YouSaid · the spoken record

Bob Elliott

lines on the record: 89
first: 2023-02-20
most recent: 2023-02-20
sittings or episodes: 1
sources: podcast

Every line below is reproduced as it was said and linked to the record it came from. Nothing here is summarised or generated. Directory · Search · Corrections

“It starts to emerge, as Andy notes is there for every central banker, go back and study Volker and see how he did this. And he was captured by the allure of soft landing and supporting growth, even throughout being the greatest inflation fighter of history. And so odds are what it looks like rather than any sort of big bang outcome one way or the other.”
2023-02-20 · Forward Guidance · The Soft Landing Will Be Transitory | Bob Elliott & Andy Constan · IDENTIFIED FROM THE TRANSCRIPT
“I think what I'd say is that it's likely to be more boring than the vast majority of people who are out there would like you to believe the most likely outcome is kind of plodding along at moderate growth and higher than desirable inflation and that slowly but surely the Fed responds to that and we kind of look back at this year and see that it's kind of been boring, certainly relative to 22 that would be very that would be very normal you know on the margin my inclination is higher for longer and you know eventually the Fed doing enough but the allure of soft landing and the allure of pausing a recession”
2023-02-20 · Forward Guidance · The Soft Landing Will Be Transitory | Bob Elliott & Andy Constan · IDENTIFIED FROM THE TRANSCRIPT
“Won't know. I don't know now. I still won't know. It'll still be the coin flip I described. I want to say that that hard landing that you're talking about depends on no flinch. If we're right on hire for longer, Not going to have a recession if he flinches and allows inflation to stay higher for longer. So don't count on it being anytime soon. It could be, but it depends on how policymakers act on whether it's late 23, early 24, mid-24, or maybe not at all for a while.”
2023-02-20 · Forward Guidance · The Soft Landing Will Be Transitory | Bob Elliott & Andy Constan · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, let me say my risk management system of never having any total portfolio that can cost more than 10% as a worst case drawdown. Absolutely full stop, not with stops, but literally by structure means that even while I am not particularly diversified. I have very little risk. And so what I'm trying to do is chop A year with a 10% vol, generate a one sharp ratio in an undiversified uncorrelated way to what I think the portfolio that most should have, which is an active, long-only portfolio that does some going to cash and some conservative re-weightings to deal with the environment we're now in. And that's the way I manage money, but alpha is the one that seems to get the clicks. And so I'm only talking about three or four trades.”
2023-02-20 · Forward Guidance · The Soft Landing Will Be Transitory | Bob Elliott & Andy Constan · IDENTIFIED FROM THE TRANSCRIPT
“But probabilistically, you'll make a little bit more on some relative to the others on the different paths that you're seeing. And so that's a highly diversified set of marginally beneficial positions doesn't have the clickbait or excitement of going all in on recession or all in on the big flip or whatever that thing is. But, you know, is the right way to manage money?”
2023-02-20 · Forward Guidance · The Soft Landing Will Be Transitory | Bob Elliott & Andy Constan · IDENTIFIED FROM THE TRANSCRIPT
“Sure, you're adding some other things like maybe commodities, they look a little cheap relative to industrial commodities, and oil looks a little cheap. I kind of like that paired with those other trades. You've sort of put that all together. You want to put yourself in a position. I also like stocks versus bonds while the Fed remains what appears to be a little bit behind the curve on that trade. long end bonds, not short end. And so you kind of, you know. Those are all kind of little trades that are kind of against the overtightening trade that I think are all pretty good trades and tilted in your favor, but recognizing that when I say that, what you're doing is you're betting a bunch of things in any one particular path or one particular outcome. Not all of those will make money.”
2023-02-20 · Forward Guidance · The Soft Landing Will Be Transitory | Bob Elliott & Andy Constan · IDENTIFIED FROM THE TRANSCRIPT
“You know, I think there's a lot of opportunity for those 2024s to get priced out, those 24 cuts to get priced out in the market. And so that looks like the most interesting. Trade, but like what I'd say is I'd say the biggest conviction is recognizing the uncertainty of the dynamics and trying, frankly, to put together a bunch of different trades that all kind of look in your favor. I like Andy's twos and smooths trade, but you'd want to pair that with other opportunities that maybe are a little.”
