YouSaid · the spoken record

Julian Brigden

lines on the record: 101
first: 2023-07-26
most recent: 2023-07-26
sittings or episodes: 1
sources: podcast

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“No, I mean, you do have to roll it over, but you should spread out, you know, if you're looking at the most, if your treasury, right? On paper, Jack, and we'll talk about that. On paper, Treasury should be looking at the cheapest way of funding US debt.”
2023-07-26 · Forward Guidance · Julian Brigden: Markets "On A Knife's Edge" After July Fed Meeting · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, so I think, look, when it comes to what Treasury does, there is large net issuance about to be done, net new issuance, right? So we haven't just got to refill the TGA. We've got to fund hundreds of billions of dollars of new net issuance, aside from rolling over existing debt. I think we're about 18% of the total float is now in bills. There's a committee that advises Treasury made up of all the sort of primary dealers. And they've sort of said not more than 20, right? Please don't try and roll over the whole of the National Debt in the Bill market, right? This would be bad, bad news, right? Apart from being ridiculously expensive, right? But as I've said.”
2023-07-26 · Forward Guidance · Julian Brigden: Markets "On A Knife's Edge" After July Fed Meeting · IDENTIFIED FROM THE TRANSCRIPT
“We went, right now, all in. Now they're definitely going to cut. And the problem is the equity market went up because they pushed in more cash, right? At the same time that the TGA is coming down and pushing in more cash. And so the equity market just sat there and went. And so the bond market went, oh my God, right? And then, you know, and this is the problem we get, right? If you get equity resilience, it's very, very hard to see bond yields drop and get bond strength. Because you're just easing financial conditions right across the board, then everything's easy.”
2023-07-26 · Forward Guidance · Julian Brigden: Markets "On A Knife's Edge" After July Fed Meeting · IDENTIFIED FROM THE TRANSCRIPT
“Fed was going to cut like in the month of May, they were done. And that was because of SVB, right? They were going to cut.”
2023-07-26 · Forward Guidance · Julian Brigden: Markets "On A Knife's Edge" After July Fed Meeting · IDENTIFIED FROM THE TRANSCRIPT
“The world worked in the way that it used to. So, in other words, rates and credit would tighten financial conditions. And what they fail to understand is the equity market doesn't work like that anymore. And because the equity market is driving nominal GDP from the behavior of the CEOs, even if a bank went down, if the equity market didn't respond, they were wrong to bet, Jack. And we got to a point which was interesting where you look at the spread between two-year yields and fed funds, two-year bond yields and fed funds, where we pushed two-year yields so low relative to where Fed funds were that historically, and I think this was in May, historically going back 30-odd years, you were essentially betting that at that minute.”
2023-07-26 · Forward Guidance · Julian Brigden: Markets "On A Knife's Edge" After July Fed Meeting · IDENTIFIED FROM THE TRANSCRIPT
“Trillions and trillions of dollars worth of liquidity, right? Because without that, Apple may have been the best ant in the pile, but it wouldn't be the behemoth that it is today. So I think there's a lack of honesty in the equity market. But I think the big thing that the bond market got wrong this year is that they looked at things like SVB and they assumed that.”
2023-07-26 · Forward Guidance · Julian Brigden: Markets "On A Knife's Edge" After July Fed Meeting · IDENTIFIED FROM THE TRANSCRIPT
“I would say that the bond market has some of the more sort of thinking investors in it. There's a lot more that you can do in the bond market because you can trade the shape of the curves. You can do all these sorts of things. So I think it's a more nuanced market. I think unfortunately the bond market's been slow to take on board this idea of what And I think broadly investors, I mean, even equity guys, right? You know, if you listen to some of the traders now, they will admit that it's really about liquidity, right? But if you listen to the analysts on TV, they're not going to say it doesn't really matter anymore, right? You know, oh, I can pick Apple and that would be a good stock pick. But the fact that Apple's done what it's done is really a function of the Fed having...”
