, the longer part of the yellow has has indeed done some of the feds work for IT and kind of compensated, right? But but it's but you're not seeing that manifest yet in in equity Prices because you would expect right, you would one would expect that the import of the ten year is free rate that have a much bigger impact as a discounting mechanism along .

the Prices like equities. And the last couple years, the two times what, but they haven't this time.

They haven't this time. And and so it's a very perplexing market. You know, for the first time in a couple of weeks now, I I actually, aside from my my long dollar um my U S dollar cnh positions, I don't really have any macro positions.

Most of my breasts butted, chasing idiotic craic. Alpha, actually we don't really talk about that. I talk about macro O S so much on this podcast.

I don't really talk about video craft stuff, but my portfolio doesn't care about about um what the what the fed does hopefully. Yeah yeah. I do not really .

mention that you follow pretty closely like a different model in terms of just like different capital structure are right?

Something like that, that was talking about something different, that was talking about how you my murder model piece referencing was really talking about how equities are essentially long call options on assets where as uh, credit should be viewed as short put options on firm assets. So that's that's like a holistic due of how I look at the capital structure.

And and yeah cool. Just as we have up here, any other major forecasting, anything in terms of other aside from china, the U S. But any final thoughts there?

Again, I think I prosecutable commodities are are still flashing kind of a cautionary sign o um and you know so I would I mean look at copper, right. Copper um has has weakened quite dramatically and I think that is directly related to to china. Um I think you ve got to watch oil.

Um oil is the big thing i've been saying for quite some time now that um I think you wait when trump attended that a that you are see flight t recently you saw that you know he was sitting next to the manager of like the big a sothern wealth fund and I put out a tweet and I said, you know, what i'm imagining trump was spring to in right now is, hey, listen, if you helped me out with, you know, getting oil Prices down, i'm going to make IT worth your wild and and I really think that that's an elevated risk with trump being the deal maker. That ideas, I you know, I I lives through a very, very painful period in the oil patch in q four twenty eighteen, which I labeled the trump rug pool. If you remember what happened there.

Yeah, he basically took us out of that. I was right when he took us out of J C P O A um and you know the oil markets after a uh multiyear bear market was finally starting to strengthen based on tighter supply and M X due to you know potential lost iranian supply and um prompt basically calls up his body N B S sand says, hey luck. I need you to help me out here and you essentially fly the market and and make up for that lost iranian supplier and he promised very, very publicly that there would be no wavers to that to the to uh iranian sanctioned iranian oil well M B S floods the market and and um on the I think he was at the end of october eighteen trump grants eleven wavers and then the the oil market just absolutely now you could you could say you could ask the question, well, why, you know, you burn me once.

Why would I fall for that again? Why would N B S fall for that? I can. Well, the the difference is that you have to understand the dynamic. Here, they OPEC plus.

And I and i've writ also written about this outline since they began these unatoned cuts about almost two years ago. Now they painted themselves in a corner of, uh, h darabi is capable of producing up to twelve million barrels per day. They're currently producing nine million barrels per day.

It's a large amount t of spirit capacity. And they have unatoned born that because russia and iran and the U. A. Has basically been cheating, U S. Shale has also been producing a ganging busters and second last forever. But right now it's well over thirteen, thirteen and a half million balls per day, right? So so they now find themselves in the situation where the the biggest, the biggest customer, china is having serious economic problems that appear to be secular in nature and not just cyclical, and they have no exit strategy.

So the question is right, can trump make IT worth their while if he offers them some sort of security guarantee? E A nuclear umbrella something right um that basic and making a point to sarabia that hey look, remember that your revenues equal Price times volume and you're the only large producer that can make up they are for a lost Price in increased volume. But at the same time, if you give me this win on domestic inflation and give me this win in terms of more negotiating leverage against a weekend economically weekend iran and russia IT IT makes too much sense for me to think that that those conversations are not going to happen. So I think that that I think oil is a key commodity that um that i'm watching .

yeah really pay the in four years are going to be very heady y very ming don't be a fun time fine but .

but also but but also tRicky because yeah because the the other thing also send with this the other thing is that the the world there are so many asset classes, whether it's like oil or or gold um that have or defense stocks that basically Priced in sort of a world of eternal comfort. And if you think about what from platform is IT is to not embroil ourselves in forever wars. And so if we have I I said something the other like last week he said.

What if the unthinkable happens in p there's a there's a break out of peace, right? That ironically um A A treaters path for a number of assets that are Priced in the opposite. So .

that's a good .

yeah goal. Uh I mean, I I think there's a lot of geopolitical premium being that have been built that's probably been built into um uh gold, oil, even treasury's yeah yeah there there's a lot that's I feel like changing on the world right now。 So it's it's going to be very um interesting but also tRicky 的。

I look my great to all finally work at folk, Scott, they would want to hear more about your .

writings and your musings. Urban cowboy K A O urban cover that comes as my subject and the same handle on twitter you haven't.

Yeah thanks. So .

thank you.

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