2023-02-20 · Forward Guidance · The Soft Landing Will Be Transitory | Bob Elliott & Andy Constan · IDENTIFIED FROM THE TRANSCRIPT
“No, not really short twos and spoos is very focused on twos pricing in a recession and equities not. Price levels that I think can make money if we stay. Implying no landing is implying in the air. So this thing is lost for me. While the outcome remains uncertain for which way the plane is going to go, I think twos and spoos can make money. Both can make money because they're both mispriced. Equities is a little rich. And twos and spoos and twos are a little rich. And so just holding those, I like even if one of the outcomes doesn't show up. I can't see a lot of downside if any of the outcomes show up. And so I really like that trait. That said, it has made a ton very quickly. So, you know, for me to, I'm not saying profits on it, but for me to add more, I'd have to have it really come back in my face quite a bit.”
2023-02-20 · Forward Guidance · The Soft Landing Will Be Transitory | Bob Elliott & Andy Constan · IDENTIFIED FROM THE TRANSCRIPT
“I just put on some USD JPY at 13082, which I'm really loving right now. And I think that actually has an unpriced hire for longer that is playing out as the hire for longer thesis plays out. But that's what I'm loving right now. But twos and spoos is paying me and I think it has a lot more to go if we start getting that back half of the twos spreads in the 2023 cuts start to come out. I actually still like the short asset portfolio, but it represents, it's very unlevered and sort of boring. So it's like cash, but even a little bit better than cash in my view.”
2023-02-20 · Forward Guidance · The Soft Landing Will Be Transitory | Bob Elliott & Andy Constan · IDENTIFIED FROM THE TRANSCRIPT
“One month or six weeks, or something like that. It's true, but it's important not to get caught up in that when, you know, making a big bet on high beta stocks is really not, you know, it's a very concentrated position, a very concentrated view on what's likely to transpire at a time when there's significant uncertainty”
2023-02-20 · Forward Guidance · The Soft Landing Will Be Transitory | Bob Elliott & Andy Constan · IDENTIFIED FROM THE TRANSCRIPT
“Or what I'm seeing with the With the hedge fund community is that they're very conservative in general in terms of their leverage. And then also not overweight in one direction or the other. So a little bit of equity risk, a little bit of top of the stack credit risk tilt towards value sectors relative to growth sectors, a little bit of bond risk, because you could be wrong on that trade. And so you sort of put all that together. And what you see is a portfolio that is conservative, but positioned well for a variety of different outcomes and certainly one that's not going to get hammered in many of those different outcomes. Now, what that portfolio has done is underperformed high beta stocks. And that”
2023-02-20 · Forward Guidance · The Soft Landing Will Be Transitory | Bob Elliott & Andy Constan · IDENTIFIED FROM THE TRANSCRIPT
“And so I think the biggest overwhelming thing I'd say, both what I believe, but also when you look at these sophisticated asset managers, is that it's not a time to get over your skis on one particular path or the other. Like I like how Andy, frankly, has been like navigating the last few months saying, I don't know if it's going to be a hard landing. I don't know if it's going to be higher for longer. There's a lot of ambiguity there. But let me, but the odds of those two outcomes are being underpriced relative to the odds of soft landing. And let me make a bet in that direction. I bet both the two bets that kind of on the surface look like, why are you betting against yourself, but both have a positive expected value? And so finding a bunch of trades and not getting overweight on one outcome or another, I think is very important. So that's, you know, when I think about the portfolio to build here.”
2023-02-20 · Forward Guidance · The Soft Landing Will Be Transitory | Bob Elliott & Andy Constan · IDENTIFIED FROM THE TRANSCRIPT
“I mean, I think the biggest thing that When we look at the hedge fund community right now that we see is that this is a time of high uncertainty and in a time of high uncertainty. It pays to be conservative.”