2023-07-26 · Forward Guidance · Julian Brigden: Markets "On A Knife's Edge" After July Fed Meeting · IDENTIFIED FROM THE TRANSCRIPT
“You think that the bond market is still the smart money, the equity market is the dumb money? That's the conception that you referenced earlier. And I actually think that the price action of January, February, March 2020, as you said, it perfectly encapsulates that kind of traditional view. But the bond market was so, so wrong in 2021 and 2022. I mean, it went from the two-year went from basically zero to, you know, above 5%. And the equity market actually has done a little bit of a better job, you know, kind of sniffing out disinflation. And as it was rallying, people were saying, why is it rallying? Why is it rallying? And now we're seeing the earnings kind of, the mini earnings recession of last year for tech is kind of getting a little bit better. So is equity still the dumb money in bond? Is the smart money or is bond market smart money too?”
2023-07-26 · Forward Guidance · Julian Brigden: Markets "On A Knife's Edge" After July Fed Meeting · IDENTIFIED FROM THE TRANSCRIPT
“Then don't expect that to be a benign outcome. Something else will have to do the tightening in the real economy because we will not slow down in that snow. The risk is we will re-accelerate.”
2023-07-26 · Forward Guidance · Julian Brigden: Markets "On A Knife's Edge" After July Fed Meeting · IDENTIFIED FROM THE TRANSCRIPT
“They don't care. They don't care. So I think things are slow in that sense. Jack, I think things are a little slow to react. And that's kind of what you got to go back to your question is 0708, right? We kind of saw these things breaking. We didn't think they were a problem. Clearly they turned out that was wrong. So we will see. I think, as I said, I'm looking at equities and thinking, you know, they are very stretched. The earnings aren't supporting these valuations. We have got stretched versus underlying liquidity metrics. And so they should correct. And that should help to tighten financial conditions. I'm just saying If they don't, and God forbid to your scenario, they go to 5,000.”
2023-07-26 · Forward Guidance · Julian Brigden: Markets "On A Knife's Edge" After July Fed Meeting · IDENTIFIED FROM THE TRANSCRIPT
“Toilet rolls, right? Them in cans and food and masks and the whole thing. Now I questioned the logic because I spoke to friends of mine in Hong Kong and went, you know, is this gastric? Do I really need 500 toilet rolls? And they're like, not really, mate, but that's what's selling out. So I suggest you get some. But we knew that was coming. But the equity market chose and the bond market was moving accordingly and the dollar was moving accordingly and commodities were moving accordingly, but equity markets did their classic kind of see no evil, hear no evil until it really hit home. And so I think a lot of that is to do with equities of these days are propped up on liquidity. And until the shock factor is sufficient to kind of shift that liquidity movement and out of equities and into bonds in sufficient size,”
2023-07-26 · Forward Guidance · Julian Brigden: Markets "On A Knife's Edge" After July Fed Meeting · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, I mean, I think, yes, because I think there's a tendency to look at, and this is one of the big problems, there's a tendency to look at asset prices as a metric of the real economy. And as long as that known unknown is out there and something else is ticking over, we tend to create this narrative of, oh, well, okay, we know this is a problem, but look, stocks are up today. So you get the journalist who calls me and goes, so Jin, we're like, you know, why were stocks up today? And you're like, And why does that mean that commercial real estate isn't a problem? It doesn't. It just stocks are up today, right? You know, so it's. So, I think stocks in particular tend to be the last thing that responds, Jack. I mean, look, we all knew in COVID, in”
2023-07-26 · Forward Guidance · Julian Brigden: Markets "On A Knife's Edge" After July Fed Meeting · IDENTIFIED FROM THE TRANSCRIPT
“They're just not yet. But when you look at the structure, I mean, there's no question that credit to a certain sector of the economy is tightening. We know that commercial real estate is a disaster. All right, it's a known unknown. So it's not quite as shocking to the system as before. But it isn't good, right? It is going to be a net drag on economic growth going. It definitely.”
