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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“And equities had already recovered, and the dollar was weaker. And so I said, by June, we will have a re-accelerating economy. And lo and behold, Q3 was an 8% plus nominal GDP quarter. And this time around, in November, we had the biggest financial conditions easing, again, all three components in 40 years. And what did we start to see in December housing activity started to pick up a little bit as mortgage rates had come down? And I said, by January data, which we get in February, we will reaccelerate. And lo and behold, we're at the early days of it. I think there could be more to go. But, you know, we're at the early days of it. So the Fed should be studying this and saying they initially were very focused on financial conditions when they were tightening. Somewhere along the way, they kind of dropped this as a focus. And they said financial conditions were very tight at.”
2024-02-13 · Forward Guidance · Danny Dayan: Reacceleration Risk Threatens Bond Market, Demographics In U.S. Are Inflationary (Not Deflationary) · IDENTIFIED FROM THE TRANSCRIPT
“Of 22, I said by January, February, we will reaccelerate. We ended up getting smacked with a 500K payroll print, and then we got another one, which is 330k or something in that ballpark over the next two months before SVB happened. And then SVB initially started out as a liquidity crisis. The Fed clipped that tail by creating their facility. And what that facility did effectively was say, you know, liquidity is solved, but it comes at a cost, right? So now it's a solvency issue is it economical for me to do lending and business or buy securities as a bank, given my funding costs. These are slow moving stories. And bond yields were still pricing 150 bips of cuts by April and May.”
2024-02-13 · Forward Guidance · Danny Dayan: Reacceleration Risk Threatens Bond Market, Demographics In U.S. Are Inflationary (Not Deflationary) · IDENTIFIED FROM THE TRANSCRIPT
“Have to look at what constitutes financial conditions using. Don't just look at one index or another, but let's just take the three accelerations. October of 22 through December of 2022, bond yields, tenure yields moved about 100 basis points lower. Equities had moved up sharply, and the dollar depreciated in a very big way, like the euro was 95 cents. And the dollar, as an example, went to 115 within a short period of time. Okay, so when you had all of these different metrics of financial conditions easing, what ends up happening is equity is going higher makes people wealthier. The dollar weakening makes corporate revenues a little bit more flattering. The yields are moving lower turns the mortgage market to re-accelerate, the housing market to reaccelerate activity picks up there. So in that period in October of 22, November.”
2024-02-13 · Forward Guidance · Danny Dayan: Reacceleration Risk Threatens Bond Market, Demographics In U.S. Are Inflationary (Not Deflationary) · IDENTIFIED FROM THE TRANSCRIPT
“At this economy, the financial conditions have tended to be easier than that has been the prevailing situation. We'll get tightening for some period of time, but then we'll get a massive easing that unwinds in an explosive manner the tightening we had. And that'll last for months on end, right? So why is it that that happens consistently, this economy, that to me is potentially another sign that we're not restrictive. And then third, why is it that when we have these financial conditions easings, the economy reaccelerates within two to three months? I'm not trying to toot my own horn here, but I've literally called the month of the accelerations three straight times. And that doesn't mean that I'm a prophet.”
2024-02-13 · Forward Guidance · Danny Dayan: Reacceleration Risk Threatens Bond Market, Demographics In U.S. Are Inflationary (Not Deflationary) · IDENTIFIED FROM THE TRANSCRIPT
“There's two other lessons for the Fed. I think that they should be spending time learning now, you know, before we jump into demographics. One is if you go back to the prior cycle, financial conditions tended to be tighter than they wanted at almost all times. Okay, so the equity market just as a barometer responded negatively to almost anything that happened. In 2012, you had the Eurozone crisis. In 2013, we had the taper tantrum. We had the Swiss Central Bank unpeg their currency. In 2015, we had China devalue their currency. In 2016, we had the energy market oil collapse. In every one of these situations, trade wars in 2018, every single one of these situations, the equity market reacted inevitably negatively. And financial conditions were tighter than the Fed wanted, which is why they kept pumping liquidity into the 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
“When you have a divergence, something to look at. But again, the economy will tell us if it's restrictive and it's not. So let's just say the Lubic model is not the right model of neutral rate of 4.2 that they have, right? It seems reasonable that it's higher than two and a half. And I think the Fed should simply take their time.”
