I know we had a Fed meeting yesterday, but let's start with the bond market. >> Yeah. >> Let's start with um the signals we're getting out there. You know, uh coming into this year, we thought, you know, well, we've seen cycle highs so far. This year, we saw the 30-year hit a new high a couple months back. U now the 10-year has joined that earlier uh this week. Uh we've got a little reprieve today, but where where's your head at with the bond market? What with the Treasury market today? And what are you thinking about different parts of the curve and what is it telling you today? >> I fundamentally continue to believe that given regular supply and demand pricing treasuries, the hit path of least resistance for long-term treasuries is up. However, as we've gone from virtually 70 basis points back six years ago to what was about five and a third or five and 535 yesterday, we're getting to the point where it's quite obvious that the government is getting uncomfortable with the level of rates. This is why you have, you know, the president wants the rate to be at zero. The secretary of the treasury has uh signaled operation twist which is which is something that I have been anticipating for about three years. I just didn't know what level. I don't think it's really done it yet because you know he once he was about a week ago he said he had bought any bonds. I don't know if they have or not but $6 billion which is what they're talking about on buybacks is it's utterly pointless. I I just don't see how that's supposed to work. I I think I'd have to go much much higher, but at some point they might. And I did at uh Jim Grant's interest rate observer conference way back in 2016, I came to the conclusion that the bull market bonds treasuries was coming near an end. And when I if I have a grandchild that comes up to me and says one day, I hear you were this bond guy and uh did you I couldn't believe it. I read there were negative interest rates. Did you own any of those? And I said, I want to be able to say absolutely not. I I never I never slipped on that banana field, but um you know, and then we had the COVID thing. So rates went back down to those 2016 levels and for a day even lower. And then I thought for sure for sure this is the bottom in interest rates and the only thing that's going to stop them from going up is some sort of extraordinary action by the government and there's only two candidates for that that I can think of. One of them is operation twist if the Fed will go along with it. the Fed has to go along with it because if you if you have the Fed funds rate at three and three and 78 now, you know, it's not that different of a yield than on the long end. You would need to them to collapse interest rates so you could borrow at negative real interest rates and then take the proceeds and stop the Treasury yields from rising on the long end. If you that's a that's a radical idea. It's been it happened from 1946 or so until the mid1 1950s. Everyone knew inflation was going to go up after World War II and uh and the economists were all right but the the the government wouldn't let them go up and that led to all that inflation and that start that started uh after 55 it started around 1950 it started the bare market in bonds. So I radical things can happen. Japan had yield curve control for a very long time. uh now they're just trying to control the currency more than their yields and but they they would have to do it in much bigger size. I think the six billion is a a way of started you get the the machinery in place to see if it's working and get get your uh systems going. I I would think they would do that somewhere around 6 and a half% something like that. I I don't know why I I feel that way. I I I felt like they would start getting nervous above five and that has certainly happened but but that could happen. And so as a bond manager or bond investor, you have to think about when do you have to do the pivot on those long-term rates. And it's pretty clear to me that it's not at five and five and a third. I think it has to I I really believed just in my gut there would have to be a six handle for them to do it. But when when they do and I remember when uh we had the big selloff in the guilts under lose trust >> 23. >> Yeah. I mean just because of an announcement yields move about 150 basis points in like 48 hours but then when she reiged on that policy they like rally right back so you get whipsawed tremendously by uh tape bombs. So I'm trying to like follow it very very carefully and I kind of on a minutia sort of level to look for signals that it's happening. We got we have a pretty good signal with uh admitting it. The other thing that could happen is they could just do something totally radical and say, you know what, we can't afford this interest expense that we have to issue at based upon the market forces. What we're going to do is restructure the Treasury debt. We're going to extend the maturities. They talked about this uh Scott Besson talked about this before he was Secretary of Treasury that maybe we should restructure the Treasury do