YouSaid · the spoken record

Harley Bassman

lines on the record: 78
first: 2022-10-10
most recent: 2022-10-10
sittings or episodes: 1
sources: podcast

Every line below is reproduced as it was said and linked to the record it came from. Nothing here is summarised or generated. Directory · Search · Corrections

“As I have been saying throughout the year, I always thought the treasury market would be the first to break. There was the most fragility there. But it seems like, so as we saw the guilt market broke, it's not the Treasury market, but bond markets are connected. So we kind of see, at least in the periphery of the global sovereign bond markets, cracks starting to appear. I suspect that the Eurozone bond markets would be next. So that's where I see the fragility. I would actually one comment too. So we are often very US centric in how we view the world, and we focus on our stock market and on bond market. But something else that's happening in the world is there appears to be a lot of, based on the strong dollar, there appears to be a lot of money moving into the US. And that could be very supportive of US assets, such that if there is something in the markets that breaks, it may not be here, maybe somewhere else, for example, let's say you're a Japanese investor and you were invested in”
2022-10-10 · Forward Guidance · The Bond Market Is Already Broken - Stocks and Housing Are Next | Harley Bassman & Joseph Wang · IDENTIFIED FROM THE TRANSCRIPT
“Just to walk people through that math, this is from your piece. At the start of this year, the mortgage rate was at 3%, so you could buy a $455,000 house with a monthly payment of $1,900. Not bad. But now that the retail mortgage rate is at 6.5%, I actually think it's slightly higher now than when you wrote this, the same monthly payment of $1,900 can only finance $300,000. That's why you're saying houses prices need to crash 30% to get to that affordability level. Gentlemen, it sounds like if I were to ask each of you what would be the first to break? The bond market, the stock market, the housing market, or the labor market or the real economy? I think I already know your answers, but could you say what you think is the first to break and why? And can we start with you, Joseph?”
2022-10-10 · Forward Guidance · The Bond Market Is Already Broken - Stocks and Housing Are Next | Harley Bassman & Joseph Wang · IDENTIFIED FROM THE TRANSCRIPT
“Have huge equity in the house because house prices up by 30-40% in the last few years. On top of that, no one's moving either. There's been no supply. You can't leave your house with a 3% mortgage and buy another house with a six and a half mortgage. So you're stuck in your house, which is not a bad thing, by the way, but you're stuck in your house so there's no supply to really dump on the market. So prices aren't going to go down. But it means that if you need to spend more money, a higher percent of your income on housing means you spend less somewhere else. That's how you get the less demand for goods and services because you're spending more money on censoring 28%. You're spending 40% on housing. And that's how you get the recession from housing.”
2022-10-10 · Forward Guidance · The Bond Market Is Already Broken - Stocks and Housing Are Next | Harley Bassman & Joseph Wang · IDENTIFIED FROM THE TRANSCRIPT
“My idea is that they're going to hold rates a little longer than we think, that the market pricing in the Fed cuts next summer is not going to happen. That is not saying they're going to take rates higher. Now, that is a possibility. We still have inflation coming at 5.6, then they'll be taking them higher. But let's just assume that we are in a nice recession by then, which is going to have, and it's the housing market. I mean, you know, he hates to run the surprise, but it's housing that's going to go and break. The toy's already broken in housing. The retail mortgage rate, you're at 6.5%. You were at three. You were 290 a year and change ago. I mean, what it costs for a house, housing prices need to drop by 30% to make all the numbers cash flow flat. Now, that's not going to happen. We're not going to have 30% in housing for a lot of reasons. Dodd-Frank made it so you had to have money to borrow it. You couldn't borrow money, a liar loan.”
2022-10-10 · Forward Guidance · The Bond Market Is Already Broken - Stocks and Housing Are Next | Harley Bassman & Joseph Wang · IDENTIFIED FROM THE TRANSCRIPT
“You posted a great chart. I think it's actually from Jim Bianco of what year over year CPI, consumer price index. So there are two measures of inflation. Most people care about CPI. The Fed cares about PCE. And then do you measure it based on the sun yearly or do you measure it based on the moon monthly? So this is what yearly CPI will be based on what forward inflation will be, like what the yearly will come out. And if there is zero inflation for the rest of the year by March of 2023, the spring of next year, CPI will still be at three percent. That's according to Jim Bianco's chart that it may be from a few weeks ago. But basically, if you take that four, if Fed needs to see 4. It's very rare to have deflation after having 8% inflation to go from 8% to negative, that almost sort of guarantees dangerous word in finance, that the Fed pivot will not come.”
