YouSaid · the spoken record

David Hay

lines on the record: 91
first: 2023-03-09
most recent: 2023-03-09
sittings or episodes: 1
sources: podcast

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“really aren't any direct ways to play that publicly. I have invested personally in a private company called Micronuclear that's a bunch of ex-Navy nuke guys because if you think about it it's been used so successfully and safely to propel aircraft carriers and subs going all the way back to the 1950s so it's a proven technology and this particular company has been able to take that basic technology and improve it and eliminate some of the vulnerabilities, but it's also very efficient in terms of recycling the nuclear fuel at the end of the 10 year battery life but it's it's high risk I mean there hasn't been a single small modular nuclear reactor that's gone into the field talking about actually into operation to be able to prove do what they call first fission so it's it's been a very difficult a lot of it's because the regulatory opposition”
2023-03-09 · Forward Guidance · Does Powell Mean Business? | David Hay · IDENTIFIED FROM THE TRANSCRIPT
“Basically, is my point about removal. One of the tragedies of this, and you're certainly aware of this, Jack, is what's happening to coal demand. Coal demand is at an all-time high level. And there's no, well, there's one dirty reform of power than coal, and that's wood, which Europe is burning like crazy importing it from the United States and burning it over there. And that emits even more influence into the atmosphere. And if we had natural gas, which that's how the U.S. air quality has improved 75% over the last 50 years, you can go to the EPA website and see that. And a lot of that is because we've shifted heavily from coal to natural gas in this country. But the rest of the world, unfortunately, is heavily embracing coal right now. That's not good.”
2023-03-09 · Forward Guidance · Does Powell Mean Business? | David Hay · IDENTIFIED FROM THE TRANSCRIPT
“There's no perfect form of energy, even nuclear, which has certainly got the best bang for the buck, is not perfect, but it has a lot of attractions. And one of the things that's becoming, I think, getting ready for prime time are small modular nuclear reactors, which eliminate a lot of the issues with nuclear power and even the Biden administration with the IRA, the so-called Inflation Reduction Act, is allocating significant money that direction. And that is, as I said earlier, a radical shift. But in general, I think that whenever you're going from a more energy-dense source to a less energy-dense source, you are creating inherent inflation. And you're also creating lack of reliability. So you have to have backup, and that's kind of the dirty little secret of a lot of renewable energy is that it needs to have a natural gas backup for when it doesn't function. It doesn't really work great for”
2023-03-09 · Forward Guidance · Does Powell Mean Business? | David Hay · IDENTIFIED FROM THE TRANSCRIPT
“Power sources is so many of the critical inputs come from China, very reliant on China. And that's a scary thought. And then you've got the cobalt issue and all the human. The human downside of the way cobalt is mined with the exploitation of a lot of young miners over in Africa.”
2023-03-09 · Forward Guidance · Does Powell Mean Business? | David Hay · IDENTIFIED FROM THE TRANSCRIPT
“I think it is true if you got prices up really, really high that that would tend to encourage people to shift more to EVs, for example. But EVs have got some serious challenges. And I think the biggest challenge the EVs really have is the grid and the fragility of the U.S. grid, which is getting more so all the time. And so if you're going to put millions and millions of additional EVs on that grid, it's going to become out more frequently. And then people are going to be unhappy if they can't charge their car. And if you've got solar panels on your house and you're kind of off grid, I think an EV makes a lot of sense. But that's a pretty expensive proposition. The other challenge with a lot of the renewable”
2023-03-09 · Forward Guidance · Does Powell Mean Business? | David Hay · IDENTIFIED FROM THE TRANSCRIPT
“David, earlier you mentioned how the move to sustainable energy, green energy, wind, solar is inflationary. And this sort of green inflation argument is one that I've been following for a while and I'm really interested in. typical argument that you'll hear, David, is that, oh, if we have a supply crisis in oil, the price of oil goes to 200 bucks, that is going to incentivize people to move away from oil. So they'll sell their Jeep and they'll buy a Tesla. To what degree is that true? And what does that miss?”