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, Jack, let me just jump in. What was the three month annualized PCE in the middle of 2022, like 12%? We didn't set policy based on the three-month annualized. It's a nonsense argument. You set it on the annual, you know, the economy ebbs and flows over the course of a year. You don't nitpick the data to get you the answer you want. You choose annualized inflation, you know, 12 month running is a far better way. And I would also say, you know, sure, PCE has been has been well contained. Core PCE has been well contained over the time period. I think we should thank the Fed for tightening policy as they did in response. I think we've gotten lucky in certain respects with supply-side improvements. And we'll see how sustainable those are. Core CPI is materially higher. And I think there's a message in that divergence in that maybe take an average of the two or something along those lines.”
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 the neutral rate is my definition of the neutral rate is what is a rate that is neither stimulative nor restrictive for the economy. So if the economy is at perfect equilibrium, what would be the rate to keep it at equilibrium? I think right now that rate, according to the Federal Reserve, is two and a half percent. And that 2.5% is the nominal rate. So if the Fed has its target of 2% inflation, the real neutral rate would be half a percent. So, okay, so you say that you should forget the Fed funds, focus on the tenure. Okay, tenure is at 4.2%. The three month annualized core PCE is at 1.5% annualized. That's a generous metric. You could choose a metric that's much higher year over year CPI.”
2024-02-13 · Forward Guidance · Danny Dayan: Reacceleration Risk Threatens Bond Market, Demographics In U.S. Are Inflationary (Not Deflationary) · IDENTIFIED FROM THE TRANSCRIPT
“Sold deleveraging because of the housing market blowing up. Substantial amounts of corporate and household bankruptcies. We had the banking sector was forced to delever many times over due to regulation change, due to their part in the GRC. You actually had, after the TARP program to bail out the banks, which was very unpopular, you had a mini version of austerity in the US and Europe. Europe had more, but you had a mini version of austerity in terms of no appetite for fiscal spending. It didn't last long. It didn't last long, but that was the case then. And you had what everyone knows, deflationary demographics. Maybe that was the anomaly and not the norm. And if you make a mistake of cutting based on thinking we're still in that economy when we're four years into a new economy and it hasn't is shown to be completely different, you might make a danger mistake.”
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 economy so resilient right, you have to start asking this question if you're the Fed and if the economy is this resilient, maybe you need to go back to your books and look at the neutral rate and say maybe we're wrong that it's still two and a half percent. The Fed themselves has two models for the neutral rate. One of them is the Williams model, which says it hasn't changed. It's still two and a half percent. The other one is the Lubic model, which is from the Richmond Fed Research Department. And they have it at 4.2%. Ironically, before the full ramifications of the GFC were clear to everyone, the Fed themselves estimated it at 4.1%. So maybe the post-global financial crisis economy is the anomaly and not the norm for the US economy. We had so many factors there that were housed.”
2024-02-13 · Forward Guidance · Danny Dayan: Reacceleration Risk Threatens Bond Market, Demographics In U.S. Are Inflationary (Not Deflationary) · IDENTIFIED FROM THE TRANSCRIPT
“Say that we're really slowing, we are nowhere near the replacement rate of jobs in the economy, which is 50 to 80,000 a month. Why don't we see one month where we approach the replacement rate of job creation, still growing jobs, but approaching it before we even talk about rate cuts? Why talk about rate cuts based on hypothetical arguments? The economy will tell us that we're restrictive. It's not telling us we're restrictive. These hypothetical arguments based on the neutral rate, I will give you my neutral rate when we talk about them demographics, you know, estimate, but it's an estimate. It's not measurable. It's an art, not a science to some degree. I don't think that there's any need to cut rates when the economy is showing the strong growth. If I were the Fed, and Nick Timmerell, I actually tweeted at him, here are some tough questions to ask the Fed that I think need to be asked. 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
“16 higher than it was in November 2021. What that tells you is you incentivize the loan, the lending market to increase credit growth to increase, that's how you get inflation. And so that seems really, really risky at 6% nominal GDP. I'll go back to the job market, the other argument you mentioned there. Sure, it's slowing. I mean, there's a limited amount of workers in the economy, number one. Number two, that argument kind of flipped on its head, I think, a week ago, right? Where we had substantial downward revisions for about nine months in a row in the job market. Those got revised up. They didn't eliminate the downward revisions, but they got revised up. The December print was revised up by over 100,000 jobs. The job number we got was also over 300,000 jobs. So all these little moving averages that people love to throw 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
“Sure. I mean, first of all, as I said earlier, the Fed funds rate doesn't matter. It's the tenure rate that matters. And so we could say five and a half Fed funds, but the tenure rate is 420, 418. And so you have to compare that to whatever metric you're looking at. So I think that's the wrong argument to make. Second of all, let's not develop hypothetical reasons for the economy to weaken, right? Let's let the economy tell us that it's restrictive. We went through all the different agents of the economy. They're not behaving that way. Nominal GDP is 6%. What are you trying to accomplish by cutting rates? So, okay, you're going to cut rates. And we have 2% year over year loan growth. We're actually growing really strongly from organic income growth and organic spending and investments from the corporate sector at 6% nominal GDP. Okay, let's actually see that why would we incentivize loan growth to go back up to 10% when actually money velocity is 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
“After a month, the nature of these trades gets really ugly, like the scenarios of how it could play. So it trades like a one-month straddle now. A month from now, it'll trade entirely differently and I'll get out of this trade and reset it. But that's how I'm looking at.”