2022-10-10 · Forward Guidance · The Bond Market Is Already Broken - Stocks and Housing Are Next | Harley Bassman & Joseph Wang · IDENTIFIED FROM THE TRANSCRIPT
“You know, I think you've got to see a forehandle on headline CPI and a two-handle on core PCE. I think he needs those numbers before he does it. I think this, there's plenty of people, my good friend and partner, Mike Green, who will tell you that inflation is about to go into the tank, the various measures Rosenberg, Lacey, they're all saying the same thing. All the indicators project lower. And you know what? They might be right. The problem is the Fed shot their bullet with transitory. They are no longer allowed to use their models. They've got to go look at the newspaper print now to go live on that. And that means they're going to stay too tight for too long. The credibility got blown transitory. And therefore, they got away. So I'm thinking four handle headline and two handle core PCE.”
2022-10-10 · Forward Guidance · The Bond Market Is Already Broken - Stocks and Housing Are Next | Harley Bassman & Joseph Wang · IDENTIFIED FROM THE TRANSCRIPT
“So I think the right thing to do would be to stay higher for longer, but there is a possibility that because of political pressure, once we start getting just a little bit softer CPI prints and there be labor, unemployment rate just goes up a little bit more, we might see a Fed pivot in a sense. So that's a political aspect. It's really hard to make a decision on that based on just economics and markets. But I think that's a real possibility in my view and maybe even a probable scenario.”
2022-10-10 · Forward Guidance · The Bond Market Is Already Broken - Stocks and Housing Are Next | Harley Bassman & Joseph Wang · IDENTIFIED FROM THE TRANSCRIPT
“What's the level of CPI heat he needs to see to really actually start to cut rates? No, it seems like he wants to see at least substantial progress, so probably a string of CPI is much lower. I think it's about the direction. Are we trending lower and is the improvement material? I don't know if he actually has to see a 2% print. I think that's the economics and that's the theory behind what they're trying to do. What would be very difficult for them though is just the amount of political pressure.”
2022-10-10 · Forward Guidance · The Bond Market Is Already Broken - Stocks and Housing Are Next | Harley Bassman & Joseph Wang · IDENTIFIED FROM THE TRANSCRIPT
“Well, you know, I agree with you that he's going to really want to try to keep rates high for a while. He's been very clear about that. It seems at the moment he has the entire FOMC on board. There's a team effort to tell everyone that we're not cutting rates next year. We're going to keep it high. We don't want to repeat the mistake of the 70s. So we in the 70s, what happened was they kept rates high. And then when inflation came down a little, they cut rates and inflation immediately roared back. So they didn't want to repeat that mistake. So they want to keep it higher for longer, as they say.”
2022-10-10 · Forward Guidance · The Bond Market Is Already Broken - Stocks and Housing Are Next | Harley Bassman & Joseph Wang · IDENTIFIED FROM THE TRANSCRIPT
“As simple as pure ego, which is fine. And that could be it. But I mean, I can't see him taking cutting stopping rates. I can't see him cutting rates till he has that print, that newspaper journal headline saying, you know, inflation down a lot”
2022-10-10 · Forward Guidance · The Bond Market Is Already Broken - Stocks and Housing Are Next | Harley Bassman & Joseph Wang · IDENTIFIED FROM THE TRANSCRIPT
“How solid is inflation for real? What's the core number going to be six months from now? People talk about going back to two, maybe, you know, oil prices, gas prices down, Putin gets shot. I mean, you know, I mean, we have $60 oil in a heartbeat. But, I mean, there's wage pressures seem to me to be pretty solid. And housing, despite, you know, backing off a little bit. I mean, OER lags. I have a hard time seeing these actual CPI headline print really dropping a lot just because its structure is so such a lagging indicator. And Powell has tied himself to the mast of this. He made a gigantic mistake in not starting earlier. He's behind the curve. And he wants his reputation. He wants to be Paul Volker. He does not want to be Arthur Burns. And maybe is just.”
