YouSaid · the spoken record

David Cervantes

lines on the record: 97
first: 2023-10-09
most recent: 2023-10-09
sittings or episodes: 1
sources: podcast

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“At some point, there will be cuts, right? And I have no idea when or how much is the answer. No one does. But my premise is it's not, again, it's not in the next three to six months likely.”
2023-10-09 · Forward Guidance · Bond Bear Eyes Tactical Long In Treasury Notes | David Cervantes · IDENTIFIED FROM THE TRANSCRIPT
“And so you said the cutting cycle will help us out a bit. So that's the used to be 200 basis points for cuts in the market. Now it's 100 basis points or something to July 2024. They think by 50 basis points, so two cuts. So you do you think that the two-year rate of cuts is like roughly appropriate? There will be cuts.”
2023-10-09 · Forward Guidance · Bond Bear Eyes Tactical Long In Treasury Notes | David Cervantes · IDENTIFIED FROM THE TRANSCRIPT
“It's not just digital or binomial where I'm bullish and by equity and like that. It's a very much more nuanced take. And it's not just about the destination, it's how we get there when we get there. So my premise is that we're not going to see recession in the remainder of this calendar year, likely not at the beginning of next calendar year. The cutting cycle advice some time. So now we're later. What do we do in the meantime? Well, again, as a trader, I trade the market in front of me. I don't want to get caught up in these things. For now, my position is that for a variety of reasons, which I mentioned earlier, the tenure for me is a good long play. I'm not terribly excited with equities because the growth that's priced in is already optimistic. So now we're ready on rates to come down, but we're not there yet.”
2023-10-09 · Forward Guidance · Bond Bear Eyes Tactical Long In Treasury Notes | David Cervantes · IDENTIFIED FROM THE TRANSCRIPT
“So let's just say things start deteriorating today. Right. Now we're at three to four months. Now we're looking at cuts. Cuts start in what May, June. And then that provides some stimulus. Things get priced in pretty quickly. And then we wait for bated breath for the economy to rebound. Maybe it does. Maybe it doesn't. So look, I'm not saying a recession is not going to happen. That's just part of, of course it's going to happen at some point. It's part of the cycle. The question is when. My premise is that when is not today, it's not tomorrow. It's probably not in the next six months. And if it starts cutting in six months because they see some weakness, that buys a little time. So now your window for a recession gets kicked out to sometime late 24, early 25 in, again, short of some kind of sudden stop scenario that I talked about earlier. But that's, so to clarify for your viewers and listeners.”
2023-10-09 · Forward Guidance · Bond Bear Eyes Tactical Long In Treasury Notes | David Cervantes · IDENTIFIED FROM THE TRANSCRIPT
“Answer is I would, I think you're probably, I want your viewers to misinterpret what I'm saying. My confidence is that we don't have a recession in the next three or six months. And if we do have one, we're probably looking at 2025. The reason is based on where the labor market is now. For it to really start to slow, it would take some serious deterioration of the economy and that takes time.”
2023-10-09 · Forward Guidance · Bond Bear Eyes Tactical Long In Treasury Notes | David Cervantes · IDENTIFIED FROM THE TRANSCRIPT
“It seems you're pretty confident, you're pretty bullish that we won't have a recession, confident we have a recession. I would say someone who's says, oh, we don't have a recession long stocks, not long bonds, but your long bonds, just I guess for tactical reasons.”
2023-10-09 · Forward Guidance · Bond Bear Eyes Tactical Long In Treasury Notes | David Cervantes · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, I think it surprised a lot of people. Luckily, I was on the right side of the trade, so hopefully I remain on the right side of the trade with my Fed paws, do nothing, inflation continues to go down, stay long tenure, slowing nominal growth, slowing more disinflation. Hopefully all those forces play into my long tenure position.”
2023-10-09 · Forward Guidance · Bond Bear Eyes Tactical Long In Treasury Notes | David Cervantes · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, so people talk about not on your bingo card. I didn't forecast this huge and violent sell off in long end rates. But if you had asked me a month ago, we have this huge sell-off in rates. What happened to short-term rates or what happened to the Fed funds probabilities? I would have said, oh, it's because it's because the market price didn't, the Fed hiking in November and maybe in January or February 1st or whenever that meeting is next year. But I really was not on my bid of card that the odds that the Fed would hike again would stay the same or even go down. And then you'd have a huge sell-off in rates. That has really surprised me.”