2023-02-20 · Forward Guidance · The Soft Landing Will Be Transitory | Bob Elliott & Andy Constan · IDENTIFIED FROM THE TRANSCRIPT
“Really get to the animal spirits, the fundamentals, looking at the pricing, looking at how people are understanding the real economy and the dynamics there relative to the pricing in order to see whether or not these things are going to play out. Just that line on the chart, it's not going to help you.”
2023-02-20 · Forward Guidance · The Soft Landing Will Be Transitory | Bob Elliott & Andy Constan · IDENTIFIED FROM THE TRANSCRIPT
“Folks are looking at that trade off and they're saying assets aren't a great deal. Cash looks pretty good. Cash is yielding, providing a reasonable yield. And one of the important things to always remember about cash is that cash has unpriced option value, which rarely is discussed but is critical to think about because to the extent that you're in cash, you have the opportunity in the future to choose whatever assets you want. Of course, you forego appreciation, but I think there is like that choice value when there's high uncertainty that you might price even better than the yield that you're getting on cash. You're not paying for that choice value by it, you know, by cash having a low yield. And so you put that all together. And I think in general, people just, you know, to the extent that assets are going down, or to be clear, to the extent that they're going up, it's because people want assets or don't want assets. And that's where you have to.”
2023-02-20 · Forward Guidance · The Soft Landing Will Be Transitory | Bob Elliott & Andy Constan · IDENTIFIED FROM THE TRANSCRIPT
“Have plenty of liquidity. I think that's a very important consideration and it's very different, very, very different from what we saw in 2008. In 2008, you have to understand that you could have been a bulletproof borrower and collateralized multiple times or whatever, and you still couldn't get the money. And so that's an important dynamic because it means that the pressure or any acute squeeze to start to sell assets or draw down deleverage is not really there. So there's the ability to leverage. And so then the question is given that ability basically fully to releverage, do you want to releverage? What do the asset prices look like relative to cash? How does that trade-off look? And how are you, you know, how can you evolve that trade-off? And I think what you see is that, you know, in general,”
2023-02-20 · Forward Guidance · The Soft Landing Will Be Transitory | Bob Elliott & Andy Constan · IDENTIFIED FROM THE TRANSCRIPT
“And if you want to be buying, you know, if you move from cash to assets, you have to believe that those assets are going to outperform cash at a time when there's already huge essentially cuts priced into the bond market. And so what I'd mostly say is”
2023-02-20 · Forward Guidance · The Soft Landing Will Be Transitory | Bob Elliott & Andy Constan · IDENTIFIED FROM THE TRANSCRIPT
“The real work to see whether it's coincident or leading, it doesn't, it's not particularly compelling. I think the basic reason why that is, is because the big picture is that there's plenty of liquidity in the system and balance sheet. If you want to borrow to buy assets, you can, right? No one's running into any constraints anywhere and that mostly to the extent that people are not buying assets or increasing their leverage, it's a function of their preference for assets relative to cash. And there's good reasons why you would think that you might want to hold more cash relative to assets. The sort of very direct pricing reason that Andy highlights is that Yield an inverted yield curve for those who book their profit and losses basically on a accrual basis, it's a bad deal on that basis.”
2023-02-20 · Forward Guidance · The Soft Landing Will Be Transitory | Bob Elliott & Andy Constan · IDENTIFIED FROM THE TRANSCRIPT
“Well, I think that's. I share Andy's view that that looking at that one line is not a good reflection of overall liquidity. And that it's gotten a lot of tension because there's been a lot. There's been some relationship on a level basis. But when you.”
2023-02-20 · Forward Guidance · The Soft Landing Will Be Transitory | Bob Elliott & Andy Constan · IDENTIFIED FROM THE TRANSCRIPT
“That's right in front of us a couple of months now. It'll be just spend down, will ultimately be stimulative to asset prices or not. And so my view is a lot less stimulative than normal because of the inverted yield curve.”