2022-10-10 · Forward Guidance · The Bond Market Is Already Broken - Stocks and Housing Are Next | Harley Bassman & Joseph Wang · IDENTIFIED FROM THE TRANSCRIPT
“That we've seen the lows, but we're not sure what earnings are going to be over here going forward. And they could really trap door down. The other thing is the back end of the curve can go up a lot. I'm not saying it will, but it could. And if it does, that 15 PE is toast. And this is why the hedge products that I've offered you've mentioned is just so valuable. You don't buy insurance because you think you're going to go and crash. You buy it because you might crash. Buying rate insurance is not because you're bearish on rates. It's because you're bullish. You might be wrong. And we just don't know. The real question here is”
2022-10-10 · Forward Guidance · The Bond Market Is Already Broken - Stocks and Housing Are Next | Harley Bassman & Joseph Wang · IDENTIFIED FROM THE TRANSCRIPT
“You're right, we can't give investment advice. I did buy this two year last week. I mean, I feel pretty good about this. Because if I'm wrong, it has a DVO 102. So I can't get wiped out. And by the way, I live in California, so it's state and local tax free. So you really talk almost a five pre-tax yield for full faith equity of the U.S. government. I mean, I have no problem with that. And I don't know what's happening in stocks. It's just there's two or three trap doors in the stock market, and I'm not saying it's going to crash, but for them to go a lot lower. One is earnings. We just don't know. If current earnings, at 230, 235, somewhere in there, 15 PE puts in at 37, 3600. Fine. We've already kissed that. So the case can be made if earnings stay solid and rates don't go out.”
2022-10-10 · Forward Guidance · The Bond Market Is Already Broken - Stocks and Housing Are Next | Harley Bassman & Joseph Wang · IDENTIFIED FROM THE TRANSCRIPT
“Oh, well, first of all, we don't give investment advice, of course, on this channel for entertainment purposes, but I agree with Harley. I think the risk reward is in favor of if you have the two years around 4% because another way that I think of this is that you could have somewhere an accident somewhere. Maybe there's an geopolitical escalation, maybe something in the financial system crashes. If that's the case, it's very likely that the Fed might actually start thinking of cutting rates. So on the one hand, it seems like with inflation at its current level, it's unlikely or not that we would go a lot higher than 4.6%, which is what the dot plots have as Harley suggested. But there's also this tail risk that we could go lower because something somewhere in the world knows something bad happens. So you get that insurance as well. So I think that the risk reward is favorable for that. What do you think, Carly?”
2022-10-10 · Forward Guidance · The Bond Market Is Already Broken - Stocks and Housing Are Next | Harley Bassman & Joseph Wang · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, yeah. And I want to add to your comment about the move index. So in your publication, which is really good, everyone should subscribe. You have a very good chart that shows just how extraordinary the move index is right now. So the level of move index we're at right now is comparable to what was in during the great financial crisis in 2008 and during the extreme moves in COVID during March 2020. So we are really, the bond market is basically panicking right now, but we don't really see it in the equity market. So a lot of people who are watching this maybe don't really have a grasp of how to measure liquidity. But one way to measure liquidity is price volatility, for example. Because if you have poor liquidity, what you get is you get very large price movements. So looking at the VIX or the move index is in some sense a measure of market liquidity as well. So I think that was a really good point.”
2022-10-10 · Forward Guidance · The Bond Market Is Already Broken - Stocks and Housing Are Next | Harley Bassman & Joseph Wang · IDENTIFIED FROM THE TRANSCRIPT
“Still, you know, at a 5-6 level, they're going to reevaluate and probably, you know, notched up again. So we're not going to know what's going to happen until by January. What do you think, Joe?”
