you're live. So Joseph, the market is pricing in four rate hikes. Can you tell us what's going on? Yes. Oh, first off, Ken, Daniel, great to see you two again. Four rate hikers, right? It looks like we're back to a hiking cycle almost, right. Yeah, it's crazy. Yeah, this is a big change. Let's talk about how we got here. The CPI numbers came out this morning. You used to work for five years on the Fed desk there. And I know a lot of people might not know exactly who you are, but you were on the open market trading desk at the New York Fed, worked for Chair Powell. So you kind of have this inside plumbing view of all these little move. So let's jump right in on what you see. Hello? Hey. Okay. Apologies now. I actually had the... First off, CPI. Today was CPI day. And honestly, it has been, it is the most important CPI we've had in a while, and they say this every month, but in this time, it was particularly true because next week we have the Fed's FOMC meeting, and it's coming down really close whether or not the Fed is going to hike. We've heard from all these Fed officials, and again, they're going to vote, sit down and vote whether or Not to hike, and what it's come down to is that you have these Fed officials some very important ones saying that, you know, I'm going to be for a hike in September if CPI is hot. So everyone here has been looking at CPI down to like a third decimal point to see whether or not it was hot enough to convince this influential Fed official that the Fed is going to hike. And today, I think surprising most market participants, if you look at the investment banks, they were all expecting somewhat of a cool CPI, but it was hotter than expected, hot enough to meet that threshold. So right after CPI came out, the market basically fully prices in a hike next week. Now, this is a really big change because coming into the year, the market was actually pricing in a rate cutting cycle. We're probably going to get two cuts this year. Now in September, it looks like it's all but certain that we're going to be hiking next week and not just that. The market took a look at the CPI and also, of course, what's happening with energy prices and it's pricing in an entire hiking cycle. So four hikes in the next calendar year. So that's a complete 180 from what it was in the beginning of the year. And just last week, we were only pricing in a very gentle two hike cycle. So the market is definitely heating up and we're going to get what looks to be a series of rate hikes. And who knows, it could be more depending on what happens with energy prices, because I think that's really what's driving all the commotion in the treasury bond market right now. Yeah, I do want to talk about that. So in July, I know the committee voted 7 to 3, 3 meaning they wanted rate hikes, 7 said no, so they went neutral. What swung those other people from no to yes? That's a great question. I mean, this is coming down to just so much drama, actually. I think this would make a great television series for Netflix. But it seems like what happened was that we had Jackson Hole's speech a couple weeks ago where Chair Walsh, again, his first Jackson Hole speech. Jackson Hole is traditionally a place where you have the Fed chair make these big influential policy decisions. A few years ago, you had Chair Powell go on and say that, you know, when I start hiking, there will be some pain. And he did hike and there wasn't really any pain. But last couple of weeks ago, Walsch went on stage and he basically gave a very hawkish speech telling everyone that, he didn't feel like rates were slowing the economy down. And he was getting a little bit upset that inflation had been above the Fed's target for five years. And so he felt like he strongly hinted that he wanted to begin hiking. And then you had some other speakers saying that if you had hot CPI today, then they would also think that inflation is not slowing fast enough and they would be open to hiking as well. And so you got that both a change in personnel, you got a new Fed chair, and you also have enough people on the Fed that are just frustrated by the data. And that shifted sentiment enough that the market is thinking that we're going to hike next week, and maybe more beyond that. So I know one of the governors I follow is Governor Waller. And Governor Wallers said there needs to be three things. And he's been pretty vocal. But he said, one, we need to have inflation need to be trending down which clearly it isn't i think we're uh what 3.4 percent this year so far um two we need to have uh um if there's a weak labor market right so he's talking about that and then the third one was this credit is credit easing or tightening um and i know it's interesting because this is one of those things a lot of people don't really follow um now from a credit standpoint um i'm seeing actually a little bit of easing in other words uh certainly on the commercial banks for sure on the auto loans for sure not necessarily on the credit cards but but um you know so so what do you think about those three points as they look at those are those accurate or is that just one person's opinion no it's it's great that you mentioned governor waller he was the he is the influential fed official that i was talking about it was him that drew this line in the sand about CPI today. And because he's viewed as influential, CPI