bonds that are owned by foreigners. Now that's a very difficult thing to administer because the foreigners can hide behind local entities. >> Uh but >> also wasn't that called the Marago Accord? Weren't they trying to attribute that to Trump and Marago or something? >> Yeah, I remember the I don't know if that was the Maraago Accord, but I remember that that phrase. There's one way that they could get it back down. You could cut it by 75% the interest expense just by cutting everybody's coupon. So that you get the average Treasury debt right now is about 4% coupon. You could just say every Treasury bond that is a coupon above one, your your coupon is now one. And every every bond, there's not very many of them, but uh that have a coupon below one, you you get to you get to keep your coupon. He's not going to get a raise. >> Well, Besson's buying those, too, right? once they have that that very low coupon. >> Yes. >> And so that would reduce your uh interest expense overnight by 75%. So you go right you go from two trillion to half a trillion right away and you'd be right back to where you were years ago. That you buy yourself more road to kick the can down. Now of course every investor would would you know would erupt in in anger and they would never lend to you again. you'll never be able to borrow money again, which is actually a solution to the way we're running the government. You can't borrow anymore. I Somebody asked me what what would I do if I were running everything? And I'd say I would tell uh tell Congress that they have to cut spending by $1 trillion in a month and find a way. You know, you just you just have to do it. We tried the uh eliminate fraud thing a couple years ago. It it didn't go very far. They they sent the team packing in about a month because of all the pressure and they didn't really get much savings, but you would have to get to that too. So for now, I'm I'm little less negative on the long end than I was say a year ago and clearly that the curve has been flattening and it flattened uh since yesterday with the Fed raising rates 25 basis points and once again completely following the market. You try to act independent, talk independent, but the market said there says 90% plus chance. I think it was 92 actually of a 25 basis point hike. And sure enough, it's a 25 basis point high. As I said in CBC, I think it should have been 50. We're starting to see weakening in credit just around the fringe edges of it where you see in the IG bond market. You're seeing the AI spreads have winded out over really the course of the past year by about 50 to 60 basis points and then you have uh the AI bonds in high yield. I'm saying versus the rest of the markets the rest of the IG market. Everything but AI is contained. But AI is on a trajectory that's kind of looks like it's going to be relentless on those spreads going wider. And in the in the low investment grade market, the jump market, of course, as you would expect, it's much more severe. And the widing really just started uh late the second quarter this year. And that's been about, you know, almost 150 basis points of high yield versus uh non AI high yield. >> Isn't it kind of around the peak when we've seen the mag seven stocks kind of peak, right? Of course. Yeah. Yeah. I mean, I I I I've been around a long time and I've and I've seen a lot of market changes and I've learned that there's a moment where you get to the peak enthusiasm and I felt that that's what it felt like to me regarding the AI stuff in June of this year that we were like at peak AI and that's really when the spread started widening and it was just that sort of euphoria. You go from a new technology, a transformational technology. It starts with this is the greatest thing of all time for humankind. You know, we can all retire and live on the beach in Tahiti with a a luxury lifestyle because AI is going to take care of everything for us. And then all of a sudden, it started morphing into right around June, July, it started morphing into it's going to take your job. So suddenly it wasn't all rainbows and balloons, you know, it's now, wait a minute, I might not be able to get a job. And I think that was done to create a scare tactic to try to get some initial government involvement in oversight. And that went on steroids about a week ago where this guy nobody ever heard of uh who was at was at Anthropic and he quit there and he went over to OpenAI and he was there for some people say five months, some people say more like five weeks and he immediately says I'm resigning because I I care about the world so much. I'm resigning because this is going to kill all human beings within I think he said six months potentially. and certainly by the end of the decade. So all of a sudden everyone's like it's going to kill us. And so we've gone from it's going to let us live a life of luxury to it's going to kill us, you know, uh before social security runs out of money, which is 2032 per the social security administration. Uh, so I find it interesting that that time frame came up like the end of the decade because it just seems