2023-02-20 · Forward Guidance · The Soft Landing Will Be Transitory | Bob Elliott & Andy Constan · IDENTIFIED FROM THE TRANSCRIPT
“Why would they do that? Back in the day, when the yield curve was inverted, Sorry, positively sloped, that IOER rate was zero, so why bother with that when I can buy duration, that's paying me 2%? And that didn't require animal spirit so much. It was just, hey, that seems like easy money. What now is the case is that you really have to have an animal spirits view that you're going to get asset appreciation. Order to pay the negative carry that banks would have to pay. So I keep track of their ownership of securities. You have to do a lot of digging to find any understanding of their derivatives portfolio. But to understand what banks are doing with duration and their duration exposure can give you a sense on whether TGA spend down.”
2023-02-20 · Forward Guidance · The Soft Landing Will Be Transitory | Bob Elliott & Andy Constan · IDENTIFIED FROM THE TRANSCRIPT
“Deposits shift from the people that got the money to the people who that sell stuff, so corporations. And then ultimately those corporations may invest in a broad asset portfolio. But that TGA spend down results in immediate leverable money by banks, so they could use it to finance assets or ultimately along the path ultimately to the end saver, but that's a long process. So now the reason I mention that is because of what you just said. Here I am a bank. And I could give that money to back to the Fed who will pay me IOER, which is interest on excess reserves. Yeah, I hate acronyms. That's actually a little... Bit, I think it's still a premium to Fed funds at the moment. It might not be, but it's very close to Fed funds, so a lot. Four and a half, four and three quarters percent. They can buy a 10 year bond at 3.5%.”
2023-02-20 · Forward Guidance · The Soft Landing Will Be Transitory | Bob Elliott & Andy Constan · IDENTIFIED FROM THE TRANSCRIPT
“Doesn't take the money out of the system. It is paid to somebody who puts it back into as a deposit. So the deposits just stay where they are, and that's sort of an injection. And if all those depositors decided to buy long-term treasuries, well, that would be stimulative or spooz or meme stocks or whatever they decide to buy. Chances are, given who gets the money, which is if you look at the US budget, most of the money goes to Medicare, Social Security, and other entitlements first, military salaries, and then ultimately some for interest, broadly. But most of the money goes for what is really what it's needed for, which is immediate consumption, and then moves through the market, not touching any financial assets, can stays as deposits.”
2023-02-20 · Forward Guidance · The Soft Landing Will Be Transitory | Bob Elliott & Andy Constan · IDENTIFIED FROM THE TRANSCRIPT
“This is one of those things. Who gets the money and what do they do with it? So the first stop for the money is it gets deposited. And so banks have more deposits than they used to. Now they get reserves because of the circularity of the plumbing, which we won't go into, but they have deposits. And those deposits are in the name of their clients, but they can lever those deposits because they now have balance sheet capacity. So in addition, the depositor gets the money and the depositor may withdraw it. Now, his withdrawal from a bank and then spending”
2023-02-20 · Forward Guidance · The Soft Landing Will Be Transitory | Bob Elliott & Andy Constan · IDENTIFIED FROM THE TRANSCRIPT
“Sure, I mean, again, so complicated, the broad picture of liquidity. I'll just talk about one thing I find interesting right now, which is the TGA spend down, which we know is going to go down because the Fed's going to run out of, the government's going to exhaust its extraordinary measures soon if they haven't already and continue to issue duration, but really curtail bills until the debt ceiling is resolved. And that might be dramatic. But along the way, the way they pay their bills is spending out of the Treasury General account, which, you know, injects money without issuance into the financial system.”
2023-02-20 · Forward Guidance · The Soft Landing Will Be Transitory | Bob Elliott & Andy Constan · IDENTIFIED FROM THE TRANSCRIPT
“And a half percent to buy securities that are yielding three and a half percent, if I'm a 10 year treasury. So is the nature of the bond market the fact that rates have gone up so high and the fact that they're higher than forward rates in the future? So we had an inverted yield curve. Is that just kind of a systemic drag on liquidity that may outlast these temporary influxes of liquidity? And let's start with you and then Bob.”