crossing that threshold is what shifted the market psychology to pricing the pipe next week. Now, with respect to those three points, so the labor market actually has been strengthening over the past few months. Strange that we don't actually have that much headline job growth and a lot of people complain about it. But if you look at the unemployment rate, it's been trending lower. It's at 4.1% now. Now, so that's clearly that the labor market seems to be strengthening, right? On credit conditions, what you say is actually what's echoed by Chair Walsh. Two weeks ago, Chair Welsh was looking at the credit markets and he's like, you know, looking at The Supply of Credit, bank lending and all that, he didn't get the sense that interest rates were high enough to be slowing down credit creation. So it's like what you mentioned. It doesn't seem like rates are actually slowing the economy down. So that's kind of another reason why the FOMC is likely to hike next week as well. Yeah, I looked at this thing called the sleuth, S-L-O-O.S., which, by the way, I don't know why I go down these rabbit holes, but it's called the Senior Loan Officer Opinion Survey. And it's really interesting. And it'S one of the things the Fed looks at. And, you know, I've always kind of focused on personally the labor market and inflation. But this credit issue is a big issue because it kind of tells, are people still borrowing in spite of everything, right? Yeah, that's a very good piece of data you mentioned. The senior loan officer survey from the Fed, they will survey all sorts of bank executives. Are credit conditions easing or tightening? Are you changing your non-price terms and so forth? And that doesn't seem to be suggesting that there's kind of any restriction. And if you actually look at actual bank loans made, so every week the Fed also publishes weekly bank loan data, you can see that credit creation this week, so bank loan growth, has been pretty strong this year. So you really don't get the sense that interest rates are high and they're slowing the economy down. So if inflation is above target, and has been for a few years, and if interest rates aren't really slowing the economic down, I mean, look at the stock market, right? Yeah. And if the job market is actually strengthening, then if you're the Fed, you kind of have to do something, right? It doesn't really make sense to just sit back and say like, oh, I hope inflation will eventually get down. Gosh, I wish someone would do something about it. Right. Well, do you really think that 2%, you know, they're way off from their 2% target? You know, we're all the way at almost 3.5%. And so when you said, you know if inflation comes in hot, do think that the Fed really will be able to get inflation back down to 2%? Well, I don't know, actually. The million dollar question, right? So I'll say this, if they wanted to just go all no holds barred, like to 10%, yeah, I think that we'd have a kind of a deep recession and inflation will go down. So in theory, that's possible. But the way that the Fed has been going at it, just kind of incremental, just hoping it will kind of go back down to 2%. That just hasn't been working for the past few years. And unless we do something different, it doesn't look like it's going to go back Down. Now, the story that the Fed has been telling everyone is that, you know, these are just one-off events, right? We got pandemic that only happens once every 100 years. Then we got tariffs, that'll pass. And now we have this Middle Eastern war. After a while, you Know, these excuses, these one-off excuses just don't seem that persuasive anymore because there's always something that's going to happen right so now i think there's more of a burden for the fed to do something yeah it looks i mean oil went up over 105 a barrel you know and i know it's come back a little bit but you know anytime it goes into the hundreds like people are like okay you know that's inflationary which it probably is and then they kind of point to that but it's interesting It seems to me like the market has already priced this in. And this is what I wanted to ask you. You know, I kind of operate in commercial real estate operates in this, the treasuries, right? The two year, the 10 year, and as an example, but the 10-year was bouncing, just flirting with 5%. You know? As you know, that's been quite a, that'S been quite an increase, right? That'S been an extraordinary increase, 5%. I mean, the last time we were around here just, I think, a year or two ago, I think that really panicked the markets. Today, even though we're around here, it seems like things are relatively calm. But, yeah, I'm surprised, especially this past week, and we just had tremendous amounts of disorder in the treasury market globally, just rates shooting high, largely due to developments in the Middle East that are spiking oil prices. And so it's interesting to me. he says, do we have this backwards? Because it seems like the market has already done kind of a repricing. We've seen the 10-year, and this kind of leads me into this bond buyback, where you've got the Fed is, of course, responsible for monetary policy, and then the Treasury and Congress are kind of more fiscal policy. But it seems to me like we've got this push-pull thing going on with percent. He doubled the bond buybacks, as you know, on August 19th. And he was