YouSaid · the spoken record

George Robertson

lines on the record: 144
first: 2024-08-12
most recent: 2024-08-12
sittings or episodes: 1
sources: podcast

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“That ends up with a death pyramid, which almost has a certainty to it that it will collapse. And that's a crash. Now, I think everything we're talking about now, I don't even people remember what we said 15 years from now. The US is very strong. It's getting stronger. It's huge. It has seniority. It's risk-free. There's absolutely no question that the U.S. is going to survive all this stuff. If not even realize what the hell we're talking about. And there'll be a Marjorie Green in the Congress. 15 years from now only will be a different person. But every bit is goofy. Every bit as whatever you might want to ascribe our values to.”
2024-08-12 · Forward Guidance · Deficit Spending Will Send S&P 500 To 6,000 And Beyond | George Robertson & Mel Mattison on the True Risk-Free Rate and The Fed's Control of The Treasury Market · IDENTIFIED FROM THE TRANSCRIPT
“Misky words that's a Ponzi stage. And we get, and then at some point there's a change from debt just to finance equity with sort of an asset liability balance, although it's pretty spooky. But that is a mania. And then it carries on so that debt starts to be required just to finance debt. Equity has a duration of like, you know, I don't know seven to 15 years. The debt financing is usually just overnight or just very short term. So as people have to roll and then also the institutions who made this loan have to borrow.”
2024-08-12 · Forward Guidance · Deficit Spending Will Send S&P 500 To 6,000 And Beyond | George Robertson & Mel Mattison on the True Risk-Free Rate and The Fed's Control of The Treasury Market · IDENTIFIED FROM THE TRANSCRIPT
“It will be. But I see that as a speculative phase in the standard Minskian type of terminology. I use Minsky because it's pretty clear and I'm not bright enough to think otherwise. Once that starts, I disagree with you that the supply of equity never determines equity value. It might have a short-term setting, but what terms equity value is the amount of, I'm not going to say liquidity, but what determines it is the amount of debt, the amount of financing that's available to go from a hedge position to a speculative position to then a, you know, I can borrow whatever amount I want to go buy as much equity as I want or any risky asset and therefore keep up with the guys at the cocktail party who are all bragging about how much money they made over the last two weeks.”
2024-08-12 · Forward Guidance · Deficit Spending Will Send S&P 500 To 6,000 And Beyond | George Robertson & Mel Mattison on the True Risk-Free Rate and The Fed's Control of The Treasury Market · IDENTIFIED FROM THE TRANSCRIPT
“I cringe a little bit. I'm not super bullish on equity. I just think equity's gap or discounting to the economy, which is based pretty well solely on an understanding of the Federal Reserve ability to tighten, or they will tighten in the future trust us. That is no longer, so therefore the equity market is just going to resume where it should be in terms of valuation, you know, normal valuation to the economy. The one thing equity has always done is it's either grossly undervalued or grossly overvalued. It never just hangs out as for my understanding of NGDP. or any variable we want to look at so therefore this correction or realization that the fed has decided not to do be a monetary agency anymore will end with what looks like a”
2024-08-12 · Forward Guidance · Deficit Spending Will Send S&P 500 To 6,000 And Beyond | George Robertson & Mel Mattison on the True Risk-Free Rate and The Fed's Control of The Treasury Market · IDENTIFIED FROM THE TRANSCRIPT
“And one hallmark of a bubble is limited supply, at least for a time. And one thing I said, you know, I've been saying over the past year is that there is not a huge amount of IPOs or SPACs or company going public. So this demand for stocks can only go into the stocks that already exist. And there are fewer stocks now than there were in 2000. In 2021, I think what pricked that bubble, and I do think it was a bubble, was this huge amount of spacs and supply and these really low quality companies went public at 10 billion dollars and soaked up all that money. We're not seeing that yet. And maybe, you know, stocks won't decline until we really see that IPO window happen. George, do you agree with Mel that this will be a bubble and that you're super bullish on stocks for now, maybe the next year, few years, but that ultimately this will end in tiers.”
2024-08-12 · Forward Guidance · Deficit Spending Will Send S&P 500 To 6,000 And Beyond | George Robertson & Mel Mattison on the True Risk-Free Rate and The Fed's Control of The Treasury Market · IDENTIFIED FROM THE TRANSCRIPT
“You know, artificial buyers in the market. So that's the structural part. And then I do agree with you on the human nature psychology part, right? Like, I mean, look at how you're talking about a lamb bubble, the Australian lamb bubble, Florida lamb bubbles. You could talk about, you know, the 1929 stock market bubble. You could talk about the tulip bubble in Holland. All of these bubbles, they tend to have a certain pattern to them. They tend to, like I said, have a very big psychological component. And that's why I also see the psychological component kind of having the seeds of the ultimate bubbles decline is that all of a sudden people are going to say, oh my God, this is ridiculous. Why am I paying $36 times for the S&P 500 earnings? This is crazy. And then once that money starts coming out, it starts feeding upon itself. And so this is really kind of human.”