like in so many ways all of these these things are overlapping each other. The the interest expense, the rising interest rates, conflicts among politicians, even within political parties is all happening. It looks like we're on a collision course for something. And I've been talking about this since really very early days at double iron like 2010 2011 and I I I was I was creating this theory and I met this guy Neil how who came in to double iron just to talk and it turns out he wrote the fourth turning back in 1996 or so and he he's uses demography to talk about the the four turnings and the first turning And he he framed it in a more elegant way than in a more detailed way than I thought about it. But we were it was it was like we were completely intellectually on the same page and and he was saying that there's a first turning where you dump all the old institutions. Uh and you it really everyone has to agrees that things aren't working and they change some of the rules and they rip down institutions and they put other things in place and it actually works because everybody's now in agreement with a new system and then you go along and there's a second turning and third turning and there's aspects to that but then there's the fourth turning and fourth turning is and Neil Hall agreed with me on this too that's what that's where we are and it's where Everybody is disgusted with the institutions that were put in place at the first turning and they get to the point where it's sort of like in a really bad marriage, you know, till you try to keep it together for the kids or you you wait for the kids to graduate or whatever, but at first you're trying to save the marriage. You can't contemplate. But you get to the point where people say anything is better than this. And we're getting very close to that point. I mean, anything is better than this. So, I'll just just rip the band-aid off, you know, file for divorce. >> I remember my parents uh, you know, I was explaining to him during the mortgage crisis how people walk away and how can you do that, right? I'm like, well, legally you can. It's called restructuring. There's these things, >> right? But that that's another I'm glad you brought that up because during the buildup to the tremendous amount of of defaults on the single family mortgages, many investors who bought pools of these mortgages deeply believed that they would not be modified. And they had a reason to deeply believe the loans would not be modified because it was forbidden by the prospectuses in plain English. These loans cannot be modified under any circumstances. But they get it because you know desperate times call for desperate measures. So who cares about the perspectuses? So they modified millions of orders. So don't think that just because there's been a rule in place that is going to stay in place. That's why I I tell people you've got to think about something different is going to happen because what we got to we got to where we are cannot continue. So a lot of this something big is going to happen. But before that something big happens, we're we're going to do something very major relative to the bond market when rates really start to go up. And I think that's in the next recession, which a lot of people don't uh agree with. But I I think I'm right. The that the the debt will be so enormous. I mean, if you go into a recession from this level of where we are right now, you would have the budget deficit go easily to 12% of GDP. And that's just that's that can't that's just a nons not possible. But it would just have to go there from a regular way. that would create $3 trillion of interest expense probably per per year and you just just can't do it. >> You see a lot of this agit that came into the the Treasury market coincided with us hitting 40 trillion on the deficit and the 40 trillion. >> It really is amazing. I I I did a a podcast with Julia Ro over here back in March and uh yeah, I I said she talked about $4 being a psychological level for gas and it does seem to be seems to be when it's below $4 a gallon on a national average, people stopped. But the minute it goes above $4, I think it was up to 430 or something. Now everyone's talking about it. I I posited that maybe that's what 40 trillion is on the national debt. And uh that that 40 trillion nice round number. And sure enough, the day after we crossed 40 trillion. Literally the next day is when they announced Operation Twist. >> So it's obvious that the 40 trillion dollar number meant something to the administration or at least to Scott Besset. >> Yeah. You know, and so when it goes higher, you know, of course we have the debt ceiling. I think it's at 41.1 trillion then that that's we're going to bump into that uh in like a month. >> Yeah. A quarter or something like that. So th this is a this is a a strange environment where because interest rates are no longer falling on a secular level. Everything that people have been around for 40 years think that they've learned isn't working. There's a lot of things not working for years. The copper gold ratio was a fantastic starting