2023-10-09 · Forward Guidance · Bond Bear Eyes Tactical Long In Treasury Notes | David Cervantes · IDENTIFIED FROM THE TRANSCRIPT
“The answer is yes. In fact, actually, my inaugural note, which actually was a pretty dense, I think, 13, 14 pager. In my inaugural note, I argued that the Fed was buying some kind of inflation nuclear bomb. I think the Fed's done for the year. It doesn't say they can't do anything later, but for this calendar year, they're done and maybe potentially for the entire cycle.”
2023-10-09 · Forward Guidance · Bond Bear Eyes Tactical Long In Treasury Notes | David Cervantes · IDENTIFIED FROM THE TRANSCRIPT
“I think got us on earnings. I think for the most part, I think consensus is that the Fed is done for at least this calendar year. So it's really, and do you agree with this question?”
2023-10-09 · Forward Guidance · Bond Bear Eyes Tactical Long In Treasury Notes | David Cervantes · IDENTIFIED FROM THE TRANSCRIPT
“The premise is that given where the rates complex is, given the concentration of earnings is in the MAG 7, given that we're entering the earnings season right around now-ish, the Marx is kind of waiting on with bated breath for their earnings numbers. I think the rates numbers are a done deal. That's done for now. That's kind of a done deal. So the market's kind of waiting for the aggregate earnings and the forward guidance on those earnings to really do anything. And because we're just where we are in the calendar of the reporting period, it's just the market. If there is a chance for a Santa Rally, it's not going to happen in the next few weeks, most likely not in October, just for pure calendar reasons. Got it. It has nothing to do with the macro outlook, has nothing to do with rates or earnings, just pure calendar. Market's going to be on hold for now until we get more guys.”
2023-10-09 · Forward Guidance · Bond Bear Eyes Tactical Long In Treasury Notes | David Cervantes · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, I mean, I'm pretty, I was pretty prolific on Twitter. I'm sorry to migrate some of that over. I'm still active on Twitter. I threw up a big post this morning in response to the additional jobless claims data that came out. So I'm so active on Twitter. I plan to remain so. But a lot of my more pre-o content that is more research intensive will be going there. But I think it's worth it. Look, the calls have so far been switched to calls, which luckily they've been fine or great, but it's really more of like the thought process of how I go about thinking about things, I think, is kind of different than a lot of observers. And whether it's ultimately right or wrong, I think it's probably useful to have kind of an off-the-run thought process.”
2023-10-09 · Forward Guidance · Bond Bear Eyes Tactical Long In Treasury Notes | David Cervantes · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, that's right. I forgot about that. Thanks for reminding me about it. Yeah, it's a pinebrookcap.com. Launched, I think last week, last Tuesday launched and starting up a lot of some interesting content there. So people should check it out. You've already written a lot of Arthur Time, even though.”
2023-10-09 · Forward Guidance · Bond Bear Eyes Tactical Long In Treasury Notes | David Cervantes · IDENTIFIED FROM THE TRANSCRIPT
“Quantify it, but yeah, I think that's a problem. The question is how does the market digest it? I think it's more, it's not so much the level of debt or the amount of issuance, it's the rate of issuance over time. And I think that is more of a concern of mine. Sort of knowing how the Treasury is going to turn out the debt and the speed at which they're doing it, I don't have an answer, but that's what I would look at if I was looking for the answer.”
2023-10-09 · Forward Guidance · Bond Bear Eyes Tactical Long In Treasury Notes | David Cervantes · IDENTIFIED FROM THE TRANSCRIPT
“It could be worse than that. I have no idea. The answer is the issuets and the supply issues, I think are having an impact. To your point, back in July, when I went full bear tard on the long end, depending on the model you want to use is I use the New York Fed ACM term payment model. That risk premium is we're at minus 95 basis points and now they're looking at plus basis points. So you see basically over 100 basis point increase in turn premiums. That is crazy. We have not had those kinds of positive term premiums in I can't remember when I'd have to look up my data set, but it's been probably pre-GFC since we've had or certainly pre 2015 since we've had positive term premiums. We just haven't had them. So this kind of supply, the expansion of deficits, I mean, hands down, it's going to have some impact.”
