YouSaid · the spoken record

Danny Dayan

lines on the record: 88
first: 2024-02-13
most recent: 2024-02-13
sittings or episodes: 1
sources: podcast

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“Put out a trade. And if I don't inform everyone on a timely basis, you know, take it off. I don't want the responsibility that they may have lost money. So I have to think about how to do this in a responsible way. But we'll figure that out.”
2024-02-13 · Forward Guidance · Danny Dayan: Reacceleration Risk Threatens Bond Market, Demographics In U.S. Are Inflationary (Not Deflationary) · IDENTIFIED FROM THE TRANSCRIPT
“I have a number of things cooking. Unfortunately, I can't talk about all of them as much as I enjoy trading my own money. I do have a yearning to get back into the institutional side. And there's a variety of different ways this might play out. So we'll see there. I've also been considering I'm someone who in my personal life have completely moved away from social media. I'm not a fan of it at all. But last year I joined Twitter and started to see some really smart people on there putting content out regularly. I just kind of threw my thoughts out there and slowly people have started to appreciate that. And so I'm thinking of ways that I can further that engagement given that I trade complex option structures. I have to do this in a responsible way that”
2024-02-13 · Forward Guidance · Danny Dayan: Reacceleration Risk Threatens Bond Market, Demographics In U.S. Are Inflationary (Not Deflationary) · IDENTIFIED FROM THE TRANSCRIPT
“But the sooner you do it, the sooner you can grow. When you hold on to these, you know, deny the problem and paper over the problem and don't recognize the problem. What happens is you don't grow. You can't grow out of it. And so that's the problem with the control system of China right now. I think they've been talking about opening up. They need to work towards.”
2024-02-13 · Forward Guidance · Danny Dayan: Reacceleration Risk Threatens Bond Market, Demographics In U.S. Are Inflationary (Not Deflationary) · IDENTIFIED FROM THE TRANSCRIPT
“That's effectively bankrupt, and there are many others that are distressed 20, 30 cents a dollar. And you have this huge unsold inventory of houses that are hanging over the market, which makes you think there's more to go in downside. And then yet somehow there have not been a single bank fail. And none of the banks have reported loan impairments, right? So one of the beautiful things about the U.S. economy is when bad things happen, we recognize it right away, right? And so if commercial real estate is really bad, which frankly it depends on how much has been provisioned for it, loan loss reserves, but let's just say it's worse than expected, it'll behoove the banks to recognize these losses as soon as possible, mark them down, because then you can grow. Then you can move on, then you can grow. It sucks for your stock price to go down 50%.”
2024-02-13 · Forward Guidance · Danny Dayan: Reacceleration Risk Threatens Bond Market, Demographics In U.S. Are Inflationary (Not Deflationary) · IDENTIFIED FROM THE TRANSCRIPT
“That's right. So if you actually look at the China situation over the last three years, housing completions are down like 50%. And so you have these developers that are clearly distressed and some are going bankrupt.”
2024-02-13 · Forward Guidance · Danny Dayan: Reacceleration Risk Threatens Bond Market, Demographics In U.S. Are Inflationary (Not Deflationary) · IDENTIFIED FROM THE TRANSCRIPT
“they don't want to let go. And I understand not letting it go is like a band-aid coming off because it could be very messy if they do, but they have to let go if their economy is ever going to get out of it. Otherwise, they'll have multi-decade Japan-style situation. They're not perfectly parallel to each other. But the housing bust is not as bad as Japan's. The equity bus isn't as bad as Japan's. But at the same time, Japan was a far wealthier country than China is. Again, you know, I would say avoid that situation, learn lessons from the past.”
2024-02-13 · Forward Guidance · Danny Dayan: Reacceleration Risk Threatens Bond Market, Demographics In U.S. Are Inflationary (Not Deflationary) · IDENTIFIED FROM THE TRANSCRIPT
“But they should allow their currency to weaken. I'm not necessarily saying my dollar CNH calls because they do what they do and you're at mercy if they want to manipulate the currency, they will, they're also concerned about outflows because they don't have a good way to incentivize those to come back, right? So in the US if money left the country to go invest in European stocks and then the US economy improved, that money will come back. You know that's the open nature of the US economy and Europe and Canada and Japan and all these countries. In China, they're really concerned that money leaves never comes back. And part of it might be people want to have their money elsewhere to avoid the control of the government. And so they have this difficult set of circumstances that”
2024-02-13 · Forward Guidance · Danny Dayan: Reacceleration Risk Threatens Bond Market, Demographics In U.S. Are Inflationary (Not Deflationary) · IDENTIFIED FROM THE TRANSCRIPT
“They needed to weaken. They seriously needed to weaken, but they're terrified of letting it weaken. And so in a way that they're creating bad policy, like they're conducting bad policy. And that's a deflationary impulse that they could easily allow inflation to pick up by weakening their currency. I think what it comes down to is controversial in terms of their policy set is they're very concerned about inflationary wave in China because that could have social unrest for that economy where it's a very poor country on a per capita GDP basis even though their GDP as a whole is very large. It's a very poor country and inflation is very bad for lower income brackets, right? As we've seen in our part of the world as well. So they're very worried about social unrest. I think that their biggest concern is control rather than improving the economy, making it more open.”