point for where the 10ear for for where the 10-year Treasury yield should be. It worked incredibly well until 2020. And since 2020, it's horrifically bad. It's it the the the copper gold ratio by the the pre2020 analysis says the 10 years should be at like 1.25 25 and yet you know it's it's around 5%. And it has and it hasn't worked at all and and so I I facitiously say maybe we should use the gold copper ratio copper gold ratio just like the leading economic indicators have not even though the stock market's been very strong the leading economic indicators have been negative year-over-year for years. if they've never been negative year-over-year for such a stretch of time without having a recession, >> right? So, that that isn't working. And there there's a lot of things that were him. One of them is in the uh April 2nd of 2025 was the tariff day and the the stock markets entered a correction and it went down about 18% or so and the uh usually in all the corrections since 2000 prior to this 2020 situation the dollar went up when the S&P 500 dropped more than 10% every single side, but in that correction, the dollar went down, which I thought was corroborative of my thesis that we're in backward land. And in the next recession, long-term rates will go up and they'll go up uh you know, because of the debt crisis that is going to usher in and then something big is going to happen like my debt restructuring thing. And everywhere I go, people say that's ridiculous. That's never going to happen. In the investment business, when you hear the word never, it means imminent. >> You know, I love that phrase. You know, I love that phrase. Speaking of these uh changing dynamics and and specifically what we saw in 2020, it seems a lot of relationships grow down. But as you you talk about the Treasury market and we're talking about Bezon, this be my last thing about rates for for this session is you think about what Besson's doing with this six six billion bukak and the likes. We think about the magnitude of the treasury market. Think of the magnitude of the global debt markets especially even relative to global GDP and the amount of firepower that Bessant Wars who doesn't want to expand the balance sheet well we'll have to in that situation is going to expand >> the amount of firepower they need I mean you're talking like they probably need something in the magnitude of like 10 trillion dollars. Yeah, it's it's it's it's a lot for sure. And >> do we go to crazy land again where everything is just intervened? It's not free markets. And what do you do there? >> You're going, >> well, I know we have to deal with it when we get there. >> That's the moment. That's why they're so desperate to not have a recession. If there's a recession, there's going to be incredible attention paid to the the fiscal situation. It's you it's already starting. You can see it. People are talking about it for years. Nobody talked about it and suddenly after 40 trillion now they're talking about it, you know, and this all ties together. All these these trends all turn kind of is a simultaneously or with >> Do you think that discussion that people are having about it coincides with this kind of more persistent inflation though? Do you think part of that is the overhang there where it's raising skepticism? Yeah, probably because, you know, to fight inflation, you're you're going to have to slow down the economy. Uh, which which means that you're going to be walking closer into the you're going to increase interest expense with with trying to stopping the inflation increases the interest expense at least at first because the rates are going up, you know, and and they're loathed to do it. uh and they got to print more money on the other side to fight the recession. And so >> yeah, it's all everything everything seems circular. You know, the private equity market is is all, you know, private equity owns private credit. Private credit owns the insurance company. The insurance company is told by the private equity person to buy the priv private credit from the private credit firm they own. They they don't have any discretion because they're a wholly owned subsidiary. and and then the reinsurance company claims to be offloading some of the risk to a offshore reinsurance company out in the Barbados or the Cayman's. Why why not do it in the United States because you want to hide it. Regulators can look at your books in the United States and the the insurance industry people don't know is it's regulated at the state level. There is no federal oversight. It's just the state level. And the um >> which means there's 50 different regulations. 50 different and of course the private credit people and the private equity people they arbitrage the regulators. So there's five states that have really lacks oversight. It's Vermont, Iowa, Delaware, I think it's North or South Carolina, I can't remember which, and I think it's Georgia. And those regulators allow all kinds of rogue activity to go on and they are completely fine with them shipping uh liabilities supposedly off to Barbados. So now there's eight I think there's eight rating agencies. So there's five new ones and one of them rates an awful lot of deals to the point where it's highly suspicious. There's one of them that in the last 12 months rated 3,200 deals. 