trying, even though he said he wasn't, he was trying to bring that rate down, but it hasn't happened. So I'd love to know your view on this. Yeah, it's been kind of disappointing if you're Secretary Bassett. So first, I'll talk a little bit about how, I guess, the market prices in treasury rates, and then we'll talk about the long bond. So when you're thinking about, let's say, rates, let's say, overnight to let's say the 10-year, it's largely about the expected path of Fed policy. So the Fed controls overnight rates. It has tremendous control on overnight rates. And the way that it's set up today is that's basically you can put your money in the money market fund who can then invest at the Fed. So whatever the Fed sets overnight rates to as the market can invest at that overnight rate. Now let's Say that you are thinking about making a five-year investment. how do you price five-year yield the way that you would do this in the market is that you would have you would basically try to guess what the path of that overnight rate the fed controls will be over five years and you add a little bit of premium to that after all let's say that the five-day rate is five percent and you think that you know maybe the market's pricing this but maybe the market fed will actually end up hiking more than you expect so you need some a little of risk premium to compensate yourself for that in case the fed hikes and then you have a mark to market losses as you know up rates up lower principle so largely is rates are largely the expected path of fed policy but when you go beyond 10 years let's say 20 years 30 years a lot of that is more about supply and demand no one really knows what the path of the overnight will be over, say, 20, 30 years. So supply and demand play a bigger role. Now, in the background, what we've seen is that there's been less demand for 20- or 30-year bonds, and a big reason for that is actually both regulatory and demographic. So why does anyone buy a 30- year bond? Well, a 30 year bond is a long-dated asset. What people usually buy that to hedge their long- dated liabilities. So what would happen is that you are a pension fund or you are a life insurance fund. You have to pay out benefits in 20 or 30 years. That's a liability. You would hedge that by going and buying a 20, 30 year bond. So that's a kind of a natural source of demand for that sector. And but, oh, sorry. Please continue. By the way, thank you. This is fantastic. But isn't increasing interest rates lower bond yields? Bond prices. Bond prices, sorry, yes. Yes, that's right. So you guys hear me all right? There's some background noise on my end. Okay, so that's the backdrop. So, okay, so the biggest buyers of these long-dated 20, 30-year bonds are these huge institutional investors that have long-dead liabilities. So two things are happening in the world that are making them less demand. One is that you have this huge transition in retirement systems from defined benefit to defined contribution. So, you know, in the past few decades, you would have, let's say you would have somebody, so you work for a company, and then when you retire, you would get like monthly benefits and so forth, right? That's because that pension fund is managed by an institutional investor with a set defined monthly payments to retirees. But as we transition to 401ks and so fourth, it's defined contribution, and So you manage your own money. There's no huge asset manager trying to take care of liabilities in the future. You're just managing your own Money. So that demand is not there. When people manage their own Money, they don't really go and buy 23-year bonds. They go and they buy stocks. That's an excellent point. I never even considered that. You know, it's interesting. I listened to one of George Gammon's event, Mike Green. As you know, a lot of people follow him. He's brilliant. But he was talking about how people are investing in the stock market through wealth management and through financial planners. And that's actually what's propping up all the stock prices is, you know, is this this flow of money that's almost automatic. And what you just said was we we have also the baby boomers pulling their money out, which is affecting this bond, the bond pricing. yeah so people don't have these um defined benefit retirement funds if you have a defined benefit the way that your asset manager would manage it is they would buy long-dated bonds so that when you retire the asset manager will have enough returns to pay those benefits but the retirement system changes we don'thave those defined benefits now you just kind of put your money in a 401k or like mike green mentioned i just have a wealth manager do it for you and so those guys are managing it differently now the second structural change in reduced demand is that the population is shrinking so if you have a lot of boomers like people heading into retirement age they're going to be more conservative well actually they're gonna try to buy more bonds but as that cohort kind of shrinks and we have younger people uh they're they're not going to be as much demand for these safer, elongated assets. So that's just less demand for bonds in long-dated bonds in general. So I know that Vicent talked about the government buying bonds. And I know so far that hasn't really worked to his disappointment. But they are able to increase that