2023-03-09 · Forward Guidance · Does Powell Mean Business? | David Hay · IDENTIFIED FROM THE TRANSCRIPT
“Well, yeah, the utilities, I think that's just too indirect a play. The miners are a very direct play. They're actually usually a more leveraged play on rising uranium prices, but they're high right now. They don't look like a great bargain. It's very different than, say, with gold miners where they had a nice rally and then they've been pounded again for the energy companies where there's been a pretty big correction of late. So I think there will be an opportunity. Camico tends to be our go-to name in that space, but it's just a bit pricey right now. So that's why I think the actual uranium itself looks like it's got a better risk reward profile.”
2023-03-09 · Forward Guidance · Does Powell Mean Business? | David Hay · IDENTIFIED FROM THE TRANSCRIPT
“And so they're uranium miners that some stocks trade publicly. And then there's the physical commodity, which you can invest in via the Sprott Trust, which you mentioned. Why do you prefer, it sounds like you prefer investing in the physical trust? Why do you prefer that over the miners or maybe the utilities?”
2023-03-09 · Forward Guidance · Does Powell Mean Business? | David Hay · IDENTIFIED FROM THE TRANSCRIPT
“I think that one's going to explode on the upside at some point here fairly soon. Nuclear power is seeing a real renaissance. And even the US, even the Biden administration is starting to get behind nuclear power. That's quite a turnaround.”
2023-03-09 · Forward Guidance · Does Powell Mean Business? | David Hay · IDENTIFIED FROM THE TRANSCRIPT
“Four as natural gas collapsed in price, got up almost 10 in the US last year. It came down hit two here recently. So that's a monster decline, but it is fortunate we got that one right a couple weeks ago and are making Hey Monday or almost Monday was right after President's Day, but it rallied about 30% almost overnight. So I agree with your basic thesis that we're going to see these commodity prices surge again and that that's going to create a real difficult situation for the central banks where they're looking at rising energy prices even as the economy is weak. And that's what you get. I mean, pretty much all commodities we've had a big underinvestment in them for years and years and years. And you brought up nuclear and uranium is one of my favorite plays. And a lot of people think, well, there's no way to invest in that, but there actually is. There's a very easy way to do that through the sprite physical uranium ETF, which you probably know about in track.”
2023-03-09 · Forward Guidance · Does Powell Mean Business? | David Hay · IDENTIFIED FROM THE TRANSCRIPT
“Thumb the nose at the west type of thing since they've got all kinds of restrictions. And you've got Europe consuming more oil to replace more expensive forms of energy, and that's very unusual. And you've got OPEC cutting. So you've got the IEA, which is international energy agency or administration, which has for years underestimated demand, said that even with a recession this year, they think the demand for oil is going to be about 102 million barrels a day. That's likely more than the world can produce. And you've had years and years and years of CapEx starvation in the energy world so that that's going to come home. The fact that you just have not, we have not globally invested enough in oil production is going to bite and bite pretty hard at some point.”
2023-03-09 · Forward Guidance · Does Powell Mean Business? | David Hay · IDENTIFIED FROM THE TRANSCRIPT
“You're exactly right. I mean, I think that's why this could be a stag flatry environment similar to the 1970s, where you had a couple of pretty nasty recessions in the 70s, but you had, for the most part, commodity prices rising. Now, they did have some short-term declines, just like we've had recently. But the trend was up through most of that decade. And if you want to talk about oil, I mean, oil inventories look so low despite the release of millions of barrels of the strategic petroleum reserve, which is now the lowest it's been in forty years. And then when you look at that adjusted to how many oil usage is up something like 60, 70 percent over the last 40 years, so as a percentage of consumption, it's shockingly low. So you're right, you've got China reopening and China being offline mostly last year was about a million and a half barrel reduction. You've got Russia cutting production voluntarily as kind of their”
2023-03-09 · Forward Guidance · Does Powell Mean Business? | David Hay · IDENTIFIED FROM THE TRANSCRIPT
“The situation over the next 12 months, David, as you describe it, it already sounds pretty dicey, but we haven't even talked about something else that I'm going to throw in now, which is the potential that commodity prices re-accelerate as China reopens and the fact that you can be in a recession and the price of oil can double. What are you seeing there? I know you spend a lot of work focusing, you talked about the green energy transition, how that could be inflationary, as well as nuclear energy. So, you know, whether it's uranium, natural gas, oil, copper, what do you think there? And how does that affect the inflation picture?”