2023-07-26 · Forward Guidance · Julian Brigden: Markets "On A Knife's Edge" After July Fed Meeting · IDENTIFIED FROM THE TRANSCRIPT
“I find it very hard to believe it's a sustainable rebound in growth. Third point is this difference between the haves and the haves not, right? There are certain parts of the economy that are just much more resilient than have typically been the case, right? Because typically, as I said at this point, you would have had lower stock, so CEOs would have been responding. Lower stocks would have felt fed through into wealth effect for the very wealthy, right? They would not be spending because they'd be seeing their portfolios drop. So they wouldn't be going to, you know, Louis Vuitton or ponying up for a new merck, right? Or buying a new house with equity gains, right? So all of those factors would have come through.”
2023-07-26 · Forward Guidance · Julian Brigden: Markets "On A Knife's Edge" After July Fed Meeting · IDENTIFIED FROM THE TRANSCRIPT
“So I think in part because of this element of hyperfinancialization, because you've got this rebound in stocks in the first half of the year, and now that is manifesting itself into the real economy through this behavior of CEOs, right? We're not seeing the layoffs that we should have seen. If stocks hadn't rallied, Jack, because we hadn't pumped in more liquidity or we'd managed to actually drain some net liquidity out of the system, stocks would be lower, CEOs would be firing people, all the recessionary calls would be correct. So I think that's one element. And the second one is we've got ongoing fiscal spending, which is keeping the real side of the economy going. It's keeping consumers perhaps a little better supported than we thought was going to be the case. I think those are the two factors that I see. I do think, however, that there are, you know, my...”
2023-07-26 · Forward Guidance · Julian Brigden: Markets "On A Knife's Edge" After July Fed Meeting · IDENTIFIED FROM THE TRANSCRIPT
“I mean, I think no, key to both is nominal GDP staying high for now. Because as I said, I don't think it matters whether I think it would be more damaging to stocks if inflation rose. Okay, that's something that they would immediately go, oh my God, right? But actually, for the bond market, if you started to see real growth re-accelerate and employment metrics, what nascent signs of weakness we have seen in the labor market start to come off again, Jack. So labor firms up again or ISM re-accelerate, right? The PMIs start to reaccelerate. I think that would probably, the bond market's more cognizant of that type of metric than the equity market is, at least initially.”
2023-07-26 · Forward Guidance · Julian Brigden: Markets "On A Knife's Edge" After July Fed Meeting · IDENTIFIED FROM THE TRANSCRIPT
“And then into stocks. Might be wrong. I'm not placing the bet particularly yet. We're running very, very little risk here because it has been quite hard to try and play this. So I'll be waiting from price signals from the market to give me the clues to which one to push. You know, if I start to see breakdowns technically in equities, I'm more than happy to jump on that baby. But likewise, if I start to see bond yields start to break out higher, I'll push that one as well. But something has to give.”
2023-07-26 · Forward Guidance · Julian Brigden: Markets "On A Knife's Edge" After July Fed Meeting · IDENTIFIED FROM THE TRANSCRIPT
“Basically betting on both of them going down, right? So you have a short in the equity market and you're betting that bond yields are going up and prices are falling. And the reason they do that is it lowers the correlation and the risk of that position so they can run a bigger position. It offsets it somewhat, right? And you don't kind of have to make that choice. So you kind of you're playing both against one another. My gut is... Initially, and certainly this has been the MO Thus far is that bonds will have to do probably more of the heavy lifting, at least initially. So it'll be weakness in the bond market, which you'll feed through, and we talked about this before, either to credit.”
2023-07-26 · Forward Guidance · Julian Brigden: Markets "On A Knife's Edge" After July Fed Meeting · IDENTIFIED FROM THE TRANSCRIPT
“So, just to pick up that point about quite rare. It has been quite rare since we had the disinflationary shift that Greenspan introduced in the late 90s. That he became that the Fed became more concerned about inflation, deflation, right? Prior to that, actually, they always used to sell off together or rise together prices, this is, not yields, right? Bond prices and stock prices, not yields. So that's what happens when you get inflation, right? So my So, which one takes the strain? I mean, this is the really tough question, Jack. I mean, I have clients who are”
2023-07-26 · Forward Guidance · Julian Brigden: Markets "On A Knife's Edge" After July Fed Meeting · IDENTIFIED FROM THE TRANSCRIPT
“Often quite normal for stocks and bonds to trade inversely. So if stocks rally bonds, don't do well. If bonds do well, that's when equities suffer. Last year where stocks and bonds sold off together, that was actually quite rare. If you stocks do okay, then bonds have to do really poorly. But I'm saying which do you think is more likely? Stocks do poorly or bonds?”