2024-02-13 · Forward Guidance · Danny Dayan: Reacceleration Risk Threatens Bond Market, Demographics In U.S. Are Inflationary (Not Deflationary) · IDENTIFIED FROM THE TRANSCRIPT
“And their bad demographics and their balance sheet recession, I would just stay away. If you can do anything as an institutional investor, I would bet on Chinese bond yields going to zero and staying there for a very long time. That would be what I would do.”
2024-02-13 · Forward Guidance · Danny Dayan: Reacceleration Risk Threatens Bond Market, Demographics In U.S. Are Inflationary (Not Deflationary) · IDENTIFIED FROM THE TRANSCRIPT
“Pocket for when it's interesting or when there's an opportunity. But the reason I'm following Sweden is they are a good barometer for the manufacturing cycle. And if the manufacturing cycle picks up, the deflationary impulse for the global economy that we've seen in the last six months in particular might be coming to an end. So Sweden is an economy to study closely, even if you don't trade their equity market or the bond market. And then last but not least, China is uninvestable. I think everyone tries to time this bottom. If you went back to the 90s and tried to time Japanese, the Nikay 225 bottoms, you would have been the most frustrated person. And you may have got a few of them that bounced 30, 50%. But if you did, you probably would have lost along the way. You can certainly buy call options if you want to. But my opinion is based on their policy set.”
2024-02-13 · Forward Guidance · Danny Dayan: Reacceleration Risk Threatens Bond Market, Demographics In U.S. Are Inflationary (Not Deflationary) · IDENTIFIED FROM THE TRANSCRIPT
“Right, the rates differentials. That is, you know, it's less appealing here, but I still think they need to get the euro closer to parity in order to really stimulate their economy. So that's probably going to mean cutting rates more aggressively than the US in relative terms. And they probably have to cut. I would say they have the green lake to cut anytime. They shouldn't be waiting. Because, you know, if growth is as weak as it is, inflation will follow that. And it looks like it is. And so that's where, as you can see, my view is not static. All rates in the whole world need to be higher. Every economy has their own circumstance. I'm very closely following Sweden. So my macroprocess is I'm an accumulator of as much information as possible. And not all of it gets into my portfolio. A lot of it can be in my, you know, brain and my background.”
2024-02-13 · Forward Guidance · Danny Dayan: Reacceleration Risk Threatens Bond Market, Demographics In U.S. Are Inflationary (Not Deflationary) · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, and you get an advantage in currencies in that forward space, the further out you can go, the forward is actually the euro is even higher than spot. So if the euro was at 110, the three-month forward was closer to 111. And so buying trades at 108 strike was really cheap.”
2024-02-13 · Forward Guidance · Danny Dayan: Reacceleration Risk Threatens Bond Market, Demographics In U.S. Are Inflationary (Not Deflationary) · IDENTIFIED FROM THE TRANSCRIPT
“For the euro to weaken substantially. So I actually think they should be more focused on the euro than on any given interest rate level per se. They need the euro to weaken so that you can stimulate the export engine because here and now they're really not able to stimulate the export engine. And part of that is China's weak and that's their biggest customer. They need to find a way to make their exports more attractive to the Chinese customers. And the easiest way is to weaken their currency. So I look at short the euro. Now, you know, I'm not saying I hold this forever, but I've already put on trades when we were at 110. Those were like three, fourx. I was happy to monetize them, roll them down to lower strikes.”
2024-02-13 · Forward Guidance · Danny Dayan: Reacceleration Risk Threatens Bond Market, Demographics In U.S. Are Inflationary (Not Deflationary) · IDENTIFIED FROM THE TRANSCRIPT
“Something I don't have in, I'm thinking is the Canada situation where there's high household debt and the challenge here is trying to buy bonds in Canada when they're so correlated to what happens in the US, bonds are. But the fundamentals of the economy suggest to me that they should have much more cuts than US. And so on big dips, which I still think we're at too low yields to think about this. But if the tenure in the US got to four and a half, where I would buy is from Canada. You know, I look at the Eurozone and you clearly could see that policies restrictive there. They've had no growth in a year. Their main growth engine is export channel. 70% of the inflation by their own research, the ECB's research, came from the energy crisis, supply side. So they need to stimulate exports. And the way to do that is...”