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, it's not as simple as a straddle, it's a little more complex than that, and I could get into the construction. The way it'll behave in the next month, basically, I have three month option structures on. The way that it'll behave in the next month is like a long straddle. You could basically call it a long straddle without actually paying for it. I collect premium. So what I'm doing is one by two call spreads that are, I'm buying the two leg and I'm selling at the money vault buying, let's say, 25 Delta, you know, two times. I collect premium for the most part on these trades. So if the market falls apart, I recoup that premium. If the market goes sharply higher, I end up picking up a lot of Delta and get longer the market as it goes and I make a lot of money. What I don't like is in the next month, it just sits here. Now, like I said, these are three-month structures. I hold it for a month.”
2024-02-13 · Forward Guidance · Danny Dayan: Reacceleration Risk Threatens Bond Market, Demographics In U.S. Are Inflationary (Not Deflationary) · IDENTIFIED FROM THE TRANSCRIPT
“On the SP, give or take for one month vault. That is way too low. Your break even is 3% in either direction. We just moved, like I said, 21% in three months. I'm of the view that the next move, we're not going to stay here at the all-time high at 5,000. We're either going to melt up in the overheat scenario or we're going to have a correction that is five to ten percent. And I'm happy to say that I'll put on a vault trade where if nothing happens, I know what I'm going to lose. If we move in either direction, I'm going to make money. If implied vault goes up because there's some event that I didn't foresee, I'll make money. I make money in all three situations other than let's just sit here. So that's how I look at equities right now, in particular in the US.”
2024-02-13 · Forward Guidance · Danny Dayan: Reacceleration Risk Threatens Bond Market, Demographics In U.S. Are Inflationary (Not Deflationary) · IDENTIFIED FROM THE TRANSCRIPT
“Just a strong theme. I'm sure every part of the curve, I'm not trying to be cute and trying to play curve. I think bond market is just way too rich. With equities, I can make a case that we keep going higher or that we keep a correction simply because we've gone up 21% in three months. We're overbought. Everyone is bullish. I could see a correction. But my view really with equities is if they do cut and overheat the economy, equities will melt up to something that no one's really prepared for, 5,500, 6,000 level. Could equities digest higher bond yields poorly on the way up? It's possible that happens too. So my conviction on the next move is very low. I would say they should outperform bonds. My preference is by vault. I'm a vault trader. And I look at equity vault at a”
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 they box you into a line of thinking that you can't get out of. And in my opinion, the economy is path-dependent. If rates jump to 7% tomorrow, 10-year-olds, whatever we said today doesn't matter, right? So, you know, I'm in the camp that the economy is in a really good place. I think the Fed has a few lessons they need to learn, which we can talk about in a second, that they need to study the economy and take their time. There's no rush to do anything. And that only if they cut will we most likely have an overeating economy that leads to a second wave. Where we are now, I think we're in a wonderful spot. So to go to the asset class picture, to me, bond yields are way too low. I'm happy to be short, you know, I obviously am a trader. I don't just put on positions for years to come. But at the end of December, seeing what we had 360, 10-year-old, I was happy to trade that. I've been fading rallies in the bond market consistently.”