2023-07-26 · Forward Guidance · Julian Brigden: Markets "On A Knife's Edge" After July Fed Meeting · IDENTIFIED FROM THE TRANSCRIPT
“I just don't see how that's possible with a rising equity market. And that's why I'm saying things are on a knife edge right here, right now, Jack, right? Either equities have to correct. And as I said, they look very stretched. Earnings are not supporting valuations, even of these very high flying stocks, right? Is Apple really going to be able to blow it away or are we going to see another disappointment and then further correction? Stocks look vulnerable. I think they should go some way too tighten financial conditions in the next few months. Particularly as we move into the autumn and inflation stops improving at a bare minimum, right? But if they do not Then bonds are certainly the assumption of rate cuts is farcical.”
2023-07-26 · Forward Guidance · Julian Brigden: Markets "On A Knife's Edge" After July Fed Meeting · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, so the current market expectations are this today's hike was probably the last hike. There's probably not going to be a hike in September. If there is a hike, it's going to be in November. That's maybe a 30% chance. And then we're done. So 60 or 7% chance today was the last hike.”
2023-07-26 · Forward Guidance · Julian Brigden: Markets "On A Knife's Edge" After July Fed Meeting · IDENTIFIED FROM THE TRANSCRIPT
“Well, by my calculations, even if we assume a Relatively Benign policy environment, right? So this isn't Volcker, right? This is a newer kind of Fed that's going to try and trade off the absolute level of rates for how long they hold them there, Jack, right? So to go back to what I refer to this opportunistic disinflationary policy framework, by my framework, the spread between nominal GDP and Fed funds is still 200 250 basis points too narrow now if if stocks rise to 5 000 nominal gdp isn't falling So another 200 basis points on Fed funds. That sounds outlandish, and I don't think we would go there. I think in the process something would break. But you kind of see the dilemma, right?”
2023-07-26 · Forward Guidance · Julian Brigden: Markets "On A Knife's Edge" After July Fed Meeting · IDENTIFIED FROM THE TRANSCRIPT
“What I do in fairness, Jack, and I still think it is a risk, but the only way that we get it now, it looks to me, is if stocks are Correct and correct. Quickly If they don't, Jack, and that tightens financial conditions, if they don't, and God forbid, even though this is absolutely not my base case, they somehow find liquidity from elsewhere in the world to continue this sort of miraculous levitation. I'm afraid that growth is going, labor market will remain robust, nominal GDP could even accelerate. And then the Fed is not close to being done. And either they will have to grow a pair and really be prepared to hike rates significantly further, or the bond market will have to do it for them.”
2023-07-26 · Forward Guidance · Julian Brigden: Markets "On A Knife's Edge" After July Fed Meeting · IDENTIFIED FROM THE TRANSCRIPT
“Will prove transitory. And if certainly if wages start to, and they're now above inflation. So real purchasing power is rising again. Then this weakness will prove transitory and the Fed will be looking back here in Q4 and going Inflation's bounce from, let's say, two to four again. And we've still got accelerating PMIs, or we've still got accelerating GDP and all that sort of nascent weakness that we were seeing in the labor market. Claims are falling now? Whoa, whoa, whoa, hold on.”