amount, right? So do you see a world in which they are able to make a difference if they increase the buybacks enough? Yes. But going back to our basic point, long don, big part of supply and demand, we've got weaker demand. So what can we do? We can create more demand. And that goes to what you mentioned. Besson has this new bond treasury buyback program where he's trying to buy more of the long bond. So the way that that would work is that Besson will basically issue short-dated treasury, so borrow, let's say, six-month money and use that money to buy, say, a 30-year bond. And by basic principle of supply and demand, well, less 30- year bond, maybe the bond yield will go down. So that will help a little bit. So I think it actually does help. It doesn't look like it this way, but I would say that if we didn't have that buyback, the 30-year yield will be even higher than it is today. Now, this is something that's super interesting in that this is a new program that the Biden administration's treasury actually began. And when they first did this, they swore up and down that they would never use this to try to goose the treasury market or anything like that. But of course, we all knew immediately, you will. And so now that they're doing it. Now in theory, there's no limit. So this is all completely within treasury. They don't need Congress. They don't meet anyone's permission. In theory, he could just issue a whole bunch of bills and just shrink that float for the 30 year bond significantly. He's not doing today, but he could if you wanted to. Now, one other thing I'll mention is that this is a problem that governments have faced before, just a couple years ago, or is it just last year, Japan had a 40 year bond, behaving very very poorly shooting up and yield government didn't like it what did the government do oh we're just not going to sell very many four-year bonds so one is buying it back the other is just not selling as much as you otherwise would and when the government japanese government did that bond yields for the 40-year jgbs just cratered cratered for a month so you buy time but it's not a permanent fix. And so if you get really aggressive, you can definitely make yields lower. But what we've seen historically, and this is what Japan did and the UK as well, is that it's not a lasting fix. So you might have to do other things as well. So what other things can you do? And also, would this lower interest rates at least temporarily? Or do the banks kind of see through it and it doesn't really move the needle. No, no, it definitely works. It definitely works temporarily. That's what we see at least a month, maybe more. But is this is this just yield suppression through a backdoor? Because it seems like the Treasury is kind of jumping in and doing the Fed's job here. And and, you know, we'll use the T word, right? Trump, you know, Trump's in charge. There's no you know. He's been very clear with Chair Powell and now worse, that he wants lower rates. So where do you think this is all headed? So one of the tests to whether or not you have an independent central bank is whether or not you can hike rates. So I guess we'll find out very quickly if we do have an independent central bank. No, I actually think we will. I actually think inside the Trump administration, they know that it's actually better to hike now because if you don't hike you could have even more chaos in the 10 years 20 years 30 year bonds so hiking now is actually good for them and so i think they'll be okay with that now in order to get yields down i think we have to think for a moment why yields keep going up and up and up now there's a lot of stories about this but it's really clear to me that it's just about energy prices if you look at a chart of yields you can see that globally they're going up so you're looking for a global factor. When do they start going up? In March, when you have the war in the Middle East, oil prices up, yields up. And you see this the past week, you have even more troubling developments in the war in the middle East. You have, you know, the Houthis and so forth and oil is above 100. And yesterday we had the bond market just really upset about that. So I think if we want to have lower yields, we really have to have energy prices down. And that would be some sort of resolution in the Middle East. You know, people talk a lot about other stories, but is it really because the U.S. is $40 trillion in debt earlier in the year? Well, first of all, that's not good. But earlier inthe year, we had, let's say, $39.5 trillion. Is it that last $500 billion that makes people upset? I doubt it, right? So that doesn't make sense to me. So could you have a world where the Fed is bringing long term rates down while the I'm sorry, the Treasury is bringing long term rights down while The Fed is hiking short term rates? And kind of how does that work? I actually think it works together really well. So if you have A Fed that's hiking rates, longer term rates, usually like that, because it's pricing in higher recession risk relief, but it's also pricing in less of a concern about inflation. So So today, hot CPI print, market prices in more aggressive rate hikes, then you see the 30-year bond yield actually decline. That's the bond market in the long end. Feeling more comfortable, inflation will be under control, and maybe a little bit concerned