2023-02-20 · Forward Guidance · The Soft Landing Will Be Transitory | Bob Elliott & Andy Constan · IDENTIFIED FROM THE TRANSCRIPT
“To explore a possibility that the factors that are a drain on liquidity and therefore tightening financial conditions are here for a long time, whereas the easing of financial conditions that we've seen, Andy, the cross-border flows that you said, it's a little over my head, but that might be transitory because the Bank of Japan rates are so low and the Fed is higher that might not be here. But mortgage rates, they're not going back to 2%. The Fed's balance sheet is going to continue to decline. So the spread between mortgage securities over treasuries likely will stay high. It may decline, but it will stay high. Rates are going up and rates will stay high. Andy, you made the point that I can buy treasuries, but by borrowing money. But if I, let's say was a hedge fund, I used to be able to borrow at zero. Now I can borrow at 4%, four and a half percent. And I would be buying at 4%.”
2023-02-20 · Forward Guidance · The Soft Landing Will Be Transitory | Bob Elliott & Andy Constan · IDENTIFIED FROM THE TRANSCRIPT
“Slowing moderation that we saw. Now we've had economic conditions improve. We're likely to see a bit of economic acceleration, which we might be seeing a bit of the signs of, like not as extreme as what the data is suggesting because of the seasonality, but like the idea that we could have like a reasonable growth in Q1 and Q2, that makes sense to me as a function of the fact that the stock market's up 20% and that overall end that interest rates are down relative to where they were at peak and things like that on the long end. Like that all makes sense to me that mortgage rates are down and stuff like that. And so those two things are just think about them differently. Like financial conditions are an input to macroeconomic and economic outcomes, which is”
2023-02-20 · Forward Guidance · The Soft Landing Will Be Transitory | Bob Elliott & Andy Constan · IDENTIFIED FROM THE TRANSCRIPT
“And I think one of the things that Totally agree with you, Andy, that the Financial Conditions Index, there's nothing predictive for asset prices. It is essentially asset prices. The thing that it is predictive for is it's typically predictive for economic conditions. That's an important consideration, right? But economic conditions are not asset prices. And so I think what you see here is that those two things are different because asset prices and asset returns are how economic conditions transpire relative to what's priced in, right? And so that is what you have to think about when you're trading financial assets. And so I think there is an important reality that those FCI measures are noting, which is that financial conditions were quite elevated. They were quite tight six months ago. That created probably a bit of the economic.”
2023-02-20 · Forward Guidance · The Soft Landing Will Be Transitory | Bob Elliott & Andy Constan · IDENTIFIED FROM THE TRANSCRIPT
“Quite a bit of work, and I just gave you a couple of the places around the globe that you might want to think about in terms of what their influence on financial conditions are. People want to just look at it as some very linear formula of the Fed's balance sheet. And that's complete garbage. No, it's. It's one input. It's not the picture. The picture requires a tremendous amount of work. And in particular, the way the private sector works.”
2023-02-20 · Forward Guidance · The Soft Landing Will Be Transitory | Bob Elliott & Andy Constan · IDENTIFIED FROM THE TRANSCRIPT
“It may or may not be restrictive. I'm not saying Powell's right to say the economy is in a restricted situation at this stage based on real rates. I'm saying that he's being very narrow when he talks about financial conditions. And that's not a problem. You just have to know what he's talking about so you don't spend a lot of time. Yelling at the moon about how FCI has actually eased a lot, you could at least look at the thing he said I'm not making any more judgment than that. And also know that the FCI is not predictive. It is literally the market's price that drives it. Now, you can actually come up with some smart ways of determining whether financial conditions are likely to tighten or ease. It requires”
2023-02-20 · Forward Guidance · The Soft Landing Will Be Transitory | Bob Elliott & Andy Constan · IDENTIFIED FROM THE TRANSCRIPT
“Right, yeah, so Andy, you I agree with you. You're totally right. There's a duration mismatch, and I did know that. There's a duration mismatch between what was inflation over the past 12 months and what is the current rate now. Two-year TIPS yields went down from November to January.”