2023-10-09 · Forward Guidance · Bond Bear Eyes Tactical Long In Treasury Notes | David Cervantes · IDENTIFIED FROM THE TRANSCRIPT
“What about the treasury just issuing too much coupon, too much long duration paper this time around that is some people are saying is causing the term premium to go from negative to positive and treasury yields to skyrocket there were people who like you who have been bearish bonds who say actually i think this ends with like a market accident where the federal reserve has to get get involved You don't think it's that going to be that bad?”
2023-10-09 · Forward Guidance · Bond Bear Eyes Tactical Long In Treasury Notes | David Cervantes · IDENTIFIED FROM THE TRANSCRIPT
“Problem set that hits the economy during a window of vulnerability, then yeah, we can get some kind of recessionary onset or recessionary conditions. But for the most part, I think that the economy has shown itself over time to kind of self-equilibrium.”
2023-10-09 · Forward Guidance · Bond Bear Eyes Tactical Long In Treasury Notes | David Cervantes · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, I mean, look, there's some luck involved and maybe a few people can do it consistently. But I think as a general matter to my framework where the economy self-regulates, it really kind of takes a shot to throw things off. So what's it going to take to change my view? We get what I call a seven stop. A seven stop is what kind of vulnerable emerging market economies experience when capital that feeds their economy suddenly drives up. So let's say you have vulnerable economy that they're borrowing in dollars and they service that dollar debt while when the music stops and the dollars start coming in. Well, then you have a crisis. And obviously we are the reserve currency issuer that we will not have the currency crisis, but we can have a crisis in other ways. So if we get a set of stop and activity, what can cause that war, another pandemic, an energy shock, so we get some big”
2023-10-09 · Forward Guidance · Bond Bear Eyes Tactical Long In Treasury Notes | David Cervantes · IDENTIFIED FROM THE TRANSCRIPT
“Were people who I wasn't one of them, but two years ago who said the 10 years at 2%, I mean, the Fed's at zero, nominal GDP is at 15%. I mean, I didn't make that call. It wasn't an easy call with the benefit of hindsight. It was a very easy call, but obviously very few people made it. But some people made it.”
2023-10-09 · Forward Guidance · Bond Bear Eyes Tactical Long In Treasury Notes | David Cervantes · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, so my framework is the economy left to its own will self-moderate and find an equilibrium. So the forces that the very things that kind of, go back to the analogy of gasoline prices, right? You hear them say, you always hear them say, well, the cure for high gas prices and higher gas prices, the cure for lower gas prices, lower gas prices, right? What does that mean? It means that in a competitive environment things will find their equilibrium. They're too high. Eventually, market forces will bring them back down. If they're too low, eventually market forces will bring them back up. What throws things off and leads to these problems in the business cycle are shocks that we cannot forecast. So I know everyone likes to think that they can get ahead of the curve and say that, oh, I can call the economy in a year, two years from now, then you can't. The best.”
2023-10-09 · Forward Guidance · Bond Bear Eyes Tactical Long In Treasury Notes | David Cervantes · IDENTIFIED FROM THE TRANSCRIPT
“Means nothing. Yeah. The market has no memory. We have memories and we conflict that upon the market, but the market has no memory and doesn't care.”
2023-10-09 · Forward Guidance · Bond Bear Eyes Tactical Long In Treasury Notes | David Cervantes · IDENTIFIED FROM THE TRANSCRIPT
“So that's your so in other words, they should set a target, say it's five percent or four percent, and stick with it 4% would be too real, too inflation, and that's it, boom. We can measure that month to month. And there's any deviations from that. They can use their monetary policy tools to calibrate it in real time or mostly real time instead of futting around with we're targeting real, we get real, then we get adjustments to real six months later, and we get these dots that are way in the future that really are not estimates. They're not forecast, their statements of intent. But again, it's just not real time. So I think if we set a target. If the monetary authority sets a target and hits it consistently, policy will become more credible, the business cycle will flatten out, and I think we'll just all be better off for it.”