about recession as well. So I think that's a good way to manage the yield curve, is to have the Fed hike and Treasury do something on the long-end. Now, one thing I also want to be clear is that people talk about this is the treasury, you know, pushing yields lower. They are definitely suppressing yields. But when you look at real yields, that's tips, tips, yields. So basically, you can buy an inflation protected security tips. Real yields are at multi-decade highs. So you can by a third of your tips. It's around three percent. So that's a 3% real yield, and you get compensated for, you know, it's inflation protected, right? So that is a really high real yield historically speaking. So it doesn't seem like they are like artificially repressing, so putting negative real rates. They are trying to cap yields a little bit, but real yields are still quite high historically. So you touched on another point that I wanted to make. You know, let's call it $40 trillion. I think our annual payment is over a trillion now. So this interest rate is a big issue for that, right? And so how does this all play in? Because as rates go up, so does our interest costs, right. Yeah, yeah. So that's a really tough question, because on the one hand, people think that having an independent central bank is a good thing. And on the other hand, when interest expense is one of your largest expenses, then the Fed is kind of doing fiscal policy, right? So normally it's supposed to be Congress, the legislator, decides on how to spend money. But if you have a huge debt burden, it's kind of the Fed that's deciding a big part of the congressional budget. So I think that does make things a bit more complicated. Hypothetically, let's say that the debt is not $40 trillion. Let's say it's $100 trillion. that's going to have an inflationary impact because the interest expense is so large, right? You have a lot of people just receiving all that interest income. In that extreme situation, the paradox would be you would, you know, you want to have 0% interest rates because that's actually the way to cut the deficit. And there are people who write about that. So some famous economists talk about that so we're not there yet. I still think that at 40 trillion, a little bit more than 100% of GDP, GDP. We're not at that point yet, but we're definitely on track to go into that weird world where higher rates may actually be inflationary because of all that interest expense. You know, it's interesting because as you know, I'm in the commercial real estate space with multifamily. We are in the process of selling two deals and buying one deal. And because the 10-year treasury went up, our deals that we're selling actually got repriced a little bit downward. We're the seller because the cost of the mortgage went up. And the same is happening on the buy side. So in my world, as that 10- year continues to creep up, it actually is negative on the commercial real estate pricing, right? And so as these prices go up, or I should say the price of money goes up, will we see the consumer spending pull back? Will we see GDP pull back because I think a big piece of GDP is consumer spending? Yeah. So I think the data has been so bizarre because you see consumer sentiment all the surveys terrible terrible terrible but yet the consumer spending seems to be okay my personal view is that we've just transitioned to just people consuming their equity wealth basically stock market goes up people have money from their stock market wealth and they spend that and it could be you know other sources like real estate wealth as well even though prices are softening they're still higher than they were a few years ago so i think it's really just the i think the economy can continue to hold up despite higher rates as long as the stock market is still up when the stock market is down then that's really where you kind of shrink the amount of money to spend so to speak yeah that's that's a good point because really the economy really is all about the stock market right so as it as it moves up and down uh it severely affects what main street does yeah yeah absolutely and you know you got a lot of people who are retiring now boomers for example and they have their you know they're spending a lot luxury vacations and so forth and they have a lot stock market wealth yeah so michelle from our premium group is asking can the fed really control inflation when it comes from energy because everybody needs gas and everybody really needs food. So it's not necessarily luxury spending. So this is a really classic central bank problem. So, this is what they call a negative supply shock. So. It's not like you have inflation because demand is suddenly surging. It is that there is less supply and you can see that. Just less energy, for example. Now, historically speaking, the classic central bank rule book is to say that you should ignore this, right? You should ignore this because it's a negative supply shock. The thing is that we've had so many of these. It's tariffs, pandemics. That's why the Fed is not ignoring it. So what you could do, the Fed could do to get things down is to just decrease demand so much that less demand, less supply, you get prices back to where they were. Usually, they don't do this because that means you have a big recession. Now, one other thing that I'll note is that I hear a lot of people