3,200 deals in a year. They have a st a to a a total staff of 25 people. Now, these deals, the documents you have to go through to to really assign an intelligent rating are like 200 pages. So, there's no way they're assigning the ratings. So, what I say, and people don't like it when I say this, that are involved in this scam. I I say it's not an analysis, it's a price list. You want You want a single You want a single C, it's a dollar. You want a double C, it's $5. You want a triple C, it's $100. You want a double B minus, it's a million dollar. because the the double V minus gets favorable capital treatment at the insurance companies and so they can leverage up much more if SpaceX is rated tripleB minus even though SpaceX is X is trading at best as a single B at best because it winded out all these deals this is why I say something has changed these deals come out and they spreads widen I'm talking about the AI and AI adjacent borrowing, they they they widen out in days. They widen out as if they were rated much lower. >> Then you've got uh Oracle. >> Oh yeah, it's Oracle, >> who I think is going bankrupt. >> It looks like a single B name, but still investor. >> Oracle. I mean, they're rating. It's ridiculous. They're trading, you know, fullon deep in junk. And uh people are starting to realize this and starting to wonder, do I really have what I thought I had? It's now it became clear a year ago that one of the three bullet points for attracting the ocean of private credit that was attracted one of the three selling points was superior performance, past performance, which of course we know is no guarantee of future results, but past performance. And we now know that that performance was a lie because we saw a year ago many funds take bonds that were priced at 100 last night and mark them to zero. 100 to zero overnight. And that that happened again last week. 100 to zero. It's like there's only two prices for private credit. 100 and zero. Now they do mark them down, you know, now because they're under some some scrutiny. But one of the mo most uh visible asset managers earlier this year they had a portfolio marked at 100 at the end at year end and in by by the by the end of the first quarter it was down at 78. Now a lot of people think 178 that's bad but they don't realize how bad it is because you a lot of people think in stock terms I mean like when Nvidia goes from 100 to to 78 one day and it will go from 178 one day people think well you know it's a volatile stock we're not talking about volatile single name stocks here we're talking of a portfolio of hundreds if not thousands of loans I so what is it did You mark every single bond down 22%. I doubt it. I I like to hope you didn't mark them all down 22%. Because you're saying that everything is fine. Did you mark half of them down? Well, that means those are all down 44 points. That sounds really bad. Half of your loans overnight went down 44 points. Or or is it that 75% of them are really good because they say everything's so good and so that 25% of them well they're down at eight. You're telling me you march 25% of your portfolio from 100 to eight. God forbid they drop it another few percent because that 25% would have to be negative. They're running out of they're running out of space. The lower bound I think is zero, right? So I would I really feel feel for the people who are trying to explain to the RAS that put put clients into this stuff because it's sort of like which one do you think is best? Is it is it A everything down 22, B half down 44, or C a quarter down 92? None of those are at all satisfying in terms of explaining what's going on, but this is what's happening. So that argument is no good. The other argument, of course, was a sharp ratio argument. You know, you get you have return volatility. Well, what when you when you launder the volatility and you you you you don't mark your bonds to market, which we can prove because of the 100 to to 78 over the course of few months. We know you didn't mark your stuff. And even the head of Apollo said in the in the teeth of all that gating bruhaha, he said, "Ah, the marks don't mean anything. The marks aren't any good." So the DOJ is now investigating the marks. So this is this is an area that's going to be a really big problem. And it is that's another reason why we don't want a recession. and you get a recession and the defaults are going to start coming in fast and furious and you know that's going to I think it'll blow up some insurance companies. The insurance companies that are owned by the private credit will likely face insolveny because they they aren't fully capized and uh they're they're taking this outside risk outsiz risk. Insurance used to be the most fuddy duddy industry that there was, the lowest risk, you know, and when the when the private credit equity guys bought the private credit and bought the insurance