2024-02-13 · Forward Guidance · Danny Dayan: Reacceleration Risk Threatens Bond Market, Demographics In U.S. Are Inflationary (Not Deflationary) · IDENTIFIED FROM THE TRANSCRIPT
“Watch, but they're below levels we had for decades. Corporate sector is well below, even as they're starting to refinance. Let's see if that slowly changes things. So so far, when you take these cyclical elements with the structural demographic elements, it tells me we are not restrictive. And that's why I think, you know, frankly, it just should not cut rates anytime soon.”
2024-02-13 · Forward Guidance · Danny Dayan: Reacceleration Risk Threatens Bond Market, Demographics In U.S. Are Inflationary (Not Deflationary) · IDENTIFIED FROM THE TRANSCRIPT
“And That's right. Net interest payments for the corporate sector, they've just gone straight down. Not only have they termed out their debt at very low levels, but the companies that are flush with cash, the mega tech companies, these are P&L generating machines. They're cash flow generating machines, and they don't need all that cash. They don't have any debt to service, really very little, and they're actually able to earn interest on that cash. So here's a change where it's actually benefiting some of the big economic agents in the economy. You know, the wealthier cohorts in the economy, they have too much cash. They don't have a shortage of cash. They don't know what to do with it half the time. And so they're able to earn interest income. So household interest payments as a percentage of disposable income. They're very, very low levels. They have risen in the last year or so. And it's something to watch.”
2024-02-13 · Forward Guidance · Danny Dayan: Reacceleration Risk Threatens Bond Market, Demographics In U.S. Are Inflationary (Not Deflationary) · IDENTIFIED FROM THE TRANSCRIPT
“I think there's also a duration component where in the US the amount of refinancing was so immense in 2020 and 2021 for the household and corporate sector that the losses have been borne by people who owned the debt, not people who owed the debt. And that's not true in Europe or Canada or other places.”
2024-02-13 · Forward Guidance · Danny Dayan: Reacceleration Risk Threatens Bond Market, Demographics In U.S. Are Inflationary (Not Deflationary) · IDENTIFIED FROM THE TRANSCRIPT
“And basically saying throughout history of the US economy, we had higher rates, rates at these levels were not problematic at all, 4% 10 year old was never problematic for the economy, for the 90s, the 2000s, you know, it really wasn't obviously the GFC was an anomalous event. Maybe that was the anomaly, not the norm. And I think if we misjudge this and say we are back at 2019, That's what leads to the thinking that the neutral rate is much lower. That's what leads to thinking that we're very restrictive. That sort of myopic thinking without looking at how the economy itself is telling us rates are not restrictive is why I think they need to study demographics. Demographics are not the only story, but it's a story why we seem to be handling higher rates better than everyone thought we could.”
2024-02-13 · Forward Guidance · Danny Dayan: Reacceleration Risk Threatens Bond Market, Demographics In U.S. Are Inflationary (Not Deflationary) · IDENTIFIED FROM THE TRANSCRIPT
“The extraordinarily healthy balance sheets. And you look at household wealth to GDP at 550% now. In the 70s, it was 350%. I'm talking the U.S. economy. All of these things lead us to say that the economy can withstand higher rates than it did in the prior decade, and that the confluence of factors we had in the prior decade are the anomaly, not the norm. Throughout history, and you've had some guests on, I think, that have this view is like Jim Bianco.”
2024-02-13 · Forward Guidance · Danny Dayan: Reacceleration Risk Threatens Bond Market, Demographics In U.S. Are Inflationary (Not Deflationary) · IDENTIFIED FROM THE TRANSCRIPT
“That became positive. Another way that you have inflationary demographics is through labor shortages. You took a huge chunk of the labor force and you said go to bed, go sit in your pajamas and don't work. And you're in retirement. And so we haven't had a way to replace those workers. And so we will have a structural labor shortage or labor hoarding for a decade, which leads to higher wage demands. than we previously had. Again, that's another way that it translates into just structurally higher inflation. This doesn't mean that we have to have 4% inflation or 3.5% inflation. It just means that people are missing that we have some sticky elements that are inflationary that used to be deflationary. And so when you look at that in the US economy and you look at things like”
2024-02-13 · Forward Guidance · Danny Dayan: Reacceleration Risk Threatens Bond Market, Demographics In U.S. Are Inflationary (Not Deflationary) · IDENTIFIED FROM THE TRANSCRIPT
“China is essentially going through a balance sheet recession and a confidence crisis the way Japan did. And in my opinion, they're not handling it well. They should be really realizing the losses as soon as possible in this housing bust. And so they're going through it. Again, I want to just kind of come back to demographics for the way the labor force changes and all this and how it impacts. It's not that demographics mean inflation has to be at a certain level. It's just that the impulse from demographics was deflationary for four decades for the global economy has turned into a positive impulse. So you have many things that affect inflation. Obviously, one of them is the Fed, you know, central banks. Where do they keep policy? Do they keep it easy or do they keep it tight? Fiscal spending, that impacts inflation. So demographics are not the end all be-all. But we've had an impulse that was negative.”