2023-10-09 · Forward Guidance · Bond Bear Eyes Tactical Long In Treasury Notes | David Cervantes · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, so that's not the premise. The premise is that monetary policy can't really affect real growth, right? It doesn't really, it can manage the ebbs and flows that lead to real growth, but it doesn't really in the long run really matter. I never said maximize. I said they should target it.”
2023-10-09 · Forward Guidance · Bond Bear Eyes Tactical Long In Treasury Notes | David Cervantes · IDENTIFIED FROM THE TRANSCRIPT
“Yeah. So I look at nominal. I think when here we go through an economics program, the focus is on real. And I think that's important for living standards. That's important for long-term kind of secular public policy issues. But I think for day to day, I think nominal is way underrated. I'm a big fan of ditching inflation targeting by the Fed. They should just get rid of it. They should target nominal GDP, not because nominal bakes in real and inflation.”
2023-10-09 · Forward Guidance · Bond Bear Eyes Tactical Long In Treasury Notes | David Cervantes · IDENTIFIED FROM THE TRANSCRIPT
“I think nominal GDP as a macro target is way underrated. And the reason that is everyone looks at real GDP, everyone says nominal factors in inflation, inflation's bad, and it's not, it's like, well, inflation has its place in a fiat-based economy. We live in a nominal world, not a real world. What does that mean? It means your wages are nominal. What you take home, what you go to the store and pay for gas and food with is nominal. What you go to, how you pay your mortgage, that's a fixed liability. You pay your mortgage with nominal dollars, not real dollars. Yeah, literally everything.”
2023-10-09 · Forward Guidance · Bond Bear Eyes Tactical Long In Treasury Notes | David Cervantes · IDENTIFIED FROM THE TRANSCRIPT
“So, my framework for managing that is kind of the way insurance companies do this. I do have the asset liability approach. So I target certain markers in their life that have defined liabilities that I'm going to try to meet and meet without having to worry about so I can sleep at night. So I don't take a expected return focus. I take an asset liability management focus on that. And that's just, I try to set the weights and let them play out over time.”
2023-10-09 · Forward Guidance · Bond Bear Eyes Tactical Long In Treasury Notes | David Cervantes · IDENTIFIED FROM THE TRANSCRIPT
“But then acid allocation, are you making a decision? Oh, actually, I was 100% in stocks. Now I'll be 90% in stocks, 10% in bonds just because the long-term forward returns for bonds are so much better.”
2023-10-09 · Forward Guidance · Bond Bear Eyes Tactical Long In Treasury Notes | David Cervantes · IDENTIFIED FROM THE TRANSCRIPT
“China for now. It's just such an opaque market. I think if you have good information given what's happened, it might be getting attractive, but I just, I think from a secular story, there have some issues. I think they've had a big pullback post, basically COVID since they've been on the struggle bus since COVID because there's shutdowns. They've got some demographic issues, I think. Like half of their youth is unemployed. People with education can't get jobs. So, you know, the answer is China for me is not an investable market for what I do.”
2023-10-09 · Forward Guidance · Bond Bear Eyes Tactical Long In Treasury Notes | David Cervantes · IDENTIFIED FROM THE TRANSCRIPT
“Most folks are in the US, but I'm liking Mexico has been booming. I like Poland, the story on Poland. I don't know a whole lot about it, but it's something I'll be looking at. Japan, I've been pretty long for a few years now. I told our friends at Wisdom Tree, DXJ, ETF is fabulous because it's a dollar head, so I have to worry about the dollar shenanigans. It's done great. It's beat out the competitor unhedged ETF. So I like Japan a lot. And I think Japan is set for a secular boom after being in a secular bear for 35, 40 years. What about?”
2023-10-09 · Forward Guidance · Bond Bear Eyes Tactical Long In Treasury Notes | David Cervantes · IDENTIFIED FROM THE TRANSCRIPT
“Correction from the July all-time highs represents 17 forward PE. So right around there, I'd probably be willing to take some risk.”