companies, it's it was just the wild west. You do whatever you want. They arbitrage the rating agencies. You arbitrage the the state regulators. And eventually when you get enough of this business going on, there's a sufficient fraction of these these these entities that don't follow the rules. I mean, we just saw there was in the the the Huggenheim Insurance Company situation where they they reported 3% of the investments were with affiliated entities and all of a sudden, whoops, we we meant 42%. You know, a small calculation error, 3 to 42. And one of those insurance companies, 50% of their private credit loans are rated by one rating agency. Guess which one? the one with the staff, the 25 that rated 3,200 deals. So something these these things are leveraged up. Everyone keeps saying there's not it's not like the the GFC. There's there's not of course it's not the same as the GFC, but the then they try to lean on there's nowhere near the leverage. Yes, there is. Some of these reinsurance companies are leveraged 40x. There's a lot of leverage. >> Yeah. And so we're very very uninterested in the low tiers of credit. We already see uh triple C's as I mentioned in the AI category widening out. What you need to be on the lookout is for that to spread for that to spread to other sectors hasn't happened yet. For that to climb the ratings ladder when it's not just you know triple C's but but it's all then it goes to single B's then you really want to be careful. That hasn't happened yet. That's the good news. >> Yeah. So, I want to take that and go into credit deeper here, but we'll get to happy times hopefully. We'll see. We'll see what Jeffrey's thinking though. >> But I was going to say the credit markets like think about the public markets. And so, what has that done there? >> I have a strange recommendation for fixed income. It's a kind of a barbell strategy. It's owning something that has no corporate bonds, something that has limited interest rate risk relative to an index fund. And it's it that happens to be the the makeup of our total return strategy. It's there's no corporate bonds. There's there's no foreign bonds. And then I and that's just a very sleep at night place. But I add that together with local currency emerging market debt, which is the riskiest thing you can buy, but sometimes risk is good. So local currency emerging markets benefit not first they yield over 7%. So we'll we'll start there. You've got to be very careful with what you're doing. Obviously, we try to be as careful as possible. We've been running emerging markets since day one at Double Line. And uh we've got I I think about as strong as an EM team can possibly have and I think the dollar's going down. That's not a forecast for between now and year end. That's a forecast for the next decade. The dollar and it's already happening. the dollar, the Dixie index was at 117 uh or so and then it's fallen as 115 and then went below 100 and now it's basically it's fluctuating around 100 and I think it's going to go below 70. It's not going to happen soon, but I think that's where that's where you're going. And if that happened, you would have a huge gain. If you if that happened against every other currency, which will won't happen, but if it did, you would have this massive gain on top of the yield. And so we like that we've actually been adding to it, you know, very judiciously. Not not in every strategy. That's this is for that are, you know, portfolio strategies that are routinely taken the more elevated level of risk. We like that. We like we've been we've liked for a couple of years now just the the two two-year to sevenyear part of the non-corporate bond market non-corporate non-treasury. So that's assex securities CMDS non-g guaranteed residential mortgages uh what am I missing clo uh which are and clo is nice because you can moderate it by the risk tolerance of the strategy. So for like our total return strategy, it's just the top of the capital structure. The things that are zero risk in my view right now are seasoned, which means more than say 5 years old, non-g guaranteed residential mortgages because you have to be dumb as a rock to default on your house that you bought at 100 and is now at 180. I mean, who can be that stoop? You just sell it on on a on a good day for a buyer. They yield 140 over treasuries. On a less good day, it might be 120, but still you're earning more than treasuries with no more risk than treasuries. >> And they have and they have limited interest rate risk, right, at the point because of just where they are. >> Yeah. And there's no pre Well, you you put actually they're kind of around par these days. So, you don't really care about the prepayments. And there's a AAA CLOS because with the Fed hiking, they float. You don't have really much credit risk because there's all this this buffer below you that's going to eat the losses. It would be it would be a a real real hellscape if the AACLO market took losses. I mean the private markets equity and credit would be completely completely decimated if if that happened. So the but but but but