2024-02-13 · Forward Guidance · Danny Dayan: Reacceleration Risk Threatens Bond Market, Demographics In U.S. Are Inflationary (Not Deflationary) · IDENTIFIED FROM THE TRANSCRIPT
“So you went from a saver to a disc saber. And so that is a decrease in the savings rate. So on aggregate, that is a decrease in demand for fixed income. And that becomes inflationary. And when you have the other agents of the economy, the biggest labor force be millennials just at the same time. It's just a coincidence. It didn't have to happen this way, but it did, where they've hit a period where they are now at a huge demand for physical tangible goods that are very expensive to make and are big ticket purchases and support many different actors in the economy.”
2024-02-13 · Forward Guidance · Danny Dayan: Reacceleration Risk Threatens Bond Market, Demographics In U.S. Are Inflationary (Not Deflationary) · IDENTIFIED FROM THE TRANSCRIPT
“What I'm saying is, if you just simply summarize it as aging population, it's you're going to have lower growth. But you should have higher inflation from that if you have the dynamics that Japan didn't have in terms of the deflationary bust from all those things that led companies to become super conservative for all this time. They're potentially breaking out of it. But I think if we look at the US, which hasn't had this situation, and we go back to your original question. If you're a baby boomer and you go into retirement and you have wealth in your housing, your house that you bought, maybe you still live there, but you have accrued a lot of equity. You have wealth in your portfolio of equities and whatever else you own. And you have saved a substantial amount of money for retirement, your nest egg. Well, what happens in retirement is you start spending.”
2024-02-13 · Forward Guidance · Danny Dayan: Reacceleration Risk Threatens Bond Market, Demographics In U.S. Are Inflationary (Not Deflationary) · IDENTIFIED FROM THE TRANSCRIPT
“So, you're never going to hear any disagreement from me that deflation feeds on itself and that deflationary spirals can exacerbate, look at the Great Depression, Japan in the 1990s, companies don't have enough money to employ people, then people don't have enough money to buy things and it feeds on itself. But are you saying that the cause of the Japanese deflation is not, as is commonly believed or a common contributor to the Japanese deflation is the aging demographics, but it is solely other factors such as the popping of the world-renowned credit bubble of the late 1980s, bad balance sheets on banks. And if anything, are you saying that the Asian demographics in Japan actually would be mildly inflationary? Is that what you're saying?”
2024-02-13 · Forward Guidance · Danny Dayan: Reacceleration Risk Threatens Bond Market, Demographics In U.S. Are Inflationary (Not Deflationary) · IDENTIFIED FROM THE TRANSCRIPT
“Right, and Abenomics had a lot of different dynamics to it. One was QE and all those things, but it was also about encouraging investment from businesses and encouraging wage growth. And that's actually where we're starting to see inflation is because as costs have come up this cycle in Japan, you're starting to get some wage demands. It's nowhere near like the US or other economies. But it's the beginning of a circle where cost increases. I'm going to throw that at the customers in higher prices. They're going to demand higher wages as a result. It comes back to me and I feel like I can invest in my business instead of retaining earnings as cash and saving it. I can invest in my business, which leads to productivity increasing. And then this whole circle happens all over the place. That's Japan.”
2024-02-13 · Forward Guidance · Danny Dayan: Reacceleration Risk Threatens Bond Market, Demographics In U.S. Are Inflationary (Not Deflationary) · IDENTIFIED FROM THE TRANSCRIPT
“The demographics, but you had a situation where if you can't pass on those input cost increases that happen to your business, you eat the margin. And then what happens is since you're eating the margin and not passing on cost increases, employees don't demand higher wages. And when they don't demand higher wages, you're not going to reinvest in your business in CapEx. So you have this virtuous circle of deflationary behavior, which by the way is starting to change and Japan does have inflation finally.”