2024-08-12 · Forward Guidance · Deficit Spending Will Send S&P 500 To 6,000 And Beyond | George Robertson & Mel Mattison on the True Risk-Free Rate and The Fed's Control of The Treasury Market · IDENTIFIED FROM THE TRANSCRIPT
“I think it's human nature combined with the incentives that you see in place in financial markets. So if you're like a portfolio manager and you've been bearish and now you're getting fired or you haven't owned Nvidia. And so I talked about the payroll deductions. So I think we have a we don't have a market like we had, say, 100 years ago where you had this kind of small cohort of investors that were working at banks and investment houses that were partnerships with their own capital and their own money saying, what do I really want to pay for a revenue stream of future earnings? What's a good price for that? We have a whole bunch of massive forces taking place that are essentially creating the”
2024-08-12 · Forward Guidance · Deficit Spending Will Send S&P 500 To 6,000 And Beyond | George Robertson & Mel Mattison on the True Risk-Free Rate and The Fed's Control of The Treasury Market · IDENTIFIED FROM THE TRANSCRIPT
“And why do you think this has to be a bubble? Why can't the market rise in line with earnings expectations? Why do valuations have to get so extreme? Is it just human nature and ultimately collapse? Is it just human nature?”
2024-08-12 · Forward Guidance · Deficit Spending Will Send S&P 500 To 6,000 And Beyond | George Robertson & Mel Mattison on the True Risk-Free Rate and The Fed's Control of The Treasury Market · IDENTIFIED FROM THE TRANSCRIPT
“Bit more granular, talk about a stock sector ETF like XLI, the industrial, you know, that's been in a bit of a consolidation phase. We've seen gold in a bit of a consolidation phase. And so I think we're just continuing to rotate through the different asset classes and that the market pundits will always find a narrative to fit. Well, okay, interest rates are coming, so now it's time to buy small caps. Or, you know, we're going to have re-industrialization. And so that's why you want to own copper. And that, you know, what's happening is it's just that musical chairs, people are starting to put the money into different areas and they're going to seize upon a narrative to just continue to run up different areas. So we might, you know, take a pause for the next quarter or two and say the cues. And maybe the cues do well, but not as good as the Russell. But then that will in turn be a consolidation.”
2024-08-12 · Forward Guidance · Deficit Spending Will Send S&P 500 To 6,000 And Beyond | George Robertson & Mel Mattison on the True Risk-Free Rate and The Fed's Control of The Treasury Market · IDENTIFIED FROM THE TRANSCRIPT
“Earnings growth, but I think we're even going to see further multiple expansion. And so it might not happen all at once. It's not going to happen in a straight line. I'm not talking about what the S&P is going to do over the next three to six weeks. I'm talking about, you know, I like to look out at least like a 12-month period when I'm talking about where I think things are heading. You can always have one-off crises. You can have certain things happen to kind of dislocate or take the markets off of this track. But eventually they're going to return to these large structural themes that are occurring. And this, you know, essentially, I believe is right on course. And I think when you're seeing things like certain asset classes underperform, the thing to look at is to look at for those to catch up. So I've talked about reindustrialization. If we wanted to get a little bit more”
2024-08-12 · Forward Guidance · Deficit Spending Will Send S&P 500 To 6,000 And Beyond | George Robertson & Mel Mattison on the True Risk-Free Rate and The Fed's Control of The Treasury Market · IDENTIFIED FROM THE TRANSCRIPT
“Yes, precisely. So I do believe earnings will grow. But I think a lot of people, they're saying, look, we've now passed the multiple expansion stage. If we're going to have an increase in the stock market in the coming years, it's going to be because the E is going up, not the multiple. And I think if you look at what we could have in earnings growth, we could have very nice earnings growth. We could have high nominal GDP. I think there are fiscal impulses and other inflationary aspects of policy that are coming one way or the other in the coming years, re-industrialization policies, tariff policies, various other programs and platforms, if it's a Harris regime with Green New Deal type spending. And so these things are happening and these are going to create”
2024-08-12 · Forward Guidance · Deficit Spending Will Send S&P 500 To 6,000 And Beyond | George Robertson & Mel Mattison on the True Risk-Free Rate and The Fed's Control of The Treasury Market · IDENTIFIED FROM THE TRANSCRIPT
“You're still bullish on the stock markets. Earnings are now beginning to go up, but the stock market has gone up way more than the earnings have, so valuations have gone up. And I'm just looking at price earnings ratio is now at 27, which is historically high. And I'm not ingesting for inflation and growth. I'm not going to explain why, but I like just using the simple price earnings ratio. But it's possible that's pricing in a lot of growth. And the growth could come. I mean, we've seen what NVIDIA's net income has done. It's tripled. It's quadrupled in a single year. And that, you know, maybe other companies are not going to triple their companies. But, you know, if Apple's revenues and it goes up 40% or even 25%, maybe the rally that happened over the past two months is justified and stock market moves, price in, future expectations, perhaps more so than the bond market. So is your view, Mel, that?”
2024-08-12 · Forward Guidance · Deficit Spending Will Send S&P 500 To 6,000 And Beyond | George Robertson & Mel Mattison on the True Risk-Free Rate and The Fed's Control of The Treasury Market · IDENTIFIED FROM THE TRANSCRIPT
“Whoever coming in and saying, okay, my mind shift has changed. I think this free ride assets are doing nothing but going to go up. And if they correct, they'll be minor in short-lived corrections. I now see that narrative as no longer the dominant narrative. And people are going to begin to pull assets from the market because everybody's going to have huge gains and that this pulling of assets away from the market will just like this is a self-fulfilling prophecy in turn become a self-fulfilling prophecy that's going to have a whole bunch of headaches for itself. And so I think the treasury discussion is a fascinating one. And I think George agrees like that's also kind of in one sense neither here nor there. as far as what's happening in the broader financial markets.”