2022-10-10 · Forward Guidance · The Bond Market Is Already Broken - Stocks and Housing Are Next | Harley Bassman & Joseph Wang · IDENTIFIED FROM THE TRANSCRIPT
“I propose that twos at 4.30 in the auction last week, that that's it. Well, that's it as far as we know. And I say that's it because that auction lined up with the Eurodollar Futures, Fed Fund Futures, hitting around $465 for next year. Well, that was the dots rate. That was the level that was indicated by the Fed. So if we've already fully priced in a $460 and they've said that's where they're going to go to, and that's a 430 on twos, I think we're okay there. What we've got to find out now is, is inflation going to go down or up from here? And I mean like next January, February, when this 460 rate becomes active. If inflation is down to eight, nine down to five, they're not going to be cutting rates, but they will stop taking them up. But if we're seeing rates in inflation,”
2022-10-10 · Forward Guidance · The Bond Market Is Already Broken - Stocks and Housing Are Next | Harley Bassman & Joseph Wang · IDENTIFIED FROM THE TRANSCRIPT
“Levered upon that. And now they got to unwind that leverage. And they're trying back and forth. They're trying to leg out of the trade, which of course never works. Everyone to get close to home to find where the level of the market is. Now, as far as what that level is supposed to be, I published a commentary every four to six weeks. It's free. Go to ConvexDMAN.com. You can find it right there.”
2022-10-10 · Forward Guidance · The Bond Market Is Already Broken - Stocks and Housing Are Next | Harley Bassman & Joseph Wang · IDENTIFIED FROM THE TRANSCRIPT
“Movement's that big, you can't get a trade done. A market maker is terrified to go and put a bid on more than 50 million tens because he might wake up a second later and we're down to half point. So basically you lose liquidity. It's almost a circular process. And then clients, hedge funds speculators, they can't take the mark-to-market risk anymore. Margin requirements go up. So the system just closes down on itself, which is a good thing. I mean, it's the same idea of the cure for high prices as high prices. The cure for high volatility is high volatility. People just stop taking risk, which is a good thing to do. But I mean, you're asking what's kind of not broken. What's not right? It's the treasury market. And that's because hard to remember this, but barely a year ago, Powell said, we're not taking rates up until spring of 23. People relied upon that and they got.”
2022-10-10 · Forward Guidance · The Bond Market Is Already Broken - Stocks and Housing Are Next | Harley Bassman & Joseph Wang · IDENTIFIED FROM THE TRANSCRIPT
“Not system blowing up per se. Usually things we get there and things chill out. The Fed does something or something happens in the market to go and relieve things. I'm not talking about ordinary people buying treasures for their account. This is not retail. And it's really not even the Fed. This is just, you know, Wall Street and professional investors who are moving money around. It's just...”
2022-10-10 · Forward Guidance · The Bond Market Is Already Broken - Stocks and Housing Are Next | Harley Bassman & Joseph Wang · IDENTIFIED FROM THE TRANSCRIPT
“Right. So the move at 150 implies that the tenure treasury yield will move something like nine basis points a day. You say in your piece on Convex-E Maven that move of 9.5 basis points a day, that's a volatility that's unsustainable because human beings cannot tolerate such stress for long periods of time. Can you explain the logic of how that results in the system blowing up?”
2022-10-10 · Forward Guidance · The Bond Market Is Already Broken - Stocks and Housing Are Next | Harley Bassman & Joseph Wang · IDENTIFIED FROM THE TRANSCRIPT
“But it's been a very gentle decline, you know. And there are reasons why maybe it's happened and we haven't had some kind of crash yet. And frankly, I don't think we will. But there's an anomaly here that the rate mark is what's kind of disjointed”
2022-10-10 · Forward Guidance · The Bond Market Is Already Broken - Stocks and Housing Are Next | Harley Bassman & Joseph Wang · IDENTIFIED FROM THE TRANSCRIPT
“For like, you know, a few weeks now, this can't last, and I say it not because of fundamental idea. It can't last because people can't do it. The move is a real number. So 150 is an annual volatility of interest rates across the yield curve. You divide that by fifteen point nine, call it sixteen for gentlemen, which is the square root of two hundred fifty two, the number of days train days in a year. So one hundred fifty divided by fifteen point nine is nine and a half. You can't move nine and a half bips a day every day for a month. Well, I guess you can in theory, I suppose, but it just doesn't happen. People get exhausted from this. Everyone just cleans out all their positions and they get close to home because they just can't take their stomach the risk anymore. So that's kind of what I'm seeing has been the interesting thing. What's anomalous is the VIX is like under 30. We're down 20-odd percent.”