2024-02-13 · Forward Guidance · Danny Dayan: Reacceleration Risk Threatens Bond Market, Demographics In U.S. Are Inflationary (Not Deflationary) · IDENTIFIED FROM THE TRANSCRIPT
“Okay, obviously, I have to caveat here, demographics are not the end all be all. They're not going to tell you everything that happens. There's cyclical elements. There's all kinds of things that happen. In Japan in particular, this is a common argument against demographics people like to give me when I have these conversations. In Japan in particular, you had a collapse in aggregate demand as a result of their blow-ups in the 90s in housing inequities. We're talking substantial declines in that. And you had a situation where companies continuously could not pass on costs to their consumers, customers. Because whenever input costs would go up, they had a situation where they would eat that in margin, the client. So you ended up with this self-reinforced circle that's more about the cyclical economy than demographic situation that maybe they offset each other and it more than offset.”
2024-02-13 · Forward Guidance · Danny Dayan: Reacceleration Risk Threatens Bond Market, Demographics In U.S. Are Inflationary (Not Deflationary) · IDENTIFIED FROM THE TRANSCRIPT
“We have a shortage which is not demographic based but has just coincided with that, right? So we have a shortage of housing, you know.”
2024-02-13 · Forward Guidance · Danny Dayan: Reacceleration Risk Threatens Bond Market, Demographics In U.S. Are Inflationary (Not Deflationary) · IDENTIFIED FROM THE TRANSCRIPT
“So, I think there's two fundamental pieces of data sets you're talking about. Number one, you're talking about baby boomers entering retirement and also entering later into retirement. And number two, you're talking about millennials getting older, starting families and buying houses. So I think that second factor, the millennials, we understand, okay, family formation, that's bullish for the economy. You got to, you know, buy people buying a lot of houses. people got to build a lot of homes So that means that employs a lot of people and we”
2024-02-13 · Forward Guidance · Danny Dayan: Reacceleration Risk Threatens Bond Market, Demographics In U.S. Are Inflationary (Not Deflationary) · IDENTIFIED FROM THE TRANSCRIPT
“They're also now hitting peak productivity in their part of their life. So peak productivity happens typically in your low 40s or your early 40s. And some of that is your more experience, some of that is the circumstances of your life. You're less focused on nightlife and going out and drinking whatever. You know, you're more focused on family life. And I'm going to work hard and you're a manager role now. So you have responsibilities. All of these things in aggregate have happened. The savings rate is substantially lower for the economy. So that means less demand for fixed income. That's inflationary. Two, demand for durable goods. Housing is sticky. That's inflationary. Three, productivity is higher. And we started to see productivity increase. So these factors are exactly what we're seeing now. And yet everyone's surprised by that.”
2024-02-13 · Forward Guidance · Danny Dayan: Reacceleration Risk Threatens Bond Market, Demographics In U.S. Are Inflationary (Not Deflationary) · IDENTIFIED FROM THE TRANSCRIPT
“Obviously, they want to be in a good job situation to buy a house, but they also buy a house based on their family circumstance. We just had a baby. I want to have a bigger backyard. I don't want to live in a city center anymore. I want to have suburbs. So they end up having a substantial increase in durable good spending and housing expenses and things like renovations and things like for the children, right? And so that's a material change in the goods consumption of the economy. That's sticky for housing as well, which I think is a trend most people have not understood why.”
2024-02-13 · Forward Guidance · Danny Dayan: Reacceleration Risk Threatens Bond Market, Demographics In U.S. Are Inflationary (Not Deflationary) · IDENTIFIED FROM THE TRANSCRIPT
“Secondly, they since they're no longer in the workforce, aggregate productivity actually picks up. Most people think in retirement, consumption falls off a cliff. Like you retire, you spend 20% less than you did the year before. It's actually not the case. What ends up happening is your basket that you consume starts to change. So less nights out for dinner, less concerts, less vacations, cars, healthcare, frankly, which is still spending, but more healthcare, more things of that nature. So you start to have all these different factors from the baby boomers, but you also now have had millennial generation, which is now the biggest labor force generation move into their peak family formation. So what does that mean? It means demand for housing is pretty sticky. And people buy houses.”
2024-02-13 · Forward Guidance · Danny Dayan: Reacceleration Risk Threatens Bond Market, Demographics In U.S. Are Inflationary (Not Deflationary) · IDENTIFIED FROM THE TRANSCRIPT
“Relative to the last cycle. Number one, baby boomers go from savers to diss savers. So now they have their pile of savings and they're spending it down gradually over their remaining years in retirement. And so that becomes a dissaving force on the economy.”