2023-07-26 · Forward Guidance · Julian Brigden: Markets "On A Knife's Edge" After July Fed Meeting · IDENTIFIED FROM THE TRANSCRIPT
“Know New York Travail $1,000, fine, you know. Look, I mean, so we have given now, can that continue going forward? I think you are starting to see some signs on the peripheral of companies and there was a story on Bloomberg today and something that we've noted. Companies running into problems with, because they've all done this, they've all decided, oh, we want to try and maintain margins. We want to try and maintain that profit. So if we sell a little bit less. That's okay, right? We'll just jack up prices. Our prices will go up 10%, our profits will go up 6%. We'll just sell 4% less units. And there's more signs that that's getting stressed that consumers are going, no, right? But the problem is if the labor market doesn't soften a lot more, the risk is that in itself, that weakness, that”
2023-07-26 · Forward Guidance · Julian Brigden: Markets "On A Knife's Edge" After July Fed Meeting · IDENTIFIED FROM THE TRANSCRIPT
“Well, yeah, I mean, this is the thing. This is the lovely thing about what we did post-COVID, right? Not only did we get this cost push coming through from commodity prices and supply chain disruptions, but we gave everyone the ability to pay those prices because we gave them an enormous quantity of money. And so this is why you saw the sort of dissatisfaction of consumers explode because they were paying those prices. But the best thing is they could pay them, Jack, because we gave them all this money. So what did it do? What happened is American corporations took their fist, shoved it down the throat of consumers into their back pockets, literally ripped their innards out. And we were left with this situation where people could pay it. They don't want to pay it. I mean, you and I probably travel probably more than most.”
2023-07-26 · Forward Guidance · Julian Brigden: Markets "On A Knife's Edge" After July Fed Meeting · IDENTIFIED FROM THE TRANSCRIPT
“PPI's producer price index how much companies are paying for inflation, consumers is how much CPIs are paying for inflation and they can, you know, companies pass them on to consumers, or at least in America, right?”
2023-07-26 · Forward Guidance · Julian Brigden: Markets "On A Knife's Edge" After July Fed Meeting · IDENTIFIED FROM THE TRANSCRIPT
“He's not even on the same planet, as I said, as I think of someone like Volker. I mean, under Volcker, we took... Real tenure yields to almost 10%. They are 1% now. Ours are not really very restrictive yet, right? I mean, don't get me wrong. And here's the thing. I think this is a real danger that those rates will actually ease come Q4 because I do perceive a rebounding headline inflation. Because I think most of the gains that we have seen thus far, and you saw the piece that we wrote, is really a question of falling commodities and material prices, particularly energy, which are fed through into PPI. And I'm actually looking for those metrics to start reversing. PPI in particular, probably next month or the month after.”
2023-07-26 · Forward Guidance · Julian Brigden: Markets "On A Knife's Edge" After July Fed Meeting · IDENTIFIED FROM THE TRANSCRIPT
“So, yeah, people, it's widespread that the mainstream view that FetJPAL has been very tough on inflation and he raised interest rates more than many, many people expected. Maybe not you. You and a handful of others thought, oh my God, interest rates could go to 3% or 4%. Well, now we're at 5.5%. So, you think it's still not enough.”
2023-07-26 · Forward Guidance · Julian Brigden: Markets "On A Knife's Edge" After July Fed Meeting · IDENTIFIED FROM THE TRANSCRIPT
“Yes, you are seeing signs of struggling, but not yet sufficiently That it's really bitten in the economy What you really need to see is you're going to have to do much more damage to the mom and pop side of the economy so that they stop ordering from Microsoft, so they stopped getting all their data stored on the cloud or something like that, right? Something you've got to do hurt these smaller side of the economy, the rate sensitive side of the economy, which is narrower than it historically would have been much, much harder. And the problem is Jay Powell's tiptoeing around that one, right? I mean, for all his, I'm going to be tough, look at what, you know, Volcker did. He's not even on the same planet as Paul Volcker. Not even on the same planet as Paul Volcker.”
2023-07-26 · Forward Guidance · Julian Brigden: Markets "On A Knife's Edge" After July Fed Meeting · IDENTIFIED FROM THE TRANSCRIPT
“Nothing. If you're a millennial who's struggling with trying to make a car payment, you're just about to get your student loans have to start repaying, you're trying to save money desperately to put down on the house and every time you do it, the affordability gets worse and worse and worse, then the fed's done quite a lot of damage. If you look at the real economy and you look at the corporate side of the real economy, likewise, if you're a Fortune 500 company in particular, one of the very big Fortune 500 companies, your cash rich, right? So 5% yields. Thanks very much, right? I'm actually making more money. Now, there's a lot of the vast majority of the S&P 500 isn't cash rich, but they saw this coming. So they turned out their debt. So they're kind of okay for the moment.”