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, I mean, I looked at some Bond date exactly what you're talking about, the 30 billion in high yield issuance in January, I think was the highest since November 2021, which was the last good month before all this macro chaos started. And yeah, that tells you something. The credit markets kind of froze up, I believe, in November 2018, leading to the Powell Pivot. Credit markets are wide open. You can drive a truck through them. CLO markets are functioning. I mean, private credit is just churning out loans that could end badly. I don't know. Going to do an interview on that that I'm excited about. But okay, so in this environment, is it fair to say you are in the no landing scenario? You are the exact opposite of a recession Easta. You're not a soft landing guy. You're a no-landing guy. And in this environment where the economy overheats nominal growth is very high, inflation re-accelerates, is that one where stocks outperform bonds, is that fair to say? And so what's your outlooks on stocks versus”
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 companies said, I'm not going to wait. I'm going to take care of this now. That's not all of it, but they're jumping at the chance to lock in these lower rates to finance their businesses. No one is acting like a recession is a minute. No one is acting like policy is restrictive. And the Trident tested ways I look at over many decades don't tell us that either.”
2024-02-13 · Forward Guidance · Danny Dayan: Reacceleration Risk Threatens Bond Market, Demographics In U.S. Are Inflationary (Not Deflationary) · IDENTIFIED FROM THE TRANSCRIPT
“Every two weeks? Are you canceling vacations that you were planning? Are you canceling big ticket items? Are you foregoing consumption for savings? I'm going to assume they're not. I've been in Florida for three weeks. Nobody, this economy is booming here. And then let's go to the corporate sector. Corporate sector is the best assessment of demand in the economy, right? They set prices. They see demand in terms of revenue sales. We had the first positive earnings growth in Q3 and 4, the first one. And now we've accelerated in Q4 to roughly five and a half six percent earnings growth in Q4. They had bond yields come. Bigger amounts that are due to refinance in 25 and 26.”
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 that is not the majority of economic activity, unfortunately. So the Fed funds rate is the least impactful rate, I would say, in the economy. I chose the equity investor angle to say investors are not preparing for a recession. But let's look at the household sector. When we had rates come sharply down since November in every single week almost since then, we've had mortgage purchase applications go up. I'm not saying it's a gangbuster housing market, but on the margin it has been an increase in household housing activity. The household savings rate is at multi-decade lows. You're not seeing consumers say, let me forego consumption for savings. And you get paid to save now, right? Ask your next 10 guests, you know, when they come on. Are you changing your behavior? Did you go out three times a week and now you're going out once?”
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 by a substantial margin, right? So the Fed funds doesn't matter, really. The Fed, when they hike rates or cut rates, it's really to impact other rates in the market. It's not generally the Fed funds rate because who transacts there? The big banks pay five basis points for deposits.”
2024-02-13 · Forward Guidance · Danny Dayan: Reacceleration Risk Threatens Bond Market, Demographics In U.S. Are Inflationary (Not Deflationary) · IDENTIFIED FROM THE TRANSCRIPT
“Remains to be seen, but we were restrictive, although we only stayed there for two weeks. So we didn't stay there for long to really impact the economy much. If you chart 10-year versus core inflation, you typically have to get it above that level for a material amount of time going back decades to tip the economy over into recession. Another way of looking at it is the 10-year relative to nominal GDP. Typically, you need to get the 10-year over nominal GDP. We have the 10-year 180 basis points below nominal GDP right now. And so by the test of time, we are not restrictive.”
2024-02-13 · Forward Guidance · Danny Dayan: Reacceleration Risk Threatens Bond Market, Demographics In U.S. Are Inflationary (Not Deflationary) · IDENTIFIED FROM THE TRANSCRIPT
“Are typically going to be credit markets where companies borrow this five to ten year horizon typically. That's where activity in the economy happens. You go back to the peak in 2007 when we had a five plus percent Fed funds. Well, actually, the tenure was five and a quarter, okay? And we had a lot more household vulnerabilities on balance sheets and also banks had a lot of leverage and so on and so forth. 2000.com bubble. When we had policy rates of five and change, the tenure was 675. Okay, so now we have the tenure at 418 right now, give or take. And that is far less restrictive than it used to be. So in the end of October, when we had every part of the bond curve, over 5%, core inflation by CPI, core CPI is about 4% at the time. We were how restrictive.”
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 where I would get at when I look at restrictive, whether we are restrictive, okay? Because the Fed uses this term a lot. And the way they're looking at it is Fed funds rate minus neutral rate, which they still have at 2.5%. I don't agree. But neutral rate, 2.5%. We are 300 BIPs restrictive. That is too high. And so things, bad things would happen if we stay up here. There's a lot of other ways that are tried and tested over many decades that we could use to measure restrictiveness. Okay, so number one, if you look at historically, it's not just the Fed funds rate that you need to get over inflation. It's typically the market traded rates, which are far more important for the economy. Five-year yields, 10-year yields. That's where car loans happen. That's where mortgages have a seven-year duration. That's where consumer loans.”