2023-10-09 · Forward Guidance · Bond Bear Eyes Tactical Long In Treasury Notes | David Cervantes · IDENTIFIED FROM THE TRANSCRIPT
“The answer is not a whole lot. I mean, 80% of what I do is asset allocation, 10% systematic rules driven, trend following, mean reversion type trading. It's automated. So only 10% of what I do is discretionary macro. So that takes up obviously the most of my time because it's not automated. But I don't put 80% of my chips are on passive asset allocation. And that's pretty wild diversified. Just set it, forget it, rebalance a couple times a year. And that is what it is. The returns are what they are. And in terms of what I'm looking at, I'd probably be looking to get tactically long equities around mid 3900s level. That corresponds to, I think the average forward PE on equities is around 17.5%. Mid-3900 represents assuming no major changes in earnings. It represents about a 13%.”
2023-10-09 · Forward Guidance · Bond Bear Eyes Tactical Long In Treasury Notes | David Cervantes · IDENTIFIED FROM THE TRANSCRIPT
“Maturity wall that people talk about, I think, is a feature, not a bug, right? Kind of like the way homeowners locked in low mortgage rates where they're not really feeling the pinch because they just have these low mortgage rates locked in the maturity wall, when it comes down to refi, that's a 2025 problem. I mean, for all we know, we can be a recession. And again, it's not a recession call, but this is just a problem that's so far out there that It's just not a factor, in my opinion.”
2023-10-09 · Forward Guidance · Bond Bear Eyes Tactical Long In Treasury Notes | David Cervantes · IDENTIFIED FROM THE TRANSCRIPT
“I'm not really looking at that because, as you said, it's an income driven cycle. So it's not the income is going to drive the cycle. So I'm not really worried about what's happening in the loan world. As far as consumers, their balance sheets are rock solid. I forgot what the number is, but it's a big number of people that don't have mortgages. I think it's 40% that own their house outright, which is crazy. And then for the other folks that don't own their house outright, there's a lot of untapped equity. So if push comes to shove, there's a lot of untapped equity that can be accessed. Now, granted that that cost of equity is not cheap, but the rates where they are, if you had to tap your home for as an ATM, it's going to cost you there will be a haircut, but it's there if you need it. And I think that is.”
2023-10-09 · Forward Guidance · Bond Bear Eyes Tactical Long In Treasury Notes | David Cervantes · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, on the earnings side, things look optimistic, but they're also very concentrated, right? It's all kind of the Mag 7, the technology, a lot of other sectors are not doing so great. So in the aggregate, sure, I think you do have a rosy picture, but if you go beneath the surface and look at the market sectorally, no, it's not so great. But again, I don't consider myself with that. As a macro trader, not really, I'm not really looking to see where healthcare is or where energy is. Yeah, it's just not what I do. I look at the as a macro trader analyst, I look at the aggregates. So in the point, forward earnings are concentrated farther out. And they are what they are and maybe they'll come down. Maybe they'll get maybe they'll go higher. I don't know. But for now, I'm not just given what happened in the rates market. I'm not terribly comfortable being heavily long equities. Maybe that will change.”
2023-10-09 · Forward Guidance · Bond Bear Eyes Tactical Long In Treasury Notes | David Cervantes · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, so for now, I think between rates kind of overshooting to the upside and I expect some slowing in the economy, I think there's an opportunity for me, I am opportunistically long the 10-year. I'm not excited on equities right now because equities, they price in a lot of nominal growth. And if nominal growth is going to slow, then I think equities are going to be probably range bound for now.”
2023-10-09 · Forward Guidance · Bond Bear Eyes Tactical Long In Treasury Notes | David Cervantes · IDENTIFIED FROM THE TRANSCRIPT
“As a trader, as a trader, if I'd say I'm bullish this or bearish that kind of locks you into a narrative, and that's how you lose money.”
2023-10-09 · Forward Guidance · Bond Bear Eyes Tactical Long In Treasury Notes | David Cervantes · IDENTIFIED FROM THE TRANSCRIPT
“It's not really, I wouldn't make it so digital where I'm bullish this negative this. It's more of like I see an opportunity.”