2023-07-26 · Forward Guidance · Julian Brigden: Markets "On A Knife's Edge" After July Fed Meeting · IDENTIFIED FROM THE TRANSCRIPT
“Right. So, JPAL today seems to suggest that financial conditions, as they will refer to, tighten quicker these days because we're all very sophisticated, so we anticipate what the Fed is going to do. And I tend to agree with him. I think that that's kind of fair. So to your point, maybe we've seen quite a lot of the tightening or more of the tightening historically would have seen by this point, right? So we're slightly ahead. The problem, I think, comes a little bit, and this is also an element within the economy, of we have very much a sort of haves and haves not economy in terms of the impact of interest rates and also within the business space. So if you think about it in the real economy, on the consumer side, What's the fed done to me?”
2023-07-26 · Forward Guidance · Julian Brigden: Markets "On A Knife's Edge" After July Fed Meeting · IDENTIFIED FROM THE TRANSCRIPT
“Right. So the economy's too hot, even though real growth, inflation has come down. It's all because nominal GDP is still high. So there has to be a tightening either in the bond market or in the equity market. Bond market, you know, we've heard this argument a lot. When interest rates are higher, it costs more to borrow. It's interesting you said that the stock market is not that sensitive to interest rate hikes. What I'm curious about the economy is do interest rate hikes slow down the economy?”
2023-07-26 · Forward Guidance · Julian Brigden: Markets "On A Knife's Edge" After July Fed Meeting · IDENTIFIED FROM THE TRANSCRIPT
“Ultimately five years from now, maybe AI will have replaced all of us, Jack, but right here, right now, that nascent weakness that the Fed wanted to see. Has stopped accelerating. And actually, I do fear could be about to shift the other way around. And that reflects nominal GDP staying high, inflation coming down a little bit, but real growth re-accelerating.”
2023-07-26 · Forward Guidance · Julian Brigden: Markets "On A Knife's Edge" After July Fed Meeting · IDENTIFIED FROM THE TRANSCRIPT
“But in the US, unfortunately, that isn't the case. In the US, actually, it is the level of the equity market that feeds back into the real economy via the behavior of CEOs and company executives. So the minute they see their stock prices under pressure, they start to fire people, they start to cut down CapEx and spending and so on and so forth. And that obviously was the case last year, right? And that's why we started to see all those headlines about layoffs in Silicon Valley, right? Well, because tech stocks got crushed. But what happened in December? Tech stocks and broad equities bounced. And what have we subsequently seen since then? Well, all those layoff announcements have disappeared. No one's really laying anyone off anymore.”
2023-07-26 · Forward Guidance · Julian Brigden: Markets "On A Knife's Edge" After July Fed Meeting · IDENTIFIED FROM THE TRANSCRIPT
“Some sort of softening, but not real weakness and arguably not enough. And I think what we're seeing now in the real economy, and this goes back to this issue of hyper-financialization, and maybe I should clarify what I mean by that. Hyperfinancialization, we use the term to explain the feedback between Equities in particular and the real economy. So logic would dictate that in if you think about the relationship between the two, it's probably you should say, well, the real economy should lead what happens in asset markets and the equity market. It should be the level of profit is a function of how many people have got jobs, pricing power, et cetera, et cetera, right? That should dictate revenues in the equity market. The level of inflation should take bond yields, et cetera, et cetera.”