2023-02-20 · Forward Guidance · The Soft Landing Will Be Transitory | Bob Elliott & Andy Constan · IDENTIFIED FROM THE TRANSCRIPT
“Of what you earn versus what you pay and how you spend are important considerations when you're putting together the pieces of what's the interest rate, what's the inflation rate, and what's the likely impact of that on the real economy.”
2023-02-20 · Forward Guidance · The Soft Landing Will Be Transitory | Bob Elliott & Andy Constan · IDENTIFIED FROM THE TRANSCRIPT
“Gas prices or whatever have come down a lot. They were five dollars, they're three dollars. Maybe they tick up or whatever. But like when you look at that picture, like households are actually quite a bit better position today than they were a year ago when inflation was rising rapidly relative to their wages. Now we're seeing a transition to where their wages wage growth, which is sticky, right? Wage growth is a slow moving process. And inflation is still not at Fed target, but it has it's rising at a slower pace than it was before, which means that they have essentially more inflation adjusted income in their pocket, which will support spending, which is lengthening the duration of this cycle. So long story short, we've beaten the hell out of how to think about the real short rate. But that, I think, is both of those things are, both what Andy said and this idea.”
2023-02-20 · Forward Guidance · The Soft Landing Will Be Transitory | Bob Elliott & Andy Constan · IDENTIFIED FROM THE TRANSCRIPT
“That's a lot of people have that backwards out there. And I think it's actually a pretty important thing when we think about the durability of this rally or durability of the economy right now is inflation has come down a lot.”
2023-02-20 · Forward Guidance · The Soft Landing Will Be Transitory | Bob Elliott & Andy Constan · IDENTIFIED FROM THE TRANSCRIPT
“inflation goes down that is stimulative to the economy right very important to recognize falling inflation without falling wages is good for the economy because it stimulates it supports real incomes which supports real spending right which is different from say a corporation who may be having a floater although that's you know that's less of a deal now but it's still an issue a corporation might sit there with a floater and they're essentially earning cpi right because they get nominal revenues paying out nominal debt service where the picture is a little different but probably most likely the big picture story of for the economy is that what would look like rising a rising real short rate right now i think is net stimulative to the economy and that's a that's pretty you know”
2023-02-20 · Forward Guidance · The Soft Landing Will Be Transitory | Bob Elliott & Andy Constan · IDENTIFIED FROM THE TRANSCRIPT
“I love Andy getting hot on how to think about real interest rates. I agree and I would probably take it a step further, which is many people will, and I've seen this all over financial Twitter, they say, well, because inflation's coming down or has come down and interest rates remain stable, that is an effective tightening. And I think it's really important to recognize that that is not necessarily an effective tightening. And the reason why that is, is because you have to think about who earns what money and who pays what debts associated with those two pieces to see whether or not it is actually an effective tightening or not. So for instance, from a household's perspective, right, if you think about that dynamic, if their wage growth remains constant.”
2023-02-20 · Forward Guidance · The Soft Landing Will Be Transitory | Bob Elliott & Andy Constan · IDENTIFIED FROM THE TRANSCRIPT
“So let me stop you there A lot of people that subtract the inflation print, and particularly shockingly, the year-over-year inflation print from nominal interest rates to determine what real interest rates are. And that is utter nonsense and not what the Fed does. Don't ever do that. What the Fed does is look at the price of tips, and that's the real yield. They don't use that nonsense. They never have. Bob, do you”
2023-02-20 · Forward Guidance · The Soft Landing Will Be Transitory | Bob Elliott & Andy Constan · IDENTIFIED FROM THE TRANSCRIPT
“Right. And so you said something at the beginning of your comment that Jay Powell referenced real interest rates, inflation adjusted interest rates, which in the future are based on inflation assumption, deflation break evens, but you can compare spot CPI. What was CPI for January relative to federal funds? And I note that that level is highly dependent on inflation is rising or falling. In the Goldman Sachs Financial Conditions Index or all these reflexive models that you refer to, Andy, inflation is an indirect, it's kind of the puppet master because inflation is high, stocks will likely go down. However, it's not directly there, right? But when I feel like this new financial conditions index that Powell referenced, and I saw Nick Timmro's tweet, you know, that Powell was using something that Brainerd said, that sort of alternative model.”