2024-02-13 · Forward Guidance · Danny Dayan: Reacceleration Risk Threatens Bond Market, Demographics In U.S. Are Inflationary (Not Deflationary) · IDENTIFIED FROM THE TRANSCRIPT
“You're not talking about them. You're talking about everyone, your viewers, not your listeners. But this is an aggregate. Okay, so then you come here to this economy. And as far back as 2018, the Bank of International Settlements put out a fantastic paper on the demographic changes that were happening, not just in the US, but globally. And it really opened my eyes to look at and do my own analysis, regressions on these various factors to see what the aggregate impact would be. When you take the baby boomers into retirement, A couple things happen and they moved into retirement quicker this cycle than we would have projected because of COVID and asset prices were sky high and they felt like we could retire a little bit earlier. But I always expected to retirements to be substantial by 2023. As far back as 2018, I thought by 2023 this was going to really pick up. And so what happens is as they move into retirement, we have a number of things that change.”
2024-02-13 · Forward Guidance · Danny Dayan: Reacceleration Risk Threatens Bond Market, Demographics In U.S. Are Inflationary (Not Deflationary) · IDENTIFIED FROM THE TRANSCRIPT
“People in their 50s and 60s are typically not the most productive workers in the workforce. So you're very comfortable, you know, you have a high salary at this point. It's at your peak level, but you're very comfortable with your job. You're not trying to work 80 hours a week. You're trying to just clock in, get things done. You might be efficient at that, but you're not trying to kill yourself.”
2024-02-13 · Forward Guidance · Danny Dayan: Reacceleration Risk Threatens Bond Market, Demographics In U.S. Are Inflationary (Not Deflationary) · IDENTIFIED FROM THE TRANSCRIPT
“That you can then see how are we navigating as a cyclical economy around the capacity and constraint. So going back to the last decade, you had baby boomers in their last 10 years of work life to retirement. They had just gone through two financial crises. The dot-com bubble, which hit their portfolios, then they recovered slowly. Then they had the 2008, which hit their portfolios. So their nest eggs were smaller than they would have liked. We had a surplus of labor from China that was in the global economy. And so what we had is very high savings rates in aggregate as the baby boomers, the biggest labor force group and the wealthiest labor force group in history were saving a substantial amount of their income for retirement. At the same time, you also add, since they were the biggest labor force group,”
2024-02-13 · Forward Guidance · Danny Dayan: Reacceleration Risk Threatens Bond Market, Demographics In U.S. Are Inflationary (Not Deflationary) · IDENTIFIED FROM THE TRANSCRIPT
“So going back to the last cycle, obviously there were the specific cyclical elements of the GFC, okay, deleveraging everything we talked about. But you also had in terms of demographics, the thing to focus on with demographics is not just the aging of the population. It's looking at the various different segments of the labor force and understanding that as you progress through your life, your savings patterns change, your consumption patterns change, even within consumption, the things you consume changes over time, your productivity patterns change, and ultimately putting this all together doesn't tell you what GDP will be this year. And this is why a lot of people don't focus on it at all because they say, I can't put a trade on for this. So, you know, what's the point of paying attention to it? It tells you the capacity and constraints of the economy and understanding.”
2024-02-13 · Forward Guidance · Danny Dayan: Reacceleration Risk Threatens Bond Market, Demographics In U.S. Are Inflationary (Not Deflationary) · IDENTIFIED FROM THE TRANSCRIPT
“So, what has changed with demographics? And I want to set the stage for our audience that when I entered the business before COVID, anytime an investor, a macro investor talks about demographics, it was almost always a reason to be bullish on rates. So interest rates would continue to go down. So the neutral rate is lower because we have an aging society. We're going to be just like Japan, yada, yada, yada. Maybe you shared that view a decade ago, but now I want to say when you talk about demographics, you have the opposite view. You think demographics are re-accelerating. So stocks over bonds and bond yields will go up. Tell us why.”
2024-02-13 · Forward Guidance · Danny Dayan: Reacceleration Risk Threatens Bond Market, Demographics In U.S. Are Inflationary (Not Deflationary) · IDENTIFIED FROM THE TRANSCRIPT
“You know, Q3, they haven't been hawkish. At best, they were neutral. I've seen them as dovish. Him saying March is too soon doesn't mean that he's not dovish. I still think that he's still indicating cuts are coming. Almost everyone in the committee sees cuts are coming. They don't know when and they can be patient. But to me, I think they're too dovish to the economic situation. I think they're focused more on a myopic focus on inflation. not enough focus on the economy, the growth side of things, and recognizing that something has changed. This is the demographic conversation, but something has structurally changed in the economy. And I think that's what they're missing.”