2023-07-26 · Forward Guidance · Julian Brigden: Markets "On A Knife's Edge" After July Fed Meeting · IDENTIFIED FROM THE TRANSCRIPT
“Yes. So that's sort of deadened that bit. But we also know that. We had to bail out the banks, SVB, and that led to a short term bump in the Fed's balance sheet. So the net effect is that really for the last 18 months, Net liquidity in the economy has gone nowhere. And that's why while the equity market is off its height in broad terms, market cap, not individual sectors, Is off its highs. It really hasn't crated. It's still relatively strong. And now we've got the AI frenzy, which is taking money, you know, robbing Peter a little bit to pay Paul. So we're taking it from some sectors and putting it to others. But the broad market is still staying quite elevated, Jack. And it is staying elevated at a level. Which would suggest a slowdown.”
2023-07-26 · Forward Guidance · Julian Brigden: Markets "On A Knife's Edge" After July Fed Meeting · IDENTIFIED FROM THE TRANSCRIPT
“It's like if the government is apparent and the private sector is a child, if the parent is spending a lot of money running down its bank account, the child's going to get a lot of that. You know what I mean? Yeah. And then the parent is funding itself now with very short-term obligations. So it's borrowing on like credit cards rather than long-term loans.”
2023-07-26 · Forward Guidance · Julian Brigden: Markets "On A Knife's Edge" After July Fed Meeting · IDENTIFIED FROM THE TRANSCRIPT
“Somewhat suspicious that they've decided to refill the whole thing from the bill market, which doesn't really affect broad liquidity. I'm not going to go into the mechanics, but people need to know that.”
2023-07-26 · Forward Guidance · Julian Brigden: Markets "On A Knife's Edge" After July Fed Meeting · IDENTIFIED FROM THE TRANSCRIPT
“You know, we've written for a number of years that unfortunately stocks no longer have any sensitivity to interest rates. In fact, the correlation has become negative. And it started to go negative early post the global financial crisis where we introduced QE. So essentially stocks don't care about rates anymore. Sectors within the stock market care on a relative basis, Jack. But the broad market The level of the broad market is simply set by liquidity. And we saw the Feds start to do QT in the start of 2022 and we saw stocks fall. But as we moved into 2023, we know things got a tad more complicated. Firstly, Treasury decided to run down their checking account. And now”
2023-07-26 · Forward Guidance · Julian Brigden: Markets "On A Knife's Edge" After July Fed Meeting · IDENTIFIED FROM THE TRANSCRIPT
“uncomfortably lower growth and potentially higher unemployment. And we don't have those metrics. And in fact, in recent months, the risk is once again, because we've got this resilience in the equity market, we're actually seeing some, what we were seeing, nascent signs of weakness, for example, in claims, actually could be starting to reverse. So this economy could be starting to re-accelerate again.”
2023-07-26 · Forward Guidance · Julian Brigden: Markets "On A Knife's Edge" After July Fed Meeting · IDENTIFIED FROM THE TRANSCRIPT
“Yes. And so look, at a bare minimum, they can't cut in this environment, right? In a bare minimum, they just simply can't cut. And if things do not slow and they remain at 6.75 nominal GDP, irrespective of said whether it's all growth and no inflation or all inflation and no growth, They may have to hike, right? I mean, this is the point. They would like, I think, to slowly grind it out. I think on our last call, we talked about, or certainly on your podcast, we talked about this opportunistic policy framework where they hold rates higher for longer, right? They may not push them as high as you might have seen in other tightening cycles. So they don't really definitively kill the economy, but they have to force the economy into a period of”
2023-07-26 · Forward Guidance · Julian Brigden: Markets "On A Knife's Edge" After July Fed Meeting · IDENTIFIED FROM THE TRANSCRIPT
“Fed isn't done, the economy is running too hot, so the Federal Reserve has to raise interest rates more to slow the economy down, to slow inflation down. The disinflation we've had so far is because the price of oil was at $120 a year ago. Now it's not. And that can only go so far.”