2024-02-13 · Forward Guidance · Danny Dayan: Reacceleration Risk Threatens Bond Market, Demographics In U.S. Are Inflationary (Not Deflationary) · IDENTIFIED FROM THE TRANSCRIPT
“Well, I don't know what the number would be if they have an overheating. Again, it's a risk scenario. It's not my base case. I'm not calling for 7% rates. But if right now my base case, I'll just put it out there. They should do nothing. The economy is doing really well. We have inflation mostly under control. I think it's a little stronger than the three to six month moving averages people kind of referred to. I think it's closer to 3%, but it's overall contained. It's not the worst case of it. We have 6% plus nominal GDP. It's very healthy. In my opinion, they should do nothing. The risk is that they prematurely ease the economy overheats, and they have to take it to a level of rates that breaks things. And it will severely break things. Whoever thinks a recession is imminent at 5% is going to obviously think at 7%, seven and a half percent, it's going to be far worse. And so I don't know what level that would be, but we really need to avoid this scenario.”
2024-02-13 · Forward Guidance · Danny Dayan: Reacceleration Risk Threatens Bond Market, Demographics In U.S. Are Inflationary (Not Deflationary) · IDENTIFIED FROM THE TRANSCRIPT
“Thanks for that. So, you think that the US economy, again, just speaking about the US was receiving and was at the risk of overheating, but there were two temporary tightening of financial conditions last year that helped the US economy just slow it down just a little bit so it didn't overeat. Number one, the collapse of SVB, Silicon Valley Bank in March of 2023 and a few subsequent big failures. And then I like that the term premium tantrum of October last year where long-term bond yields rose significantly. So those two financial conditions were tightening of financial conditions were sufficient to make sure that the economy didn't overheat. So I want to know if the economy is so goddamn strong, basically, which is what your outlook is. What is the risk of an over tightening? If 7% is necessary to contain inflation, why can't the economy handle 7%?”
2024-02-13 · Forward Guidance · Danny Dayan: Reacceleration Risk Threatens Bond Market, Demographics In U.S. Are Inflationary (Not Deflationary) · IDENTIFIED FROM THE TRANSCRIPT
“Dollar will go absolutely parabolic. It will suck liquidity out of the system. In this scenario, we will have a 10 times more vicious recession than we would have from the one that's being put out there in the narrative, which still could happen. I could be wrong about it. It could happen. But the recession in the right-tail scenario is far, far, far more vicious. Imagine the Fed Ikes to 7%. I mean, that's another 150 bips. If they have to. Is that the outcome I'm positioning for? No. But I think it's the outcome that if I were the central bank, if I were the Fed, I would be worried about this outcome far more than I would be worried about preemptively cutting to prevent hypothetical weakness, which we're not seeing any economic agent, whether it's investors, consumers, or corporates preparing for or behaving as if it's on the horizon. I don't believe.”
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're still pricing about five cuts on the mean of those outcomes. That's priced into the market. Now imagine the Fed brings hikes back into the table. We will get something like a 200 basis point move higher in rates in a very short period of time. This will abruptly tighten conditions.”
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 market will always see cuts down the road. They've opened the door to it, and that door is wide open. And so they also know that any weakness we get, they're going to respond by cutting rates. The Fed would actually have to respond by bringing hikes back onto the table. Like an economist last night is calling for the RBNZ in New Zealand to potentially hike. I don't know if that's realistic or not, but imagine the Fed brings hikes back into the table. Well, then Z4 pricing, which still has five cuts price.”
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 first wave was a shock. The second wave is where people say, oh shit, this is not going away. And it gets embedded in psychology. The Fed will have to act on that. I'm not saying this is my base case, right? I'm saying that this is a risk scenario. And if we get an overheating economy, the Fed has to react. So what do they do? They've opened the door to cuts. And as we saw last year, your guest Dean Kernut, who I know very well, done recently. And he was saying they didn't deliver the cuts that were priced last year, that didn't dent the economy and it didn't dent the equity markets. So in the event that they just don't deliver cuts, I don't see that as necessarily tightening conditions.”