2024-08-12 · Forward Guidance · Deficit Spending Will Send S&P 500 To 6,000 And Beyond | George Robertson & Mel Mattison on the True Risk-Free Rate and The Fed's Control of The Treasury Market · IDENTIFIED FROM THE TRANSCRIPT
“What happened was their prices just got so far ahead of where they needed to be that then you had the crash. And so what I think is happening is we're getting all of these old valuation metrics being thrown out the window. We're piling into these risk assets, these valuations are going to get to a certain point where what's going to happen is the crescendo is not going to so much be a very specific like event or collapse or something substantial changing what's going to happen is the psychology will begin to shift. I think that shift is going to be precipitated by a realization of the unfunded entitlement liabilities, that issue coming to a head in the 27-28 29 time frame and that that once that psychological shift happens and you start having a few big investors like in the 20s you had Joe Kennedy or now who knows it'll be you know the chief at Citadel or it'll be”
2024-08-12 · Forward Guidance · Deficit Spending Will Send S&P 500 To 6,000 And Beyond | George Robertson & Mel Mattison on the True Risk-Free Rate and The Fed's Control of The Treasury Market · IDENTIFIED FROM THE TRANSCRIPT
“That narrative is wrong and why I think we could see SP 500 at a 30 times multiple in the next 24 months because people are simply, it's almost like a game of musical chairs or a greater fool theory where people are just starting to say, look, this is what's happening. We're seeing it happen. We're seeing the old rules of what a good valuation for the S&P is go out the table. And so therefore, you know, you're stupid if you're not throwing all of your money into these risky assets. And what I had talked about in our last program is that I think that that game eventually does come to an end. And it is similar to what we saw, for example, in the 1920s. You had amazing companies in the 20s. You had RCA, you had General Motors. These were companies that over the coming 10 to 20 years were going to grow exponentially.”
2024-08-12 · Forward Guidance · Deficit Spending Will Send S&P 500 To 6,000 And Beyond | George Robertson & Mel Mattison on the True Risk-Free Rate and The Fed's Control of The Treasury Market · IDENTIFIED FROM THE TRANSCRIPT
“Why are they doing what they're doing and what are they likely to do going forward? And so what I do come back to, I guess, is that all of these things like supposed rise in unemployment rate or maybe an inverted curve or any of these things that people have been using over the last couple of years saying, hey, these are signs that, you know, the economy is not as strong as people think it's going to fall off a cliff or what have you. Those are all kind of either BS or simply not important. And what is important? Well, one element is the fiscal spend, but then I'm also saying the other element that we're seeing is just, you know, there are broader kind of structural financialization elements at play in our society, whether that be the move to essentially push all American workers into devoting a substantial amount of their paycheck every period to S&P 500.”
2024-08-12 · Forward Guidance · Deficit Spending Will Send S&P 500 To 6,000 And Beyond | George Robertson & Mel Mattison on the True Risk-Free Rate and The Fed's Control of The Treasury Market · IDENTIFIED FROM THE TRANSCRIPT
“I'm not seeing, I guess, this whole Treasury situation as the most, and maybe you're not. either as the most kind of key germane element to what we're seeing going on in the financial market. So what I'm doing is I'm looking at the financial Markets, and I'm trying to understand.”
2024-08-12 · Forward Guidance · Deficit Spending Will Send S&P 500 To 6,000 And Beyond | George Robertson & Mel Mattison on the True Risk-Free Rate and The Fed's Control of The Treasury Market · IDENTIFIED FROM THE TRANSCRIPT
“No, I'm not saying that. I'm saying that the credit quality of auto loans, and maybe it's getting a little more flaky, but they're rehapothecated, right? A tow truck can show up at your house and take your car away. Especially when used cars were going to the moon, if anything, they're better quality than they've ever been. Now used car market is waning. It's still a fairly consistent credit quality. So that being the case, that spread to treasuries is not reflective of just high interest rates. It's reflective of the same phenomena that I'm pointing out mortgage-backed securities. And you see that in all asset-backed securities, you'll see it in all bank balance sheets. The tiering of credit to risk free hasn't really changed much, but only if you do not accept U.S. treasuries as being the risk-free rate.”
2024-08-12 · Forward Guidance · Deficit Spending Will Send S&P 500 To 6,000 And Beyond | George Robertson & Mel Mattison on the True Risk-Free Rate and The Fed's Control of The Treasury Market · IDENTIFIED FROM THE TRANSCRIPT
“It trades off of the spread of treasuries and the spread changes. So definitely in the case of auto loans, as the risk-free rate has gone up, the auto spread has gone up. if interest rates run from zero to 5.3 percent instead of going from 5 to 10.3 percent they've gone from 5 to 12.5 so the spread has widened like i was in private credit the spread has narrowed so there's spread but maybe your argument is high interest rates high credit spreads indicate a strong economy But I don't know if that's the case. I mean, if auto wants 20%, I don't think that's...”