2023-03-09 · Forward Guidance · Does Powell Mean Business? | David Hay · IDENTIFIED FROM THE TRANSCRIPT
“I think the trend is still up. I mean, I was pretty skeptical. I mean, kind of talk in my book, I have maintained a pretty big futures book, and I increased my Treasury short position here recently when they were down more three and a half on the tenure. So, yes, I think the trend is up right now in rates, how long that's going to continue. That's the hard part. I do think that the system is fragile, and I think there is, you know, everything's become so financialized and so leveraged, so higher interest rates probably are going to bite pretty hard. And I think that's why you're starting to see some of these blow-ups and the commercial real estate market, because that was the one that was probably the most vulnerable.”
2023-03-09 · Forward Guidance · Does Powell Mean Business? | David Hay · IDENTIFIED FROM THE TRANSCRIPT
“And short term, do you think they're going higher or lower? Because I don't know if bond yields can rally yields can go down on the 10-year, let's say, as the Federal Reserve is hiking. That's pretty hard for it to happen.”
2023-03-09 · Forward Guidance · Does Powell Mean Business? | David Hay · IDENTIFIED FROM THE TRANSCRIPT
“Commercial real estate area, but also single family. And then you look at multifamily, lots and lots of overbuilding has happened of apartment buildings. So rents are starting to fall. And that's a good thing. That's going to help to diminish inflation. So there are some positives out there for inflation for sure. But I think the safer way to play the bond thing is to look at some corporates where you get more of a yield pickup and where you can keep your matrudities a little shorter than I just don't think buying a 30-year treasury in this environment other than for a trade. And I do think there are going to be some trading opportunities with longer-term treasuries. And if we really got rates up enough here over the next month or two, there could certainly be a tactical buying opportunity on long treasuries, but I don't think it's the typical playbook. And again, I realize that's hazardous to say.”
2023-03-09 · Forward Guidance · Does Powell Mean Business? | David Hay · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, well, that's exactly what's really the, I mean, it's so dangerous, as you know, in our business to say this time is different because it very rarely is. So I'm making the argument that this time is at least a little bit different just because I think you're going to have a massive flood of supply of new treasury debt. And it's not just the treasuries. David Rosenberg, very, very bright economist, probably the most famous economist in Canada has pointed out the private sector in the U.S. has a trillion dollars of debt that needs to be rolled over over the next year. You combine that with all the money. A lot of that's mortgage debt, and it's included in the commercial real estate space, which to me looks like an escalating disaster, just a blackstone announced that their defaulting on a $500 million real estate loan. And Pimco just took a $1.3 billion, over a billion dollar hit anyway on a real estate deal. You're starting to see some real chickens come home to roost in that.”
2023-03-09 · Forward Guidance · Does Powell Mean Business? | David Hay · IDENTIFIED FROM THE TRANSCRIPT
“Right. And if a recession is going to happen, the playbook for macro investing is easy. Buy bonds. But you said, unlike other times in your career, you are not buying bonds. Recessions cause inflation to fall. Sometimes they cause deflation, right? Why is this so different?”
2023-03-09 · Forward Guidance · Does Powell Mean Business? | David Hay · IDENTIFIED FROM THE TRANSCRIPT
“I think we're not. I think we will because you've got a deeply inverted yield curve. A lot of people, and maybe I should stop and explain that because a lot of times I say yield curve and people say, what's he talking about? Yule curve? Is this like Christmas? No, YLD. So like the interest rate curve, yield curve, and when it's inverted, that means short-term rates are higher than long-term rates. That's not the way it normally is. And right now, it's very inverted. So you go out one year on a T-bow, you get over 5%. If you go out 30 years on a treasury, it's about four. That's a deep, deep inversion. So it's not, I think it's a little simplistic just to talk about whether the yield curve is inverted or not. I think the depth of it is quite meaningful. And then you've got money supply, absolute collapsing. So the invers of what we had after the pandemic. And you've got the leading economic indicators down for 10 months in a row. Those things have got pretty much flawless records of predicting recessions. So that's why.”