2022-10-10 · Forward Guidance · The Bond Market Is Already Broken - Stocks and Housing Are Next | Harley Bassman & Joseph Wang · IDENTIFIED FROM THE TRANSCRIPT
“Well, guys, glad to be back. I think last time we did this, I was in St. Bart's recording was puppy. Almost. Well, you know, I suppose, you know, when the Fed breaks the toy, that's how it all ends. I'm not going to say that we've broken anything yet, but I think the treasury market is kind of right there, very close to it. And why I say that as not having to do with rate level or even the curve, it's just the move index at 150 is just off the charts. The move index, which is the VIX for bonds, generally is 80 to 120. It's kind of the range over there. To get into the 50s, you require the Fed to go and step on the market, which they've done. The times you've seen the move get into the 50s is when the Fed, like what Greenspan did, a measured pace or QE. And when you get up above 120, above 150, you're in panic zone. We've been clicking at 100.”
2022-10-10 · Forward Guidance · The Bond Market Is Already Broken - Stocks and Housing Are Next | Harley Bassman & Joseph Wang · IDENTIFIED FROM THE TRANSCRIPT
“That suggests to me that as they step away there will be fragility there. That suggests that perhaps ECV will come and backstop. Their bond market. So Support from other sovereigns, including the BOJ which has yield curve control. I think puts kind of a soft ceiling around it. Maybe a bit above 4% where we I think we go above that, but It seems like that might be holding Global yields down What”
2022-10-10 · Forward Guidance · The Bond Market Is Already Broken - Stocks and Housing Are Next | Harley Bassman & Joseph Wang · IDENTIFIED FROM THE TRANSCRIPT
“Authorities came and they came and they backstopped it. And when they backstopped it, you saw the Treasury yield to drop in sympathy. So global bonniotes there tightly connected with each other. So if something happens In Europe, it will also reverberate in treasury markets So I'm getting the sense that as the higher we go, There is more systemic instability. Something will probably break. Throughout the year, I've been suggesting that would be the treasury market. That's because that's what I focus on But I think the other sovereigns are also Pretty fragile as we see in the UK. And right now, what I'm looking at is what's happening in the Eurozone. Robin Brooks has a very, very good chart showing that over the past few years ECP has Basically the sole purchaser Portuguese and Spanish element. Spanish and Italian debt.”
2022-10-10 · Forward Guidance · The Bond Market Is Already Broken - Stocks and Housing Are Next | Harley Bassman & Joseph Wang · IDENTIFIED FROM THE TRANSCRIPT
“First of all, it's a pleasure to be here and great to see you again, That's a really good question, Jock. My view fundamentally is that Are based on supply and demand, and if you look at the supply and demand dynamics, It's very clear that we have tremendous amounts basically unlimited issuance coming up in the coming years. It's just not clear at what price the market will clear. So structurally, I think we're heading into a world. interest rates trend higher. There are fundamental reasons as well, as I think I've mentioned before. I think we're going to a world where inflation will be structurally higher. a number of reasons that we can talk about later. But at the moment though, This is what I'm seeing in the market. I'm seeing that Something broke in the gilt market in the UK, and”
2022-10-10 · Forward Guidance · The Bond Market Is Already Broken - Stocks and Housing Are Next | Harley Bassman & Joseph Wang · IDENTIFIED FROM THE TRANSCRIPT
“The tenure is going to go to 4% given that we're very close, the 10 years started this year at 1.6, 1.7%, and now it's at 3.8%. We're so close. It's really been stunning just how much the sell-off has gone. What is your outlook on can it continue? Are you as bearish on bonds now as you were at the beginning of the year? Joseph, let's start with you.”
2022-10-10 · Forward Guidance · The Bond Market Is Already Broken - Stocks and Housing Are Next | Harley Bassman & Joseph Wang · IDENTIFIED FROM THE TRANSCRIPT