2024-08-12 · Forward Guidance · Deficit Spending Will Send S&P 500 To 6,000 And Beyond | George Robertson & Mel Mattison on the True Risk-Free Rate and The Fed's Control of The Treasury Market · IDENTIFIED FROM THE TRANSCRIPT
“And yeah, there's very few fixed consumer loans now. It's mostly revolving, right? That went from like 5%. It didn't matter what type of credit you were to like as high as 27% now. And it hasn't come down. So that sort of like pushes us back to what you just said. And auto loans, I went and bought a car. I was sort of a little insulted what rate they gave me. But that is definitely tracking what I just went into, not U.S. treasuries. And it goes through the whole list of credit quality and credit product. They are not tracking U.S. Treasuries and they stop tracking it in January of 2022. You can't argue against it. And that being the case, and knowing that there is a risk-free rate, You have to go on a quest to find out where the hell the risk-free rate is, seeing as it's not reflected anymore in the U.S. treasury market.”
2024-08-12 · Forward Guidance · Deficit Spending Will Send S&P 500 To 6,000 And Beyond | George Robertson & Mel Mattison on the True Risk-Free Rate and The Fed's Control of The Treasury Market · IDENTIFIED FROM THE TRANSCRIPT
“Based off of the risk free rate of the treasury market, either Sofer, which is basically what the one month treasury or the overnight rate is set by the Fed Reserve, or the 10-year. Auto loans, credit card loans, business loans Private credit loans, it's all set by what the Federal Reserve, if the Federal Reserve controls the entire Treasury curve.”
2024-08-12 · Forward Guidance · Deficit Spending Will Send S&P 500 To 6,000 And Beyond | George Robertson & Mel Mattison on the True Risk-Free Rate and The Fed's Control of The Treasury Market · IDENTIFIED FROM THE TRANSCRIPT
“The Fed was howling mad. And in fact, because it got in the way of what they wanted to do with U.S. Treasury curve. So therefore, Gensler kicks in and there's a whole list of rules and regulations saying, yeah, sure, so go and buy U.S. Treasuries all you want, but you're now a recognized government dealer, and you now can only do a third of any auction as per law. And not only that, you buy more than $10 million, you have to report to us daily what exactly you're doing. And if you keep this up, you're going to inherit like three or four Fed guys to sit on your treasury desk. So all those games stopped, although there is still some between QRAs. There's still some games going on. But it's the fact that Treasury's now stopped at like four and a quarter versus like 378 of February. I think is a sign that that gaming has gone. So we're back to the Fed.”
2024-08-12 · Forward Guidance · Deficit Spending Will Send S&P 500 To 6,000 And Beyond | George Robertson & Mel Mattison on the True Risk-Free Rate and The Fed's Control of The Treasury Market · IDENTIFIED FROM THE TRANSCRIPT
“Not going to argue with the Fed. I'm not going to say that four and a quarter is a stupid rate or four three eighths is a dumb rate or any rate is dumb. So I'm just going to do whatever you want. I think last year there was a very interesting situation where a few large high frequency traders came in and jammed the market. They sort of realized this hole was existing. So they shorted the hell out of U.S. treasuries and drove it well above 5%.”
2024-08-12 · Forward Guidance · Deficit Spending Will Send S&P 500 To 6,000 And Beyond | George Robertson & Mel Mattison on the True Risk-Free Rate and The Fed's Control of The Treasury Market · IDENTIFIED FROM THE TRANSCRIPT
“And second, the Fed doesn't operate to a corridor system. In other words, a demand supply of interest paid out. They went to interest on reserve balances, so that was offset. They operate on what they think is a neutral, it's not an equilibrium. It's certainly for Fed funds, it's just a set rate. And they went to interest on reserve balances so that they wouldn't have any problem with that. They wouldn't have any pushback from the banks. you know, shut up and accept Zert because why? Because we're going to pay you an interest rate, which was sort of an okay idea until they actually got to 5 and 3 eighths Fed funds. Now with, let's say, U.S. Treasury 10-year, if the Fed decides to minister, and I'm running a Treasury desk at any dealer,”
2024-08-12 · Forward Guidance · Deficit Spending Will Send S&P 500 To 6,000 And Beyond | George Robertson & Mel Mattison on the True Risk-Free Rate and The Fed's Control of The Treasury Market · IDENTIFIED FROM THE TRANSCRIPT
“Can't because it's against the law. There's a very well set codification of law. I personally think the Fed's committing perjury every time it goes in front of Congress, but that's another story, is that the Fed can't say this to Congress because first the Congress would just go berserk on them. They probably can't even say this to Treasury, although I think there's a wink, wink, nudge, nudge, or if not even a direct communication between the two now with Yellen. But the Fed does have a legitimate Reason to enter the treasury market for X amount every week, every day. I don't know. I don't know when they actually come in, but they come in a lot. I mean, $40 billion per month is a lot of transaction. So it's the transaction.”