that's not going to happen is it? It's not an analysis you know you just have to you have to monitor all the time but at the present moment the AAA CLOS's do appear to be almost risk-f free and there's been some very successful ETFs that you know there's that that buy just AAA CLOS's and they've grown a lot. So those are kind of the two risk-free areas. they're very different from the other. And then, you know, there's nothing wrong with the investment grade uh market, although it's starting to get polluted with the SpaceX bonds and other things that aren't truly investment grade. So, we have to keep monitoring that. And there's nothing that wrong with the high yield market. Spreads are tight. You know, typically, you'd say, I want to buy them at six six percentage points over treasuries. I don't think you're going to see that. I don't think you're going to see that in the high bod market this go around because what got you to the 600 or a thousand basis points under true stress. That was because there was no private credit mark. That's back in the days where the the crummy borrowers had to come you know begging to the banks cup in hand saying you know please and say they would they would at moments of exuberance uh toward lending they would they would reduce their standards and make loans to these these iffy companies and those were the ones that defaulted those aren't in aren't in the highway markets now they're in the private credit market so private credit market has become a dumping around for the the parts of the high yield market that used to cause the biggest problems. So high yield, you know, it could probably go to 400 over or something, but I I don't I I I'm not really that worried about it. But you always have to when you when you're when the if when the situation deteriorates at a fairly steep kind of slope, neg negative slope, you got to act quickly. A lot of people say, you know, they're going to ride the AI trade, you know, until there's signs of trouble. When there's signs of trouble, you're going to be already down 50%. So, watch out. I point I want to point out that the cape ratio is at the end of July 31st on the S&P 500 was 42.04. If you go back over time and do long-term analysis, when the cape ratio, anytime the cape ratio on the S&P 500 is 35 or higher, there's never been a forward-looking positive real rate of return from the S&P 500. You've had nominal returns in some cases, but no real returns. And for cape ratios where we are now there's multiple examples not many as high as we are right now but not one of them has a posit had a positive or real rate of return. In fact most of them had a real rate of return that was negative fivegative -6 sometimes as much as like negative8 >> and that's peranom over 10 years >> perom. So if Jay if if Worsh is he he has defined failure as the Fed is not getting a 2%. He has said it not in those exact words but that's the message he's given. We will get to two. We're a failure if we get to if we don't get to two. >> Pretty much the one thing he said two that means that you can expect negative nominal returns out of the S&P 500 based upon history. Doesn't mean it has to happen but it's it's pretty convincing. It's not like a it's not like a sample size of of two. There's many dots that are 35 or higher and not one of them has a positive real rate of return. So I don't like that and I really don't like the concentration risk in some of these markets due due to the AI. That's why I've been recommending equal weighted >> which it's not terribly convincing when you look at the chart that it's reversed to the positive side for equal weighted but it has outperformed equal way has outperformed more recently uh than these these AI names because if they turn out to be the bankruptcies you're going to have a disaster on your hands. So I just don't want that. I I I an equal weighted an equal weighted index and just did the S&P equal weighted. How many stocks are in the S&P 500? It's not 500. It's 503 or something. I'm talking. So you get you have one 5003 of each company. So how much AI would you have in equal weighted S&P? I I don't know. It's going to be like a couple percent. >> That's at most >> or AI adjacent. It ain't 5%. >> So you you get away from that. I want to be away from that. So also we've been respectful of the inflation trend. I mean the number one performing thing is commodities this year. the Bloomberg commodity index is I checked it too was up like 38% or something like that. I don't I don't need I don't need uh you know the anthropic IPO if I can get something out of the commodity complex and commodities are in a bull market and the dollars which goes along with the dollar in a bare market and commodities they they they corrected there in the early part of the year but they're right back to the to a new high for this cycle and uh I don't know with the dollar going down and with all these choke points and the problems with with the oil reserves in the world are the lowest they've ever been. The the strategic reserve in the United States has drawn down almost as far as we can. I think