2023-02-20 · Forward Guidance · The Soft Landing Will Be Transitory | Bob Elliott & Andy Constan · IDENTIFIED FROM THE TRANSCRIPT
“I'm saying there isn't, so this is an important thing that Bob mentioned, which is sometimes people do things for non economic reasons. And central banks are a great example of that. And so if China wants to keep its currency from appreciating, it knows what to do. It sells its currency. So that's their goal That's their only goal was to sell the currency. Now they just happen to have dollars and those are hot potatoes that need to be invested. And so they don't care what price they pay or what price what the yield is or anything. They just need to be invested. And so those dollars flow into the world because China decided to sell yawan.”
2023-02-20 · Forward Guidance · The Soft Landing Will Be Transitory | Bob Elliott & Andy Constan · IDENTIFIED FROM THE TRANSCRIPT
“Was their animal spirits in the last in January? I think it'd be hard to think there wasn't. But the money could have come completely out of thin air. And so I think that's an important understanding. Also, short covering for people who are short is a repayment of those loans. And that's a liquidity injection. So the private sector liquidity, the foreign sector liquidity, and the Federal Reserve and Treasury are all pieces of this liquidity. And their conditions and their greed, animal spirits, fear drives flows”
2023-02-20 · Forward Guidance · The Soft Landing Will Be Transitory | Bob Elliott & Andy Constan · IDENTIFIED FROM THE TRANSCRIPT
“So, listen, that flow is hard to track, but I'm just describing the way foreign participants can muck up the liquidity that you might think is so linear by looking at the Federal Reserve. And then I'll say one last thing, which is the private sector can create liquidity whenever they want. Jack, Farley, wants to go and buy some treasuries. He can go to the bank and Say, hey, I want to do a secured loan buying some treasuries on leverage, and the bank will go out, purchase the treasuries for them, hold those treasuries as collateral, and lend them the money to do it. Right out of thin air. And so when does that happen? That happens when there's animal spirits.”
2023-02-20 · Forward Guidance · The Soft Landing Will Be Transitory | Bob Elliott & Andy Constan · IDENTIFIED FROM THE TRANSCRIPT
“Dollars are not things you keep in your mattress. They're electronic dollars that have to be invested in something. And so what do they do? They show up at our auctions and they buy indirect. And that Eases financial conditions because the guys who wanted to buy the treasuries, the non-central banks, the private sector, they can't get any. So they have to go out on the risk curve to get the assets they want, and that tends to push up. Other assets, including treasury assets, and so you have measured by the FCI, which again is just coincident to these things. You have the markets rally. And so I thought that was an interesting factor. If you actually go through the flows, you'll see probably two months from now when the TIC reports come out of the treasury that in fact China didn't buy any treasuries.”
2023-02-20 · Forward Guidance · The Soft Landing Will Be Transitory | Bob Elliott & Andy Constan · IDENTIFIED FROM THE TRANSCRIPT
“And so, why were people in the rest of the world who hate the fact that we've monetized our, sorry, weaponized our debt in the Russia battle through sanctions? Why are they buying our treasuries? Well, you'd have to go a little bit farther and say, what's happening in those countries? And so both Japan and China to another Relevant party is the Swiss National Bank, those three guys, they're pretty much currency manipulators. They're not designated that way, but they play in the markets. And the way they play is when their currencies are very, very strong. We've seen the dollar very, very weak for all of the last, call it four months They, the central bank, sells prints their local currency, sells it to somebody for dollars, and now has dollars.”