2024-08-12 · Forward Guidance · Deficit Spending Will Send S&P 500 To 6,000 And Beyond | George Robertson & Mel Mattison on the True Risk-Free Rate and The Fed's Control of The Treasury Market · IDENTIFIED FROM THE TRANSCRIPT
“Again, I think I'm repeating myself. They'll call JP Morgan or whatever dealers, you know, the whole Miri, actually they call everyone at once, whatever the Fed time is now. I don't know what it is, but they'll call everyone at once and they'll say, hi, just in this interest of transparency, we are going to buy billions at four and a quarter. And tomorrow we're going to be back in the market and we're going to sell not quite a billion, but we're going to sell more than enough at four and a quarter. And we're going to keep doing this until you get the drift. And just like Fed funds, they get the drift. I mean, who are you to argue with that, you know, four and a quarter is too low?”
2024-08-12 · Forward Guidance · Deficit Spending Will Send S&P 500 To 6,000 And Beyond | George Robertson & Mel Mattison on the True Risk-Free Rate and The Fed's Control of The Treasury Market · IDENTIFIED FROM THE TRANSCRIPT
“Well, first, the Treasury had the Fed does all, is the agent for every single Treasury purchase and sale. It goes to the Fed. Even despite the buyback, they yelling announced, they have this massive reason to be in the market just as they have this big reason in Fed funds to enter the U.S. Treasury market. So therefore, the Fed administers the 10-year rate.”
2024-08-12 · Forward Guidance · Deficit Spending Will Send S&P 500 To 6,000 And Beyond | George Robertson & Mel Mattison on the True Risk-Free Rate and The Fed's Control of The Treasury Market · IDENTIFIED FROM THE TRANSCRIPT
“Because the Federal Reserve is the one paying the interest, not on the federal funds rate, but on the very, very similar reverse repo rate, reserve rate. But the lender in this case is not the Federal Reserve. It's the Treasury for all Treasury security. So how does the Fed Federal Reserve do”
2024-08-12 · Forward Guidance · Deficit Spending Will Send S&P 500 To 6,000 And Beyond | George Robertson & Mel Mattison on the True Risk-Free Rate and The Fed's Control of The Treasury Market · IDENTIFIED FROM THE TRANSCRIPT
“Again, fed funds are not set by the pressures of interest rates. Fed funds are set because the system open market desk calls up and says, we hereby, actually they say it. I mean, the Fed meeting and the instructions to the Cisco Market Race is that Fed funds hereon will be changed from 5% to 5 and 3 eighths. It's just edict. And nobody looks at how they do it or like flow funds or any of that sort of stuff. They say, well, you know, when the Fed wants Fed funds to be at X, it will go at X. Nobody argues. Now, especially in this day and age where there's not a massive amount of scarcity in reserves that have to be bought in and sold, it's just not a manipulator rate. It's an administrator rate.”
2024-08-12 · Forward Guidance · Deficit Spending Will Send S&P 500 To 6,000 And Beyond | George Robertson & Mel Mattison on the True Risk-Free Rate and The Fed's Control of The Treasury Market · IDENTIFIED FROM THE TRANSCRIPT
“Okay, but so George, the way the actual policy rate is the federal funds rate, but the way that the Federal Reserve controls that is by paying interest on reserve, so interest on reserves as well as the repo rate and the reserve repo rate to have that floor. So that changed after the great financial crisis. Someone who owns a 10-year treasury rate is not being paid by the Federal Reserve. They're being paid by the Treasury. So the Federal Reserve would have to manipulate or change the price of that yield. So how is the Federal Reserve setting the 10-year treasury yield?”
2024-08-12 · Forward Guidance · Deficit Spending Will Send S&P 500 To 6,000 And Beyond | George Robertson & Mel Mattison on the True Risk-Free Rate and The Fed's Control of The Treasury Market · IDENTIFIED FROM THE TRANSCRIPT
“No, because it's not a manipulation. It's a rate setting. It's the same mentality as to, I'm sure you allow that the Fed can take Fed funds to wherever they want. They decided that why don't we just do this for 10 years? So if this wasn't going on, the impact on the risk-free rate, like the four or five basis points or 10 basis points I mentioned, does show up in mortgage-backed securities so adjusted to bootstrap into what the risk-free rate is, but it is immaterial to where the U.S. Treasury tightier is right now.”
2024-08-12 · Forward Guidance · Deficit Spending Will Send S&P 500 To 6,000 And Beyond | George Robertson & Mel Mattison on the True Risk-Free Rate and The Fed's Control of The Treasury Market · IDENTIFIED FROM THE TRANSCRIPT
“We'll end up as reality because we are damn serious. And if you think two trillion is not enough, we're going to take this guy. We're going to take it up to $8 trillion. Don't mess with us. And I think that's what that logic and that approach is they sort of exhausted everything. So they said, well, you know, the Fed funds going up in this discrete gradualism style, which never was a tightening, ain't doing anything. So why don't we just use our knowledge of NeoWig cell and drop US Treasury 10 years so we have a flat curve and that will be an effective tightening or something or other or a signal? I think that's what they're doing.”
2024-08-12 · Forward Guidance · Deficit Spending Will Send S&P 500 To 6,000 And Beyond | George Robertson & Mel Mattison on the True Risk-Free Rate and The Fed's Control of The Treasury Market · IDENTIFIED FROM THE TRANSCRIPT
“I think it's a signal. I think you really got to respect these Neo Wicksell fellows, and Bernagi himself said it. He said, QE is a signal. Yes, in the end, it's just been reserved management. But really what it is, is the Fed communicating, we are so serious that we're going to buy $2 trillion of treasuries. And how can that not but be a huge impact on the U.S. economy? It's $2 trillion. And then Bernaki himself would say it's a signal. The whole Delphic and Odyssean type of spiels that came out of trying to dummy down Neo Wigsel Woodford to the common man. So they used mythology also said it's a signal. It's a desire to seek a powerful, adamant commitment that forward expectations are for guidance.”