2023-03-09 · Forward Guidance · Does Powell Mean Business? | David Hay · IDENTIFIED FROM THE TRANSCRIPT
“Point it starts to bite because what you start seeing is falling asset prices. You start to get asset deflation. And clearly housing prices are falling. Housing prices in the U.S. are down about 13%. You can say, well, that was off a crazy peak last year, but still they're falling. Stock prices have obviously been falling. Bond prices have been falling. It was the worst year last year for a balanced portfolio since 1871. That's kind of a long time. So as people take hits with their assets, then they tend to spend less. You know, you've got these crosscards. There's so many crosscurrents out there right now. It's probably one of the most muddled situations that I've ever seen. And I just actually, we do this newsletter on Mondays called Making Hey Monday. It's free. You can go to our Haymaker website of SubStack and you can sign up for it. But I did a T-chart of looking at, we'll have a recession, won't have a recession. And a lot of these won't have are coming from our partner for McGaukao. Some of the bright people at Gau.”
2023-03-09 · Forward Guidance · Does Powell Mean Business? | David Hay · IDENTIFIED FROM THE TRANSCRIPT
“And I think people are waking up. There's a kind of a mass exodus out of banks and money funds, low-yield money funds, sweet money funds into things like one-year treasuries or money funds that have a rate closer to that. So as that happens, all as that money shifts, and all of a sudden people are getting much more income from their portfolio, from their savings, that theoretically creates more spending power. I don't think it's really very theoretical. So that in a way could actually be supporting inflation on a near-term basis. So it is a little bit, you can say, well, that's a lag. Eventually, it's going to catch up, and then the higher interest rates are going to bite, which I do believe. I just don't know how high they have to get. I think we could see 6% on the Fed funds rate. And that still would be kind of around the current inflation rate. Now, again, if you normalize and say, well, I think it's more like three to four, then it is a seriously real interest rate.”
2023-03-09 · Forward Guidance · Does Powell Mean Business? | David Hay · IDENTIFIED FROM THE TRANSCRIPT
“Well, that's a really good question. I don't think it gets enough attention because if you think about it, as these interest rates have gone from basically zero to 5%, I mean, if you're sitting in cash at a bank right now, unless you're going to spend it tomorrow, you're pretty crazy. You really need to get there because the banks are paying still nothing.”
2023-03-09 · Forward Guidance · Does Powell Mean Business? | David Hay · IDENTIFIED FROM THE TRANSCRIPT
“Europe got to almost $600 equivalent in barrel oil barrel terms. So unbelievable, but it's collapsed. A lot of commodity prices have collapsed. And yet we still have a fair amount of inflation and uncomfortable level of inflation. And that's because it's spread to that services area and people are getting wage increases. inflation is still running higher than the wage increases so people are actually losing purchasing power that's one of the insidious things of inflation you create kind of this illusion of prosperity but you know we all know how high prices have been at the grocery stores”
2023-03-09 · Forward Guidance · Does Powell Mean Business? | David Hay · IDENTIFIED FROM THE TRANSCRIPT
“To a lot of people think that's what led to the eventual downfall of the French aristocracy and the French Revolution. So this MMT thing isn't new, but it's new to America. I mean, we didn't think we would be engaged in what are basically we used to consider Banana Republic types of fiscal and monetary policies. But it clearly created a lot of inflation. When you say, was it supply chain? Was it money supply? I'd say it was both. And the combination turned out to be extremely inflationary. And we're still dealing with that. There's kind of that residual inflationary pulse that's in the system right now that's proving to be much harder to get down than people believed. And I think it's really pretty remarkable, I said earlier, when you've got commodity price. I mean, natural gas at one point a week or so ago was down 75% from the peak here down even a greater percentage overseas, but still higher than here because natural gas, if you can believe this.”