it's at 280 million barrels now or so or 250 million barrels. It can't go down to zero or it won't be usable oil. It it gets corrupted if by the salt I think in the caves or something. if you get below a certain certain level. So that's it's just unlikely that you're going to get this collapse in in price of oil because there's a floor underneath the price of oil and it's not 50. >> It's it might be 70 because at some price you have to say we need to start refilling the strategic reserve. You you don't want to do it at 105. I got that. But I'm not sure that that big buyer is going to allow the price to get that much lower. And you also have all of these the blast radius of the price of oil is still is still widening. It's still fanning out. Sulfur, fertilizer, diesel. The inflation indicator that I start with are export import prices because they're not messed around with. They don't have seasonal adjustments. They don't they don't have some arbitrary re reweing scheme. They don't have what they hideonics >> where they they claim that the you know the price of te they take a price the quality for what you're getting and so that's not really an inflation thing. Import export prices have no seasonal adjustment and they're just prices and they tend to be a good starting point. Well, they're rising. Both import and export prices are rising. And if you average import and export prices, the average is 7.8. So maybe the inflation rate is 7.8, 8, right? And and I just don't think you're going to get lower. And we're starting to see what I remember as a kid, what was the psychology of an inflation cycle that can take hold. It it didn't really take hold in the first runup to 9.1% CPI. What happens is people start to anticipate higher prices. This is what you really have to watch out for. it's worthwhile to compare some of these you know surveys to compare the yields of nominals to tips and all this sort of thing and to see but when people start to believe prices are going to go higher they start to buy earlier they try to get in front of it I observed that you know the GDP now from the Atlanta Fed is quite strong I think it's 4.2 on a on a real basis real basis 4.2 too for the present quarter but and it was it went up quite substantially I'd say in the past month or two it's all driven by inventory bill now inventories were kind of low a drag on GDP earlier and it makes sense that but why are they building inventory maybe because they think the price is going higher why why would you have an unusually high amount of inventory well because you think you can sell it at higher prices so you're you're locking in the price now and you're able to sell it down the road at higher price. That sounds like inflation psychology to me. So I I don't know as I said on CNBC I was the thing I found in apart from the the horrible presentation by Wars and the horrible non-answers which were was why it was such a bad presentation. I noticed that they have on this SEP for year end 3.7 on the PCE and they have the PCE at the end of 2027 at 2.3. How's it supposed to go from 3.7 to 2.3 with no Fed action with just just as we're going along? What what's magically supposed to do that? Oh, the end of the war. Okay, give me a call when the war is about to end. But, you know, there's no I can't I I just think that's just foolishness unless you've they should have raised raised 50 basis points. I I talked about that yesterday on TV. It's ridiculous that they've been the two-year Treasury was 100 basis points over the Fed Fed funds rate and after they hiked it the one time, the 2-year Treasury yield went up by 13 basis. It came back down a little bit today, but basically the bond market took off half the hike. >> Yeah. >> Right after the Fed. So, it was already back to you need to do more. And I I would think that they would hike in in October if they were at all serious about this. >> Well, we had the risk management cuts last year. They should just reverse those, right? That's the 75. >> They called them. Yeah. I mean, >> if there's less risk, what's what's the big deal? And and you know what every what got everybody's uh attention was we removed a dose of accommodation which makes it sound like there's several doses of accommodation. You eliminate one dose. >> So that means that there's more than one. So when the other dose is going to be removed and and what are you waiting for? Which was is absolutely the Fed question of of the year so far. Well to the McKe at at Bloomberg he he set it up beautifully. You said this, you said this, you're going to get down to two, but look where inflation is and look at this. What are you waiting for? And it was like the whole room like it's like they had this reaction of word bull and people like yeah what are you waiting for? You talk a good game but you're not and but Bessant talks a good game. They're they're talking about things that could be high volume sort of action points. They're talking about operation twist, but they're not doing on. They're talking about raising interest rates, but you're not doing it. 25 days is supposed to be nothing.