2024-08-12 · Forward Guidance · Deficit Spending Will Send S&P 500 To 6,000 And Beyond | George Robertson & Mel Mattison on the True Risk-Free Rate and The Fed's Control of The Treasury Market · IDENTIFIED FROM THE TRANSCRIPT
“A certain amount of mortgage backed securities in their books. So therefore, the cost of production might increase as whole loans become more valuable because of those change in credit. But those are, again, only short-term changes. So what you're saying correctly really doesn't upset my approach to trying to bootstrap where the U.S. Treasury tenure is again now. and of no bearing to the economy, which is what I also say, I think it's planned. I don't want to say that the Fed is so freaking incompetent that they don't even know what they're doing. So I think there are very bright guys. They really know the asset market. So I think they want this curve to be flat to slightly avert it. And they want the risk premium to be negative to flat. I think that's the plan.”
2024-08-12 · Forward Guidance · Deficit Spending Will Send S&P 500 To 6,000 And Beyond | George Robertson & Mel Mattison on the True Risk-Free Rate and The Fed's Control of The Treasury Market · IDENTIFIED FROM THE TRANSCRIPT
“It's 10 years, and that's the basis of communicating to each other. And that's the spread that they run. What they're more interested in is what's the cost of transforming a 30-year block of home loans, you know, 500 million of all these 30-year conventional mortgages of some are 29 and a half years, some are 30 years fresh to a current coupon mortgage-backed security. And that's about a consistent, I think it's about 140 basis points or so, 130. And that's been unwavering. It's still now there. It was there in 1992. There's sometimes when FICO scores are really dashed, and that's because then people can't borrow. So therefore, the pipeline becomes greatly lessened and people have to get.”
2024-08-12 · Forward Guidance · Deficit Spending Will Send S&P 500 To 6,000 And Beyond | George Robertson & Mel Mattison on the True Risk-Free Rate and The Fed's Control of The Treasury Market · IDENTIFIED FROM THE TRANSCRIPT
“The way it has been dealt with since Bernieri invented mortgage-backed securities is ignored in saying, yeah, you're right. It could be five years, it could be three years, it might be 15 years. It moves all over the place, but the prepayment option is the big driver. But it's never a function of the risk-free rate. The tax impact and also the fact that mortgage-backed securities are risk-free is not the issue. So what you're saying is that mortgage-backed securities can be somewhat like a two-year risk-free rate or a five-year risk-free rate or a 10-year risk-free rate, but that's not material to what my argument is. In the past, what and Fannie Mae, everybody, Edward Borbax Treaty, is they just say, yeah, yeah, yeah. And they'll adjust it, maybe do a little more futures, less futures, but they'll just.”
2024-08-12 · Forward Guidance · Deficit Spending Will Send S&P 500 To 6,000 And Beyond | George Robertson & Mel Mattison on the True Risk-Free Rate and The Fed's Control of The Treasury Market · IDENTIFIED FROM THE TRANSCRIPT
“SP mortgage mass securities index is 5.5. And I'm also the reason that the spread is high is because fixed income implied volatility is high. The option adjusted spread is only 35 basis points, but the option is valuable because the market is still pricing a chance that the Fed cuts rates and that rates go up and down and sideways. In other words, fixing compatibility is very high. How does that feature into your framework?”
2024-08-12 · Forward Guidance · Deficit Spending Will Send S&P 500 To 6,000 And Beyond | George Robertson & Mel Mattison on the True Risk-Free Rate and The Fed's Control of The Treasury Market · IDENTIFIED FROM THE TRANSCRIPT
“Years trading at the 3% rate. Now, Warren Mosler would say, well, it should be zero. But anyway, there is only one rate. Now, to have that 5%, that five-year rate equivalent to overnight Fed funds are the 3% natural rate or neutral rate, there has to be adjustments for duration and convexity, and that's the yo curve. So the actual tradable five-year rate is, I don't know, you know, three and a half to four percent given convexity option, various other inputs. But it is actually the 3% risk adjustment rate for every point in the curve. And when you start thinking of it that way, then you can start to, I think then you can start to judge what the Fed's doing or not doing. You can judge the impact of fiscal and you can start. Get some foresight in terms of where the economy is going to go.”
2024-08-12 · Forward Guidance · Deficit Spending Will Send S&P 500 To 6,000 And Beyond | George Robertson & Mel Mattison on the True Risk-Free Rate and The Fed's Control of The Treasury Market · IDENTIFIED FROM THE TRANSCRIPT
“It means that there's always one risk-free rate. And the Fed itself says that. They say that, okay, we're 5.3, but they can call it either the natural rate or the neutral rate, but that's around 3% now. You can say that it's 3% because you believe in neutral rates. What's the rate that will not upset labor and also contain inflation, all at Taylor and others, that's 3%. Or you can say, no, the wick cell natural rate is 3%, but there's a rate, 3%. So that 3% rate is the same for five years, 10 years, or 30 years. And let me really blow your mind. The 10 years actually trading at that 3% rate, the five years is trading at that 3% rate.”