2024-02-13 · Forward Guidance · Danny Dayan: Reacceleration Risk Threatens Bond Market, Demographics In U.S. Are Inflationary (Not Deflationary) · IDENTIFIED FROM THE TRANSCRIPT
“I think if the economy stays at six plus percent nominal GDP pace, zero. If inflation does continue on its trajectory and shows a greater sign of like 2% and the economy goes a little bit lower from 6% nominal GDP to five and a half and change, I think they'll probably deliver something like two cuts. And I think they'll be very cautious and slow to do it. I think that they're just going to see the economy as too strong to cut is my base case. But I can't rule out that they may cut in spite of everything I've said because of their reliance on a neutral rate framework that may or may not be incorrect. And I think that they're still talking that way. So I didn't see Powell as hawkish just in the last FOMC meeting at all. You know, I haven't seen them as hawkish since.”
2024-02-13 · Forward Guidance · Danny Dayan: Reacceleration Risk Threatens Bond Market, Demographics In U.S. Are Inflationary (Not Deflationary) · IDENTIFIED FROM THE TRANSCRIPT
“75 bit increments. The markets were always saying we have our rate cuts are right around the corner, rate cuts are right around the corner. Oh, but now they'll do another 75. Don't worry, they're just right around the corner. We won't stay here. They'll cut rates. And so telegraphing it to me has backfired on them. And that's where I think that they were at perfect levels on October 31st. If they had stayed there, I think the economy would have weakened over time if we had stayed there three to six months, which we stayed two weeks. But if we stayed there three to six months, I think we would have seen some weakening. It was a level of restrictiveness that, again, you could go back decades and say it was close. And I think in that context, it then would have been appropriate to start talking about rate cuts now. But because of what they did by just mere mention of rate cuts and bringing animal spirits out, now they're in...”
2024-02-13 · Forward Guidance · Danny Dayan: Reacceleration Risk Threatens Bond Market, Demographics In U.S. Are Inflationary (Not Deflationary) · IDENTIFIED FROM THE TRANSCRIPT
“I would kind of respond to that and say when you're hiking rates, you need to telegraph this to the market because what you don't want is the scenario I mentioned earlier, rates shoot up super rapidly and you get an abrupt tightening in conditions. That actually impairs your ability to conduct policy. So it's very important for them to tell grag rate hikes. They don't need to telegraph rate cuts. They can come in on a Sunday night and cut by 50 BIPs if they want to. They can walk into a meeting where it's priced zero and cut 25 BIPs or 50 BIPs. And the economy will cheer it. The markets will cheer it just the same. The problem actually is if you telegraph rate cuts, the market hears you that the barn door is open and it will never be closed. And the markets have been waiting for rate cuts this whole cycle, even when they were cutting 75.”
2024-02-13 · Forward Guidance · Danny Dayan: Reacceleration Risk Threatens Bond Market, Demographics In U.S. Are Inflationary (Not Deflationary) · IDENTIFIED FROM THE TRANSCRIPT
“You're worried about the right tail, the reacceleration in economic growth. Of course, it kind of sounds like a good problem to have, but it would come with the reacceleration in inflation. So, yeah, I would say, Danny, the thing that worries me about the fact that the Fed says the risks are now balanced, it was saying the risks are balanced to the upside, meaning the risks is inflation, not recession. Now it's saying the risks are balanced. But the Federal Reserve never goes from saying the risks are only on the right side to the risk. They have to, you know, if they're on 4th Street, they don't just jump to First Street. They go to third street first and then second street.”
2024-02-13 · Forward Guidance · Danny Dayan: Reacceleration Risk Threatens Bond Market, Demographics In U.S. Are Inflationary (Not Deflationary) · IDENTIFIED FROM THE TRANSCRIPT
“Services inflation, then I think we settle closer to 3% than the two that has been prevalent in the three and six month moving averages of what we had. So these are things to pay attention to on both directions. The commercial real estate market implodecies go up to a problematic levels or on the other side does inflation pick up? Does GDP pick up this activity pick up? I think there's two-sided risks from the standpoint. And I actually think Powell mentioned we're in balance. And so if he's saying we're in balance, that is a way for policymakers to say there's risk to both sides. Now, it seems they're more focused on the left tail, but in my opinion, just based on what I said earlier, I think the right tail is far scarier. That's the one that keeps me up at night.”