2023-03-09 · Forward Guidance · Does Powell Mean Business? | David Hay · IDENTIFIED FROM THE TRANSCRIPT
“Well, I'm Stephanie Kilton's probably the most articulate advocate of MMT, and initially after COVID, she was thrilled with how it was working. And then as inflation started to rear its ugly head, she said, well, you know, they really did it wrong. Frankly, I think they did it exactly the way she wanted it to be done. But I think that's just the reality of these types of monetary policies. And it's not the first time MMT has been tried. It goes back for thousands of years, but certainly centuries because you could go back to France before the revolution. So back in the early 1700s, when they first got into trouble, fiscal trouble over there, the guy named John Law from England came over and said, you need to do this thing where you have the central bank buy up your government debt and drive interest rates down. And basically what we did, and it created a tremendous asset boom in France in the early 1700s. And then, of course, it popped.”
2023-03-09 · Forward Guidance · Does Powell Mean Business? | David Hay · IDENTIFIED FROM THE TRANSCRIPT
“I think a cortonet of modern monetary theory, which I'd love to discuss with you, is about that. It's saying, oh, people are saying that we borrowed a trillion dollars and that's a problem. It's not an inherent problem. We are creator of our own currency. It's only a problem when inflation is here. And I actually found that argument very convincing. However, now there are people who, the same people who taught me that, I now see them saying, oh, no, no, no, no. But the inflation this time around, it's not because we're spending too much money. It's because of supply chain things. So do you think modern monetary theories have kind of departed a little bit too much from their own core tenets?”
2023-03-09 · Forward Guidance · Does Powell Mean Business? | David Hay · IDENTIFIED FROM THE TRANSCRIPT
“This at some point. I didn't know it was going to be soon, but when we do, the Achilles heel is going to be inflation. And sure enough.”
2023-03-09 · Forward Guidance · Does Powell Mean Business? | David Hay · IDENTIFIED FROM THE TRANSCRIPT
“About $4 trillion, pretty much dollar for dollar with what the government's deficit spending was at that time. So the Fed was literally doing debt monetization. And you're exactly right that it was different because they were sending out these trillions of dollars of stimulus checks to people. And a lot of that money got spent. Not all of it. There's still a decent amount of money that's on the sidelines that the consumer savings rate has come down, but the stock of savings is still quite high. You had all that money in the system and it was getting spent. So that's why we got the real inflation this time as opposed to before. It was really asset inflation. That's where those ocean liners, QE1, QE2, QE3, and actually unofficially QE4 in September 2019, those mostly kind of found their way into real estate stock prices. But this one was truly an implementation of modern monetary theory. And I mean, I was writing about that back in 2019 in my newsletter saying we're going to do.”
2023-03-09 · Forward Guidance · Does Powell Mean Business? | David Hay · IDENTIFIED FROM THE TRANSCRIPT
“Well, I think it's a fiscal funding crisis that because we have the world's reserve currency and the feds got their magical money machine, we will not default. So I'm not saying we will default. I mean, the debt ceiling thing, that is a, I mean, I guess it could create a technical default on a short-term basis, but I think the political pressure will be so severe that they will figure out another can kicking type of maneuver. But I think you're right that these deficits have been going on for a long time. The government, the federal government's ability to get by with their various tricks is pretty amazing. But we've never seen this set of circumstances. Just like we were saying earlier, we never saw, even though the Fed had created a lot of money before the pandemic, it was a slower rate for one thing, spread over many years instead of basically over a year, year and a half where they printed up whipped up.”
2023-03-09 · Forward Guidance · Does Powell Mean Business? | David Hay · IDENTIFIED FROM THE TRANSCRIPT
“Who didn't lay people off in 2020, you can get a tax rebate, or we're talking many thousands of dollars. Tell us about the fiscal nature because the US government deficits are very large. They were large 10 years ago. Even more large. People said they were unsustainable then. And sorry have proven to be unsustainable. Why are they unsustainable now?”