2024-08-12 · Forward Guidance · Deficit Spending Will Send S&P 500 To 6,000 And Beyond | George Robertson & Mel Mattison on the True Risk-Free Rate and The Fed's Control of The Treasury Market · IDENTIFIED FROM THE TRANSCRIPT
“And then QE in every single academic examination of that, I lived through the World Bank's five-year limitation resulted in a temporary five basis points to maybe 12 basis points change in that specific sector that was experiencing the biggest impact of that sector segmentation origin.”
2024-08-12 · Forward Guidance · Deficit Spending Will Send S&P 500 To 6,000 And Beyond | George Robertson & Mel Mattison on the True Risk-Free Rate and The Fed's Control of The Treasury Market · IDENTIFIED FROM THE TRANSCRIPT
“Being able to use the very powerful tool that people use for 40 years to understand macroeconomics, which is the risk-free curve. And then also you start to make sense of what might happen given how this has, not just traditionally, but mathematically has foresight in terms of what the economy is going to do, but you do not have it with U.S. Treasury tenures. That being the case, I think what I'm boiling down to is that there's always a risk-free curve. It doesn't matter what the hell is U.S. Treasury doing. There's time to time where there's been sector segmentation usually, Operation Twist. You know, the World Bank was only allowed to buy out to five years. Peter Fisher got into his head that he's going to eliminate the long bond, and that will drop rates.”
2024-08-12 · Forward Guidance · Deficit Spending Will Send S&P 500 To 6,000 And Beyond | George Robertson & Mel Mattison on the True Risk-Free Rate and The Fed's Control of The Treasury Market · IDENTIFIED FROM THE TRANSCRIPT
“EdGDP is always reflected in U.S. Treasury tenure. You can't have it both ways. Yet that model stopped working from January 2022 on for whatever reasons. Maybe there's an international Basel III backed conspiracy or something like that. Just have a fun, Mel. Or maybe there is a, I don't know, a Masonic order that's decided that this, I don't know, I think it's just like Williams and two guys got together and say, well, we got to extend the Neo Wixell natural rate out the whole curve just to make us right. But for whatever reason, the U.S. Treasury tenure is consistently not the risk-free rate for the nation. And that's the basis of my now as soon as you come to this conclusion, you end up with a very powerful, or actually, you end up return.”
2024-08-12 · Forward Guidance · Deficit Spending Will Send S&P 500 To 6,000 And Beyond | George Robertson & Mel Mattison on the True Risk-Free Rate and The Fed's Control of The Treasury Market · IDENTIFIED FROM THE TRANSCRIPT
“Don't solve to mortgage back securities, they don't solve to anything else. All they do is it becomes a self fulfilling prophecy to how they solve to the U.S. Treasury 10-year rate since January of 2022. I keep saying January 2022 because it's important. And that, of course, is what the New York Fed is doing with its probability recession models. And that is what I think is the source of, you know, it's not just nine out of 10. 95 out of 100 of macroeconomists and all are making this error because they're still keyed into what their habit was, which is to not mess with the guys on the 13th floor, just use their stuff. And the yield curve always gives a good example of NGDP development. So the whole probability of recession, which is behind everyone's bearish view, whether they know it or not, is based on my thought that”
2024-08-12 · Forward Guidance · Deficit Spending Will Send S&P 500 To 6,000 And Beyond | George Robertson & Mel Mattison on the True Risk-Free Rate and The Fed's Control of The Treasury Market · IDENTIFIED FROM THE TRANSCRIPT
“Now, all the models for figuring out the yield curve and US Treasury 10 years are based on a no arbitrage. You read about it and it hurts your head. It's pretty complex stuff. I think I'm starting to get to grips with it, but it was always characters up in the 13th floor that could, you know, do this for me. Now I got to do it myself, especially to back up what I'm saying. Otherwise, I'm just full of it. But the models, all of them Holy, Nelson Siege, Obama, blah, blah, blah. There's a whole bunch of them. They always seek a no-barbitrage conclusion. That means that the U.S. Treasury tenure has to be in proximity, if not equal to what the model comes up with. So they start with a short rate. They start with a sense of volatility. But that's just to map out how the short rate ends up at the U.S. Treasury tenure rate. It's often called a theta. And everyone's happy, but those models, all the...”
2024-08-12 · Forward Guidance · Deficit Spending Will Send S&P 500 To 6,000 And Beyond | George Robertson & Mel Mattison on the True Risk-Free Rate and The Fed's Control of The Treasury Market · IDENTIFIED FROM THE TRANSCRIPT
“It sort of proves out what I'm saying that U.S. Treasury 10 years did reflect NGDP expectations and evolution at that time because that's what, of course, mortgage-backed securities have to reflect. So bootstrapping that, I come up with where the U.S. Treasury tenure would have been for various reasons. I haven't really, you know, I just went off in a tirade in terms of why it's happening, but I don't really know. But what I do know is the U.S. Treasury 10-year has consistently, not just in terms of a moment of duress and challenge, no longer reflected the U.S. risk-free 10-year rate as shown by mortgage-backed securities. And then also we can look at AAA corporates. We can look at, you know, there's various other almost risk-free that we can look at. And all of them have diverged significantly from U.S. Treasury.”