talk about saying, ah, the Fed is not going to hike. The Fed shouldn't hike because it's not going to do anything, right? It's not gonna bring oil forward. It's not going create more chips. It is not gonna let oil come back. But I think that kind of, the Fed doesn't really think that way. So you are saying how you think the world works, and then saying that they won't do this because I think this is not how the world works. But we have to put ourselves in the Fed's shoes. It's not how we think the world works. It's how the Fed thinks the world walks. And the Fed things interest rates work. And so they're going to do that. Even if we think that's stupid. That's the only tool they have. And they're going to use it. Well, I know you had an opportunity to hear from Chris Martinson, talk to Chris, I certainly we've, we've had him on our channel a little bit. And you know, he's all about oil and and where we're heading um and and to your point earlier we're talking about energy uh you know basically the the price of of oil the the prize of energy uh just rolls through the entire economy you know diesel uh is over eight dollars a gallon right now i've never seen this uh you know uh we're in california at the moment and and you know you can't fill up for under six dollars uh and so you know this this does affect behavior right um and so uh you know do you think this is going to be mostly focused around energy moving forward um you know because i just saw i don't know how you never know what's true anymore but but uh i just thought there was a there's a big deal we just made with venezuela uh to try to bring um youknow more oil in and kind of shore that up and be less dependent. So where do you see all this headed? Yeah, it's not good. So I've been following oil analysts a lot for the past few months. And first off, I think a lot of their predictions have not been accurate. So in the beginning, for example, when the straight up was shot, everyone was like, oh, he's going to go to 200. It's going be the end. And I think that obviously didn't happen. And there's a couple reasons for that. One was that the SPR, not just in the U.S., but abroad, everywhere, the reserves that we had were actually quite, I don't know, a lot robust, and so that cushioned it, and then we also had maybe less demand from China and so forth. So what many of the barrel counters were pointing at didn't happen yet. So as we go forward, though, this doesn't seem like it's resolved, so it seems like we're continuing to draw down our reserves. Eventually, that will reach a limit. It seems like China is buying more oil now. And it seems like the Houthis are closing the Bab al-Mandad straight. So that further reduces the supply of oil. So it does seem like things are going to get worse now for oil. And that's a big problem for inflation. Now, we don't consume crude oil. What we consume is refined products like diesel, like gasoline. So there's a separate issue. And that is you have attacks by the Ukrainians on Russia refineries. And that's also reducing the supply of refined products globally. And so, like you mentioned, that's going to cause diesel prices to go up. In the U.S., it's the highest it's ever been. Now, the problem this poses is what central bankers think of as broadening out secondary impacts. So what they're afraid of is that, so, OK, gasoline prices go up, that'S fine. Maybe they'll go back down. But if gasoline and diesel prices go UP, and that starts to bleed into all these other services businesses because they are facing they're being squeezed and they're passing it on and that's a more of a broader inflationary impact that's going to prompt i think a much more aggressive rate hiking cycle we don't see that at the moment because this is just happening as we speak so but if it does i think it's going be really bad and for the economy and we could really have a replay of the 1970s yeah because you know one of the things that we're starting to see we're in the construction space, the real estate space, is we have what they're calling a fuel surcharge, which is really diesel, because it comes, you know, people probably know that these are diesel trucks, diesel engines. Same thing to grocery stores. You know, they pull up and they deliver all those goods. That's diesel. And so, you Know, they have, as you know these contracts with these truckers where if there's a spike in diesel that gets passed on um you know first first to the person they're delivering it to but then to the customer so you know it does make sense to me that this will roll through now that that's the worst nightmare for the fed my brother has an e-commerce company like they get shipping surcharges now because of the price and energy so it is definitely bleeding through i think everyone is hoping that you know we could have some resolution but you know the president i think he spoke a couple days ago he says it's going to end right after the midterms but then he's been saying it's going to soon for about six months now so i don't really know what will happen i know well you i know you have a place in canada so this very interesting what's happening there um i talked to i called a friend of mine a couple of days ago that lives up there um people don't realize that You know, we we have a very friendly situation between Canada and the United States and North America is one, you