2023-03-09 · Forward Guidance · Does Powell Mean Business? | David Hay · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, so much there. So just on the money printing point, the facts are the facts, whether people call it money printing is a semantic term, but the Federal Reserve Expanded their balance sheet a lot in 2008, 2009, 2010, 2011, QE 1, 2, 3. And people were saying, oh my God, this is going to cause so much inflation. It didn't. And the price of gold exploded. It didn't last because the government wasn't using the enhanced liquidity in the bond market to issue trillions of dollars of bonds to give it, send it out in checks. So it didn't really create a lot of inflation. On the margin, maybe a little bit, basis point here, basis point there. Yeah, there was a lot of money printing in 2020, and it wasn't just the Federal Reserve, it was the government printing money, borrowing it, and then borrowing it from JPMorgan, primary dealers who were then selling it back to the Federal Reserve. So, you know, people can draw their own conclusions. And then the commercial banks as well, they printed a lot of money because loans would get forgiven under PPP. And you're still seeing ads for, are you a small business owner?”
2023-03-09 · Forward Guidance · Does Powell Mean Business? | David Hay · IDENTIFIED FROM THE TRANSCRIPT
“They're more expensive. So I think we're going to see, I believe for quite a while, we're in the third energy crisis, the first two being in the 1970s. I think we're still in that energy crisis. I think Europe's going to have another series of shortages coming up. So I think that's going to create kind of secular sticky inflation there. But you've also got reshoring. I mean, just look what's going on here with Taiwan Semiconductor and all the pressure they're under because they're admitting that with this new plant they're building in Arizona, their costs are going to be much higher. And that's just one example. So I think there's a number of secular structural, long-term, whatever term you want to use, inflation drivers.”
2023-03-09 · Forward Guidance · Does Powell Mean Business? | David Hay · IDENTIFIED FROM THE TRANSCRIPT
“And it turned out to be anything but transitory. And now you've got the supply chains largely opened up, not fully, but largely, and you've got falling prices for a lot of goods. And yet you've still got fairly high inflation. And that's because it's now gone from goods inflation, which was primarily right after the pandemic, into services inflation. And so people are getting wage increases, even in Japan, both places. Biggest wage increases in decades in Japan. So that's when you get this kind of self-reinforcing inflationary cycle. But I also think one of the really underappreciated drivers of inflation long term is what I call the great green energy transition, which is this shift from higher density energy like fossil fuels and nuclear, though we should probably come back to nuclear because that's seeing a renaissance. But trying to go to renewables, renewables have a place for sure, but they are intermittent and they do have less energy density.”
2023-03-09 · Forward Guidance · Does Powell Mean Business? | David Hay · IDENTIFIED FROM THE TRANSCRIPT
“Certainly the reason inflation went absolutely ballistic. And that was something I started saying in late 2020, early 2021, is we were going to give a lot of inflation. My main reason for that was because alluding to what you touched on, we were actually invoking modern monetary theory, MMT. It was different than with QEs 1, 2, and 3 in the COVID bailouts. We were, the Fed was printing up trillions from their magical money machine, but the government was spending it. They were sending it out to people, which was radically different than what had happened after the Great Recession and the global financial crisis. So that, combined with legitimate shortages. So you created all this money, all this demand, and then you restricted supply. No wonder we had just breakout inflation, the money supply at one point was up 40% in a relatively short period of time, not much over a year. So the money supply absolutely exploded. A lot of people said, oh, no, we're not going to get inflation, as you know. JPAL's had transport.”
2023-03-09 · Forward Guidance · Does Powell Mean Business? | David Hay · IDENTIFIED FROM THE TRANSCRIPT
“And you said inflation is going to be stickier. Why do you think that? And what do you think the cause of inflation is? Is it supply chain issues? Is it money printing? Both, neither, what do you think? And how does that affect your view on whether inflation will be sticky, which you said you think it will?”
2023-03-09 · Forward Guidance · Does Powell Mean Business? | David Hay · IDENTIFIED FROM THE TRANSCRIPT
“And this reminds me a lot of that, except in many ways worse, because we have so much more debt in the system now than we had then. So it's a pretty rough setup, frankly.”