2024-08-12 · Forward Guidance · Deficit Spending Will Send S&P 500 To 6,000 And Beyond | George Robertson & Mel Mattison on the True Risk-Free Rate and The Fed's Control of The Treasury Market · IDENTIFIED FROM THE TRANSCRIPT
“Right, not talking about AAA and option arms and all the other stuff, which unfortunately I know too well. I don't think anyone would argue with saying that Fannie Mae current coupon is risk-free. The Fed doesn't argue with that. They say it's risk-free. So therefore, there should be a relationship between U.S. Treasury 10-year and Fannie Mae current coupon mortgage-backed securities, which was the case. Yeah, there were times where, as Mel points out, where there's stress and they diverge, but it was always a very short-term thing. You know, after the crisis, after the GFC, most exciting couple months or COVID, they would come back align because you think about it, if U.S. Treasury 10 years are doing their job, they have to be in sync with the mortgage-backed securities because that in turn is based on 30-year conventional, which means that it's all”
2024-08-12 · Forward Guidance · Deficit Spending Will Send S&P 500 To 6,000 And Beyond | George Robertson & Mel Mattison on the True Risk-Free Rate and The Fed's Control of The Treasury Market · IDENTIFIED FROM THE TRANSCRIPT
“At some sort of equilibrium. Otherwise, it just wrecks havoc. You know, we end up with a GFC too, as goofy rates promote too hot a home market or too low. Fed will not allow that. Congress won't allow that ever again. So therefore, the 30-year mortgage rate has an oar in the water in terms of what the actual economy is. And then there's obviously well-known first tax credit that everybody who boys buys a house gets with their mortgage. The US wants you to buy a house, the U.S. government, that's been a policy ever since Levittown, you know, post-World War II. And at the same time, mortgage-backed securities created in the early 80s are clearly risk-free, you know, such that the Fed itself says they're risk-free. Why mortgage-backed securities are part of the allowed security set they can go in and do QE and QT on.”
2024-08-12 · Forward Guidance · Deficit Spending Will Send S&P 500 To 6,000 And Beyond | George Robertson & Mel Mattison on the True Risk-Free Rate and The Fed's Control of The Treasury Market · IDENTIFIED FROM THE TRANSCRIPT
“There's some things Mel mentioned that I'm not in accord with. And also, I think I failed you, Jack in communicating. I don't see mortgage-backed securities as the risk-free rate. I don't think there's this transference from U.S. Treasury 10 years and suddenly is now mortgaged back securities. My approach, somewhat of desperation beyond my mathematical ability is to bootstrap out where the US Treasury tenure would be if the Fed wasn't goofing around with it and looking and trying to find, okay, where is there a risk-free presence in the markets that if such a size that has no choice but to deal with NGDP and the economy ongoing? And that, of course, is the mortgage industry. The mortgage rate has to be.”
2024-08-12 · Forward Guidance · Deficit Spending Will Send S&P 500 To 6,000 And Beyond | George Robertson & Mel Mattison on the True Risk-Free Rate and The Fed's Control of The Treasury Market · IDENTIFIED FROM THE TRANSCRIPT
“Possibly kind of suck people into that narrative. And I think that will ultimately be proven wrong. I think what we're in is a little bit of a lull. We're in a little bit of a period where through various manipulations such as, you know, more bills than notes, we're seeing the treasury, the longer end of the curve artificially low. And it's low as evidenced by mortgage-back rates. And I mean, George also, I've seen him do slides maybe he could talk about it where he's looked at. I believe it's a way to derive what the tenure should be, some sort of an affline I've seen. And you've seen like a perfect corollary between the actual 10 year and what this predicts. And except for in periods of high trauma, like the great financial crisis, the peak of COVID, but then you saw about a year, year and a half ago, you saw a divergence between the predicted 10 year and what it actually was.”
2024-08-12 · Forward Guidance · Deficit Spending Will Send S&P 500 To 6,000 And Beyond | George Robertson & Mel Mattison on the True Risk-Free Rate and The Fed's Control of The Treasury Market · IDENTIFIED FROM THE TRANSCRIPT
“And I think you granted that the Fed can say Fed funds are eight, Fed funds are two. And that's a risk-free market rate. Why the hell can't they control 10 years now when they're in the market for $40 billion? That's not even counting the Treasury Fed or agency, go out and buy $20 billion or whatever the heck they're doing. So they have about at least a $60 billion reason to be in the marketplace. So just like Fed funds, the open market trading desk, the system operation, sorry, the Soma guys, call up JP Morgan. They say, hi, we're going to buy $2 billion 10 years at 438, and we're going to sell 2 billion old 10 years or seven years at four and a quarter presto, bingo. That's the set rate. To do with the economy, it has to do with the whims or the understanding of the Fed on what should be done. It is not a macroeconomic rate anymore.”
2024-08-12 · Forward Guidance · Deficit Spending Will Send S&P 500 To 6,000 And Beyond | George Robertson & Mel Mattison on the True Risk-Free Rate and The Fed's Control of The Treasury Market · IDENTIFIED FROM THE TRANSCRIPT