know, one place. And but there's a lot of oil that goes back and forth. Do you think that plays into this at all? I know, you're up there a lot. No, I'm there today. So I think though that, well, first off, the trade dispute between US and Canada, that's really unfortunate. And it's also very surprising because as we think about the midterm elections, many of the key Senate races are states that border Canada, and it's really, really important to them. So what's been happening is that I think this dispute is being used as an opportunity for Canada to really build out more of its natural resources, its pipelines, and to try to build more relationships with other countries. And I think secretly, it seems like Prime Minister Carney would like to be part of the European Union. But when I look at a map, it looks like it's very unlikely. I don't think that... So right now, basically all the oil, most of the oil goes to the US because that's where the pipelines are. If they were to diversify and, say, try to ship that elsewhere, that would strengthen their bargaining positions going forward. And with respect to the Venezuelan oil, my understanding is that agreements like this, first off, are probably illegal under Venezuelian law, if that will ever matter, but also that it's going to take time to be able to have enough of this heavy Venezuelans crew to be about to replace what you have in Canada. Eventually, in some years, that could happen, but not today. good so so we have the the meeting next week right um and so your prediction quarter point increase absolutely and then three more after that i don't think so so the market is pricing in three more off to that so the way that i think about this is that we have this huge huge boom stock market i think it's a bubble okay i think i think ai is tremendous so what's happening is the stock market is largely driven by ai uh excitement but the thing is that even though ai is a transformational technology it looks like it's going to be a commodity so it looks like actually that you're going to have all these competing models that compete with each other you're even going to having open free models downloadable open weight models from china and the u.s companies so this model layer is going to be commoditized and what we've seen over the past just this past week is that there's tremendous innovation going on and that the newer models don't actually need as much resources that's in the past so you will probably have less demand for things like ram and things like all these fancy compute chips going forward as well but most importantly you're competing with china here and the chinese are very very good very very industrious very very good engineers and if you look at what they do with the electric car segment they just go in there they cut prices they could make good products and they take over the market and profits disappear now you're competing with china with ai models and chips and so forth like that so i i think that profits in that segment are going to be disappearing in the next few years as well and so when the market begins to see this you could have a significant decline in the equity markets now if that were to happen i think the federal go back to cutting mode so a lot i think hinges upon just how the equity market behaves over the next few months it's a great great point uh i'm gonna throw one more curveball at you i i um and that is uh you know the in the euro is is contracting the middle east is contracting it it certainly appears from everything I can read that the Chinese economy is contracting. How does all that play into all these decision-making? Because a lot of times I know these central banks do follow other central banks. Yeah, well, we all face similar problems in the world right now. Right now it's energy. I think the weakness in Europe, for example, has been quite positive, at least for U.S. assets. Because when I look at the data, there's just insatiable demand from foreign investors for U.S. equities. They just keep pouring by the hundreds of billions. And part of that is because that's how you get exposure to AI themes. And Part of it is because, like you mentioned, things are not going well in Europe. In Europe, they don't have AI. They have really high energy costs. They a lot of, at the moment, political instability with rising populist parties from both the left. And so that's making it an unattractive investment destination. And I think the US is benefiting from that where a lot of their money just comes here. So you would think that the US, you know, also, I think a lot political volatility, big debt deficits and all that. But one of the tailwinds is that kind of doing better than Europe. Andso that's kind of attracting money there. Yeah, I know. People don't think of that, right? Because they're like, they're in this fish tank in the u.s and they're like everything all they see is negativity in some cases depending on what they watch but really if you go outside as my partner would say you go from the bay to the ocean you see that we're actually in pretty decent shape and that's benefiting our capital markets right you're getting a lot of you know it's kind of like flight to safety but but benefiting from that now china is more interesting it's a different system and so like as you know it's businesses in there are ultra competitive and that's