2023-03-09 · Forward Guidance · Does Powell Mean Business? | David Hay · IDENTIFIED FROM THE TRANSCRIPT
“And you've got the Fed going from buying a trillion dollars a year of treasuries to selling a trillion dollars a year of treasury. So that's a $2 trillion delta right there. You've got foreign central banks selling. You've got the Social Security Trust Fund that needs to sell because they're no longer getting enough revenues to pay up to cover the payouts. So you have all these different sources of supply coming at the same time. And that's why you think you could actually have rising rates even as the economy goes into a downturn, which is very unusual. Now it may not happen as kind of a controversial call, but there's definitely a risk of that. I do think that we are at a period of long-term higher inflation, stickier inflation. And I think that's going to keep interest rates higher for longer than a lot of the bulls would like to see. It's kind of a messy situation. To me, it looks stag inflationary. I'm old enough to remember the 1970s. I bought my first stock in 1971. I got into business in the late 70s. So I remember that period very vividly.”
2023-03-09 · Forward Guidance · Does Powell Mean Business? | David Hay · IDENTIFIED FROM THE TRANSCRIPT
“Well, complex but great questions. And I want to preface my response by saying that basically from nineteen eighty one when I've been in the business a couple of years up until kind of the summer two thousand, I was 2020, sorry, right after the pandemic. So for that 40 years basically, I was a pretty much always a bond market bull. Sometimes I would become apprehensive late in an economic cycle and shorten duration. But whenever you got an inverted deal curve, which we've had a number of over that four-year period, I would extend maturities. I'm not doing that right now because I do think this time is probably different. So that's, and I guess the question is, why do I think it's different? I think it's different because of the fact that we could have interest rates rise during a recession. And the reason I think that could happen is because there is a, you know, already the federal deficit is erupting.”
2023-03-09 · Forward Guidance · Does Powell Mean Business? | David Hay · IDENTIFIED FROM THE TRANSCRIPT
“So, today we had inflation come out of Europe at a 5.6% and some people will say, oh, well, that's just because of natural gas and energy. No, that's core. Excluding energy and food. So the energy crisis can no longer be pointed at as a sole culprit for inflation in Europe. That argument to me is done. And yeah, and so as expected, European interest rates are exploding higher. And we have this phenomenon where, oh, I can get three year on the German Bund. Oh, I'm going to sell my treasury. So now treasury yields go higher. Now the Bank of Japan has to finally capitulate. I mean, do you think that we are in a period of secularly rising interest rates? In other words, will the bond bull market from 1980 to 2020? Is that over the trend line is finally broken and the next 10 years are interest rates are going to be high, 10%? Who knows? Or is this just a blip and nope we're going to negative rates again?”
2023-03-09 · Forward Guidance · Does Powell Mean Business? | David Hay · IDENTIFIED FROM THE TRANSCRIPT
“That January data, whether it was the jobs number, which as you know, was very strong over 500,000 new jobs supposedly created. I put the emphasis on supposedly and very strong retail sales, and I put the emphasis on supposedly in that case too. Because I just don't think the economy is as strong as those numbers indicate. So that's kind of fooling the Fed into feeling like they need to be tighter than they are already. And you're seeing the financial markets react negatively, which in turn creates more tightening, right? asset prices fall, that's a form of tightening.”
2023-03-09 · Forward Guidance · Does Powell Mean Business? | David Hay · IDENTIFIED FROM THE TRANSCRIPT
“I don't think long term, but I do think they're probably going higher near term. So there's a pretty intense debate about our interest rates truly high in real terms. And that's, of course, a very difficult calculation because which inflation rate do you use if you use the CPI, you go, well, hey, real rates are actually negative, especially on the longer end of the curve. But if you use more of a normalized CPI, not even the Fed's 2%, but 3% to 4%, then you are starting to get some real interest rates for the first time in many, many years. But the reality is they've gone up substantially, as you pointed out. I mean, tenure got down around 340 not too long ago, and it's back up over 4 today. That's a huge move. Two years had an even bigger move off the bottom. And there's a lot of upward pressure. And it is globally too. It's not just in the US. So rising interest rates are a big deal. I think the Fed and the markets kind of got fooled by.”
2023-03-09 · Forward Guidance · Does Powell Mean Business? | David Hay · IDENTIFIED FROM THE TRANSCRIPT