2023-02-20 · Forward Guidance · The Soft Landing Will Be Transitory | Bob Elliott & Andy Constan · IDENTIFIED FROM THE TRANSCRIPT
“Unwinding its holdings of Soma holdings and having those people who need to pay the Fed back issue into the market, that's what they do. But there are a lot of other people. There's, for instance, I've noticed that in all of January, the indirect bids to the Treasury Bond auctions were highest in history. What is an indirect bid? And what does it mean? indirect bid is a bid that's submitted through a broker dealer to the treasury to do an auction. And the people who can't bid directly, even you and your mom and dad can buy treasuries through treasury direct. The people who can't tend to be foreigners.”
2023-02-20 · Forward Guidance · The Soft Landing Will Be Transitory | Bob Elliott & Andy Constan · IDENTIFIED FROM THE TRANSCRIPT
“Think very narrow and speaks to what he thinks is tight monetary conditions, which I do too for that matter. And it's something I pay a lot of attention to. It is a market-based rate. But what he was referring to was real interest rates across the curve are high and have stayed high even when other asset prices have rallied. So we haven't seen much falling of real interest rates during this period of time that he spoke about. So from that standpoint, from that narrow standpoint, financial conditions remain very tight. Now, the problem with the Fed, and this is where all these nuances come in, if you're measuring financial conditions by asset prices, and the Fed is managing the interest rate and having an impact on financial conditions.”
2023-02-20 · Forward Guidance · The Soft Landing Will Be Transitory | Bob Elliott & Andy Constan · IDENTIFIED FROM THE TRANSCRIPT
“Right. So, this is a very Bridgewater question. I'm glad we can hit on it. So there are many, many factors. But starting with the first thing you're saying, which is the financial conditions indexes as a measure. All the ones you described are circular. They're asset price based. So when stocks go up, financial conditions ease. Whenever the things that make the index move, financial conditions are perceived to have eased. But that's coincident. That's not a driver. The J Powell's statement was”
2023-02-20 · Forward Guidance · The Soft Landing Will Be Transitory | Bob Elliott & Andy Constan · IDENTIFIED FROM THE TRANSCRIPT
“Cuts are being priced into the back half of 23 rates for going down, stock market up, it eased. I mean, you don't have to be a quant to tell that they eased. However, JPAL, and I really want to drive home this point because pretty sure a journalist asked him about financial conditions. He could have acknowledged that they had eased over the past month. And to be honest, I expected him to do that. He did not. He said that they had tightened over the past year, which is accurate, but he did not address the easing in financial conditions, which I supposed, and I think the federal government supposes impedes their ability to implement their 2% inflation mandate. So I think financial conditions is really important. So I just want to tie the knot between asset prices and financial conditions and then liquidity. Both of you have talked a lot about liquidity, a concept that many people in finance, myself included, know, but it's very hard to actually understand what it means.”
2023-02-20 · Forward Guidance · The Soft Landing Will Be Transitory | Bob Elliott & Andy Constan · IDENTIFIED FROM THE TRANSCRIPT
“It's risk parity. So it depends everybody has their own version of it. Bridgewater has their version of it. RPAR is similar but has some inherent leverage and some rebalancing that is probably a bit more fast moving than other versions AQR has a version. I have my own version. It just happens to the goal is to be balanced for changes in growth and inflation and be purely exposed to changes in financial conditions or what the normally is considered term premium or risk premium.”
2023-02-20 · Forward Guidance · The Soft Landing Will Be Transitory | Bob Elliott & Andy Constan · IDENTIFIED FROM THE TRANSCRIPT
“The way to go here. I mean, it's always the way to go, but I think it's particularly valuable here where your confidence in any one view is just like not that high. So like, you know, could you be short spoos and twos and a diversified portfolio of RPAR or something like short RPAR? And then Are part of the ETF, which is just the risk parity ETF I talk in ETFs these days.”
2023-02-20 · Forward Guidance · The Soft Landing Will Be Transitory | Bob Elliott & Andy Constan · IDENTIFIED FROM THE TRANSCRIPT