why things are so cheap like profits disappear and so you they're kind of producing so much stuff that they have so much deflation and they they ship it elsewhere and so if you are someone who who wants asset inflation, high stock markets, you just don't get that. But you could get more stuff globally. So it's just a different economic model. I think it's more difficult to compare. So Gary from YouTube, he's asking, is the Treasury buying long term bonds? Is that shadow liquidity? Well, yeah, yeah. So you're taking something that's illiquid out of the market, right? So I have an illiquid long-dated bond I give to the treasury treasury gives me cash so there's there's more liquidity there so yeah that's that's actually the original purpose was not to goose the bond market the original focus was to provide liquidity so in the treasury bond market you you can have so it's not like apple stock there's just one apple stock you can buy there's actually all these different cusips so every three months you have a new 10 year every three month you have a new third a year. So it's a collection of bonds. Some of them become illiquid. And so this was originally intended to clean that up and create some liquidity. Yeah, definitely adding liquidity. And is there a limit to how much the Fed can really hike rates because of our government debt? So there's two things here. What do I think? But that doesn't matter. What does the Fed think? I don't think anyone there thinks that I can't hike rates because debt is too high. I've never heard that before and I don t think they think of it that way. I think you can reasonably say that with the debt so high, hiking interest rates, you just increase interest rate expense, make things worse. That's a valid perspective. I don' t think the Fed thinks that way, so I don''t think it stops the Fed from hiking. so okay joseph so five years on the training desk for the fed in new york through covid you were there during you saw a lot of stuff go on um you know where are we and where do you see things in the next year and more importantly you know what can people who are watching do like what should they be looking at what can they do to stay on the right side of this well that's a really hard question because so much stuff is happening so what i personally what i think is that yields are fed is hiking and uh i think cash is attractive right now so let's say you get three and a half percent today maybe that hikes twice you get four percent four percent on cash that's that's decent and more importantly you have that optionality so that something, opportunities arise, you can deploy it. So I think cash is really attractive right now. If you are someone who's more longer-term thinking, I think TIPS, so inflation-protected securities, offer a pretty good yield as well, right? So you're afraid that inflation will erode your savings. You can get, let's say, 2.5%, 3% real return every year, inflation-protected. Those are, I think, good options for someone that's more conservative. of much more cautious on the equity market right now i get the sense that we are in some kind of a dot-com like thing it could go higher but that's because of ai yeah yeah i i it could it could grow higher i don't know but i feel like it's with so much volatility happening in the world just not just geopolitics but political volatility as we head into the midterms you know once we change control of the of the legislator you might have you know more strange legislation going on and so forth so i i think it's better to be more conservative at the moment yeah most people not long ago we had uh savings rates over four um recent you know in the last few years and and it's interesting because when that happened a lot of people went to cash because they're like okay we're just gonna we're okay at for right so that that is a real uh possibility you know x the x platform is offering you six percent i mean because they're building it out they're trying to actually 10 million dollars in insurance too so that's a quite generous usually it's like 250 250 000 as always elon's ahead of something right yeah yeah well i think elon is good for it right he could yeah i really worry about him getting bankrupt and it's quite well connected to protect his interests as well Yes, he is. Well, this has been fantastic. How can people reach you? I know you just show your new book. I read that book, but it's got a new cover. Yeah, so this is a second edition to Central Banking 101. If you're interested in learning more about the financial system, welcome to check it out. I also have a YouTube channel called Joseph Wang, where every week I post my thoughts on what's happening in the financial markets. great well uh any final thoughts coming from someone that was on the fed it's uh definitely just hey by the way thank you for jumping on on such a critical day the cpi coming out um it's always a blessing uh having your perspective and as we try to educate and help people be on the right side and whatever the next move is so thank you oh thanks so much for doing this i know that i've benefited from your channel as well wonderful wonderful videos learning a lot about real estate and business and investing. And it's great to see you two again. Glad to see you two are doing well. As always. And let's be safe and we'll talk to you soon. Thanks. Thanks, Joseph. Bye.