2024-02-13 · Forward Guidance · Danny Dayan: Reacceleration Risk Threatens Bond Market, Demographics In U.S. Are Inflationary (Not Deflationary) · IDENTIFIED FROM THE TRANSCRIPT
“You know, ISM services paid last week came out with a substantial jump to 64. That's pretty concerning. The NFIB, the Small Business Survey of Companies saying the wage plans seems to have inflected higher. So there's a number of things that could say, that doesn't mean it's problematic yet. It's not. I think inflation is okay here, but I don't think they should hike in response to that either, right? I think they should be just where we are. But these are things that say that maybe the inflation story that we've had has been primarily goods deflation, while services inflation has been pretty sticky. You know, there's some indicating, there's some signs that the good sector is improving. Manufacturing is potentially improving a little bit, not growing strongly, but if that goods deflation becomes somewhat inflationary, again, positive, with stick.”
2024-02-13 · Forward Guidance · Danny Dayan: Reacceleration Risk Threatens Bond Market, Demographics In U.S. Are Inflationary (Not Deflationary) · IDENTIFIED FROM THE TRANSCRIPT
“Higher or supply side is stronger than they thought, they need to rethink things. There's a lesson there that needs to be made. But if inflation keeps going down and nominal GDP goes down with it, that's an evidence that we're restrictive. And I would myself say, you know, let's start getting ready for rate cuts and things like that, like cautiously, not seven rate cuts or anything like that, but cautiously let's start thinking about it. The economy will tell us. And so I'm not in disagreement with that narrative. It's just that we're not seeing in aggregate anything that tells us we should be cutting rates now. And if anything, some of the metrics on inflation look to have inflected higher.”
2024-02-13 · Forward Guidance · Danny Dayan: Reacceleration Risk Threatens Bond Market, Demographics In U.S. Are Inflationary (Not Deflationary) · IDENTIFIED FROM THE TRANSCRIPT
“Think you're spot on in that if these trends continue, then that would be evidence that the economy is telling us that they're restrictive and that would be what I've been saying all along is let's see it play out. Let's not try to preempt based on hypotheticals. So I don't think those are problematic levels right now. And it has to be said, you know, the economy is an enormous monolith that moves very slowly and has so many moving parts to it. Not all parts of the economy do well at all times. You know, we do have pockets of weakness. It's not rosy. Not everyone's having a party. It's not that. Okay. But overall, it's strong. If you see nominal GDP come down, if inflation comes down, but we get a corresponding move up in real GDP and nominal stays the same, then there's something else going on that they need to be studying, which is, again, productivity, maybe a substantially higher.”
2024-02-13 · Forward Guidance · Danny Dayan: Reacceleration Risk Threatens Bond Market, Demographics In U.S. Are Inflationary (Not Deflationary) · IDENTIFIED FROM THE TRANSCRIPT
“About what's going on in credit, but if those trends continue, we would be approaching a worrisome level. And if that continued, it would then enter a crisis level. And again, as I pointed out on Twitter, I think rate of change data and an overfocus on rate of change data has led macro investors astray during the cycle. For example, oh, 13% consumption spending down to 8% that fall by 5% in a back test makes it look like there's a recession, but it wasn't. 8% growth is still really hot. So I admit that over reliance on rate of change data has led macro investors astray. That being said, like the rate of change of delinquencies is for autos and credit cards.”
2024-02-13 · Forward Guidance · Danny Dayan: Reacceleration Risk Threatens Bond Market, Demographics In U.S. Are Inflationary (Not Deflationary) · IDENTIFIED FROM THE TRANSCRIPT
“Therefore, guided. And then the economy picks up again. And so I think these are the three things they should be studying. They should do absolutely nothing. And I think when they study it, they're far smarter than me that will come to the conclusion that as far as things stand today, which it could change, as far as things stand today, there's really no basis to cut rates anytime soon.”
2024-02-13 · Forward Guidance · Danny Dayan: Reacceleration Risk Threatens Bond Market, Demographics In U.S. Are Inflationary (Not Deflationary) · IDENTIFIED FROM THE TRANSCRIPT
“End of October, they said that they pushed back on that tightening. They didn't even understand the term premium stuff for the most part. And then when financial conditions eased by the December FOMC, they said, oh, don't worry about it. So what happens is the markets take their cue from the Fed and the markets have gone absolutely haywire. You know, we have animal spirits. They should be studying this because they haven't delivered rate cuts yet. The mere mention of rate cuts caused animal spirits all over the financial system.”
2024-02-13 · Forward Guidance · Danny Dayan: Reacceleration Risk Threatens Bond Market, Demographics In U.S. Are Inflationary (Not Deflationary) · IDENTIFIED FROM THE TRANSCRIPT