2023-10-09 · Forward Guidance · Bond Bear Eyes Tactical Long In Treasury Notes | David Cervantes · IDENTIFIED FROM THE TRANSCRIPT
“Absolutely, absolutely. But just for the viewers out there that say, well, how am I looking at things? Again, it's not formulaic where I'm looking at A, B, and C. I mean, I'm looking at the mechanical linkages, but things really need to be contextualized. And that's been kind of one of my themes on Twitter where you got to really contextualize things, put them in their proper place with what's happening in monetary policy, fiscal policy, the economy, labor markets, demographics, technology. All these things come into play and we need to kind of have a contextual framework for understanding these things that are happening.”
2023-10-09 · Forward Guidance · Bond Bear Eyes Tactical Long In Treasury Notes | David Cervantes · IDENTIFIED FROM THE TRANSCRIPT
“It's not just really bullish. It's probably borderline inflationary, right? The Fed wants, they want nominal incomes to slow, right? That is part of what they're targeting. So the answer, but get back to your point, yeah, 5% is booming. So I think the emphasis on the overemphasis on rates have change without contextualizing it leads to some bad estimates.”
2023-10-09 · Forward Guidance · Bond Bear Eyes Tactical Long In Treasury Notes | David Cervantes · IDENTIFIED FROM THE TRANSCRIPT
“Nominal spending is nominal income is driving nominal spending, and that is very strong. So getting back to your question, what am I looking at? So in this cycle, I'm looking at nominal spending. I'm looking at nominal incomes. They're doing great. And then we see that expressing the labor market. We got initial claims data. We got continuing claims. I mean, these things are just rocking. So I'm looking at, I guess the way, I guess instead of saying, I look at A, B, and C, and this is always right, this is how I'm going to do it, which is what the indicator crowd gets wrong. I say, okay, I got to line up what I'm looking at with what's happening in reality. Otherwise, the indicator framework, if you don't contextualize it and look for the nuance and know what to look for, you're going to miss the forest with the trees, so to speak.”
2023-10-09 · Forward Guidance · Bond Bear Eyes Tactical Long In Treasury Notes | David Cervantes · IDENTIFIED FROM THE TRANSCRIPT
“If you look beyond the cycle, this is an JCFRAM has done a lot of work on this, and so Justin Wolfer's. But fine, let's just say they weren't real. What drives the economy day to day is nominal spending, not real. When you get a trade wrong right, you settle in nominal. When you make your mortgage payment, you settle in nominal. So fine. Let's just even give the real thing. We'll get that one to go and let it go away.”
2023-10-09 · Forward Guidance · Bond Bear Eyes Tactical Long In Treasury Notes | David Cervantes · IDENTIFIED FROM THE TRANSCRIPT
“Flows in the economy. So we covered the survey, the soft data, why what the problem was there. We covered fiscal policy, why that was stimulative, we covered the yield curve being an indicator but not causal. Yeah, I just really just spent a lot of time looking at things, looking at, in this case, this is this cycle is not credit driven, it's income driven. So the nuance, right? In one cycle, you're going to focus on credit. Another cycle, you're going to focus on income. Another cycle you're going to focus on something else. So in this cycle, I'm focused very much on non total income, nominal spending, nominal wages. Workers saw one of they got a generational boom in nominal and real wage appreciation. Okay, so this is an income-driven cycle.”
2023-10-09 · Forward Guidance · Bond Bear Eyes Tactical Long In Treasury Notes | David Cervantes · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, I mean, for sure. And then also, there were shocks. But I do go back to 81. There was another oil, there was another oil crisis back in 80. I'm old. I'm not that old to have that much recall. But I do remember being a kid going to the store. And my mom, back when this hasn't happened nowadays, but back then, parents sent their kids to the store and said, hey, pick up some milk. And I do remember when I was a kid, I'd lay out a bucket for loaves of bread. And now a year later, you lay out a buck and got two. That is searing to my mind. And it's funny. I think that's why inflation is such a four-letter word, because these experiences, whether you're young or old, kind of like the depression babies, these experiences get really seared into your mind. And so there was a real energy shock that permeated the economy back in the early 80s to your point. But anyway, going back to how do I look at how do I get the emphasis?”