2023-07-26 · Forward Guidance · Julian Brigden: Markets "On A Knife's Edge" After July Fed Meeting · IDENTIFIED FROM THE TRANSCRIPT
“And that's simply going to feed through into wages and core inflationary pressures. And so what you're going to find is, sure, you can have headline inflation drop because we're seeing a big impact of base effects from energy and commodities. By the way, that's all going to start dropping out in the next couple of months and reversing, I think This thing could come back very hard and bite us in core inflation. So essentially what it will tell you is that the Fed isn't done. Just not done”
2023-07-26 · Forward Guidance · Julian Brigden: Markets "On A Knife's Edge" After July Fed Meeting · IDENTIFIED FROM THE TRANSCRIPT
“We don't we have 3.6% unemployment, which is almost sort of 50, 60 year low. And so, if we try and grow real growth at anywhere close to those numbers, right, remembering that JPAL told us a year or so ago that trend growth was 1.75, trying to grow at three to four times that is just simply going to place too much stress on the labor market. A labor market, he said he wants to see soften where we rebalance demand and supply. And if you're trying to go at three to four times trend growth, there's no way you're going to be rebalancing that equation. You're just going to be trying to demand demand, demand, demand.”
2023-07-26 · Forward Guidance · Julian Brigden: Markets "On A Knife's Edge" After July Fed Meeting · IDENTIFIED FROM THE TRANSCRIPT
“High real growth to just offset to fill that gap to nominal GDP. So let's take the most extreme example, Jack. Let's say nominal GDP stays at 6.75%. And tomorrow morning we wake up and CPI is zero. Okay? Yes, exactly. Well, I think every equity bull's dream, here's the problem. Definitionally, if nominal GDP is 675 and inflation is zero, your real growth has to be 675 basis points, right? 6.75%. The problem is. We have 3.6% unemployment. So if you go back and look at other soft landings, so for example the early 90s or post the dot-com bubble as we just discussed, at that point unemployment was significantly higher. I think in the early 90s it was like almost six and a half percent at this point in the cycle in the early post the dot-com bubble it was six. So we had plenty of room to kind of run the economy hot, run that real growth hot.”
2023-07-26 · Forward Guidance · Julian Brigden: Markets "On A Knife's Edge" After July Fed Meeting · IDENTIFIED FROM THE TRANSCRIPT
“1% Jack, right? So 575 basis points lower than here, 5.75% lower than here. So the problem is when growth is this high, GDP's growth is this high. You can kind of figure out where the mix is going to go. Is real growth going to be higher? You know, inflation comes down and that's what all the bulls want. They're like, well, this is great. You know, inflation's dropping. Real growth can accelerate because the Fed can be done. Okay. We'll put that on one side and look at that equation in a second. Or alternatively, real growth can remain very weak and inflation can remain high. Now, we know that's not a good equation, right? Because the Fed won't like that high inflation metric. But let's go back to the first bit, very low inflation.”
2023-07-26 · Forward Guidance · Julian Brigden: Markets "On A Knife's Edge" After July Fed Meeting · IDENTIFIED FROM THE TRANSCRIPT
“I think so, Jack, and the problem that I see is A lot of people don't understand this, right? In a non inflationary environment, which we've had for the last 30 years, where inflation is consistently falling, never really had to think about inflation. You always have to think about just growth. And in that context, you really think about real growth. So growth after inflation. But in an inflationary environment, you have to think about real growth plus inflation. And that's referred to as nominal GDP. And nominal GDP is still growing at around 6.75% year over year. Now, the problem with that is that is way higher than anything that we've seen for the last decade. It's certainly way higher than a sort of the level that you'd expect to see in a soft, even a soft landing. I mean, the post.com bubble, believe it or not, economically was a very soft landing, but that saw nominal GDP.”
2023-07-26 · Forward Guidance · Julian Brigden: Markets "On A Knife's Edge" After July Fed Meeting · IDENTIFIED FROM THE TRANSCRIPT
“And rate cuts I just do not believe because of the way this economy is structured these days, we've talked about this, you and I before about hyperfinancialization, this feedback between equities and the real economy. I just don't believe that this is a consistent outcome. Something has to crack. And I don't think either of those outcomes are great.”
2023-07-26 · Forward Guidance · Julian Brigden: Markets "On A Knife's Edge" After July Fed Meeting · IDENTIFIED FROM THE TRANSCRIPT