2024-02-13 · Forward Guidance · Danny Dayan: Reacceleration Risk Threatens Bond Market, Demographics In U.S. Are Inflationary (Not Deflationary) · IDENTIFIED FROM THE TRANSCRIPT
“It was the term premium tantrum, which I should totally copyright that term. I've been calling it that for a while. But the term premium tantrum that we had is what moderated activity and prevented overheating economy. And now we're at potentially the third re-acceleration through the easing we had at the end of last year. So let me just paint the scenario for you. Imagine we get a repeat of Q3, but we don't get tight financial conditions as a result of it because the Fed has opened the door to cuts. And the Fed seems intent to cut at some point. And everybody in the world is calling for them to cut. The people are drunk over these cuts. And so imagine we don't get tight conditions. Well, the concern is that it'll lead to an overheating economy. And what's the response to that outcome? Okay, let's just work through this. If we get a second wave,”
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 right tail risk is, you know, we've had two economic re accelerations in the last 12 months. Okay, we had coming into 2023 due to the easing and conditions that we had at the end of 22, we had a major reacceleration, 30k jobs at the beginning of the year. Now SBB in a way, I'm going to use quotation marks, we got lucky that that didn't lead to an overheating economy because of SVB. Obviously, it wasn't lucky. It was a bad thing that happened. But that moderated that reacceleration. And then out of SBB, once the Fed clipped the worst possible outcome of it, the liquidity situation and turned it into a slow moving solvency issue, we had very low bond yields. We had high asset prices. And what happened is we had another re-acceleration. And I think we got lucky with this one as well in that the Fed wasn't really hawkish in this period. In fact,”
2024-02-13 · Forward Guidance · Danny Dayan: Reacceleration Risk Threatens Bond Market, Demographics In U.S. Are Inflationary (Not Deflationary) · IDENTIFIED FROM THE TRANSCRIPT
“He's worried about it as a threat. And so Bonds is a hedge for this. Okay, sure. But if you think a recession is something that you're seriously worried about and you've nailed these stocks that you've been in, these are the highest beta stocks in the world. And these are the most richly valued stocks in the world. And so I don't think that if you really think that there's a material or risk of a recession right around the corner, that you're going to be in these stocks anymore, especially having successfully nailed them. And what will happen is anyone who's been through a recession knows, no matter what kind of recession is, these companies will go down 30, 50%. No one wants to give up a third of their gains or whatever that is. And you'll have a shopping list and 30-50% down lower, I'll buy them again. That's what I would expect behavior to be from the equity market investors in general if they think.”
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 don't see them behaving as if a recession truly is imminent. I don't want to pick on anyone, but your most recent guest, Satrini, is someone I'm a huge fan of, okay? And he has nailed these themes of AI, the Ozempic stuff, not only got the bottom right, but could have left these themes along the way. He stuck with it. He's made it. And he was saying, and I'm only using him, not again, not to pick out him because I am a fan and I follow him closely. But he was saying recession is imminent. And so I'm buying bonds. And that's a common view.”
2024-02-13 · Forward Guidance · Danny Dayan: Reacceleration Risk Threatens Bond Market, Demographics In U.S. Are Inflationary (Not Deflationary) · IDENTIFIED FROM THE TRANSCRIPT
“One out of every seven years we have a recession 15 probability give or take there. I think people are too focused on it. And part of the reason why I think people are too focused on it is we have a lot of policy room, right? Coming into the 2020 recession, policy rates were 175. They're five plus percent. If we did have that recession and it happened, the Fed could knock out five straight 50 bit cuts. They don't have to tell you it's coming. They don't have to warn you. They can announce them on a Sunday evening. They could knock that out and we'd still have rates higher than we had going into COVID. And they would be able to respond in less than what I think would come from that garden variety recession. The right tail risk is far more terrifying, but I want to focus a little bit more on the left tail risk. The left tail risk that everyone talks about, the people who are talking about it.”
2024-02-13 · Forward Guidance · Danny Dayan: Reacceleration Risk Threatens Bond Market, Demographics In U.S. Are Inflationary (Not Deflationary) · IDENTIFIED FROM THE TRANSCRIPT
“First of all, thanks for having me, Jack. I love the diversity of guests you have on here, so I'm glad to hopefully add a unique voice here. When I look at the balance of risks, I see different outcomes possible and how I'm looking at it is. There's a left tail risk and there's a right tail risk. The left tail risk is the one that's commonly out there rates are too high. They haven't been this high in decades or real rates are too high as a result of inflation coming down. We need to cut rates to avoid a hypothetical recession that people see. I really don't see this as a material risk, as most people do. And I can't say that there's no probability of a recession that can come from anything, right? It could come from the reasons I just mentioned. It could come from some idiosyncratic event or something we didn't think about, you know, the pandemic or 9-11, God forbid. These things happen. So where I would put recession probability is roughly the same as it always 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