2023-10-09 · Forward Guidance · Bond Bear Eyes Tactical Long In Treasury Notes | David Cervantes · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, and I think one of the times the yield curve could, if it is a false signal, is because rates have gone up so quickly. And you look at like the 210 inversion and it was like 300 basis points of inversion in 1980 or 1981 just because Volker raised interest rates so quickly. So I think that is different. And the long end needs time to adjust and maybe the long end is adjusting now.”
2023-10-09 · Forward Guidance · Bond Bear Eyes Tactical Long In Treasury Notes | David Cervantes · IDENTIFIED FROM THE TRANSCRIPT
“All I'm saying is it's a very powerful indicator, but it's not causal. They're two different things in terms of the mechanics of the economy. It reflects what's happening in the economy. It doesn't cause what's happening in the economy. So anyway, going back to these recession indication with correlation with causality, that right there tells you that the fallacy of composition is real. These models all flat on her face because of that fallacy of composition, of correlation not being causality. And we just had to experiment in real time with it.”
2023-10-09 · Forward Guidance · Bond Bear Eyes Tactical Long In Treasury Notes | David Cervantes · IDENTIFIED FROM THE TRANSCRIPT
“Why is it? I know that with the sample size of so many things, there's obviously going to be one indicator that says, oh, the stars have aligned every time before the president has been elected or something like that. But it is pretty interesting that the yield curves have inverted and then flattened or uninverted before every recession. And normally it is a bull bull flattener. Now we're having a bear steepener, which is interesting. This could be different. I'm not saying you're wrong.”
2023-10-09 · Forward Guidance · Bond Bear Eyes Tactical Long In Treasury Notes | David Cervantes · IDENTIFIED FROM THE TRANSCRIPT
“Just go back to every recession. Well, the last one we had was obviously pandemic. So you'll curve the noon invert. Actually, there was a slight inversion. Yes, slighted version 2019. But lasted for, it wasn't persistent. I think it lasted for a few weeks. It was not persistent. And you can make the argument that had to do more with the refo market back in August of 2019. So, yeah, it inverted for a few weeks. And then if you go back to the housing crisis, that was really a financial panic because the banks are effectively bankrupt. And then you had oil at 140 and the Fed was panicking thinking that this 140 oil would turn into inflation when in fact the Fed should have been cutting, not raising rates back in 2008 or 7. But you can look at every single recession and sign external shocks. The economy was probably slowing, but then you had kind of a window vulnerability.”
2023-10-09 · Forward Guidance · Bond Bear Eyes Tactical Long In Treasury Notes | David Cervantes · IDENTIFIED FROM THE TRANSCRIPT
“And thinking that the yield curve is causal when the yield curve is not itself monetary policy, it is a part of monetary policy. So why is”
2023-10-09 · Forward Guidance · Bond Bear Eyes Tactical Long In Treasury Notes | David Cervantes · IDENTIFIED FROM THE TRANSCRIPT
“I'm not worried about a recession in the next three to six months is the answer. Okay. A slowdown the answer is yes. I don't see a recession. A lot of these recession forecasting models are heavily, heavily weighted on the yield curve. You take them apart, you look at the yield curve as an input. And to your point, it's a sample of n, I don't know, n of seven and of six, whatever. The yield curve is a signal. It's not causal. The yield curve, an inverted yield curve does not cause recessions. Inverted yield curve tells us where inflation and the policy rate is today and where it's likely going to be tomorrow. That is it. What it does not cause a recession. Now, do you, you know, because that goes back to my premise that rates are not monetary policy. Rates are a part of monetary policy. There are other inputs into monetary policy. So there's kind of a”
2023-10-09 · Forward Guidance · Bond Bear Eyes Tactical Long In Treasury Notes | David Cervantes · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, I think it'll be a fiscal drag. I have no idea what it's going to be, but it's not the impulse will not be as strong. And that kind of bakes into my call for slowdown going into the year and maybe the first few weeks, maybe month of Q1 next year. So the answer is I don't know the number. I know it's smaller. So again, as a trader, I don't want to get bogged down in all these little details, but I want to get bogged down is what's moving and when is it moving? That's how I make money. That's how I make money.”
2023-10-09 · Forward Guidance · Bond Bear Eyes Tactical Long In Treasury Notes | David Cervantes · IDENTIFIED FROM THE TRANSCRIPT