Peter Tchir on the Markets (Radio)

made will be. So we're still expecting something aggressive. You probably heard me say your Danny expects a hundred, the market expects seventy five year thoughts on that. I think we probably get seventy five. But I do think the set is kind of pushing on making a mistake because even you look at last week's CPI data was kind

of royal markets. A big part of it was the housing inflation was point seven and that's based on owners equivalent rent, and I think there's just a massive lag effect when you look at any sort of contemparative contemporaneous

data on the housing market. It is softening. Here mortgage rates are about six percent, so I think they risk pushing this and no matter what they do, I think they have to send a message that they want to give some time to see how markets are going to be impact from what's already been done, and that they remained data dependent. If he comes across as aggressive as he was at Jackson Hall, markets are going to be in some severe trouble. Tell me something here, Peter, I mean,

ultimately is this you know? I think it was Daddy Blancheut from Duman University as a professor talking about how the FED is actually raising rates at a time when he sees inflation dissipating, accused the FED of actually then perhaps going in essentially pushing the U S economy into a deep, deep dive and saying that they were really victims of group think. Yeah, I would say along those lines.

You know, there's a reason traders have stop losses, right, if you make a bad decision, you want to get stopped out. And I think if you look back, it was pretty clear we probably should have ended QUE last summer. And when they were giving reasons for keeping QUE last summers about bondmarket liquidity, etcetera. And yet bondmarket liquidity, especially in the treasury market, was better last summer than it is now. I think they miss transitory and are now

making up for that. And two wrongs do not make a right. So I think we're supposed to be, as you know, Danny says, let's be a little bit cautious here, let's see how things play out. And I think we're going to find that the politicians and mainstream media are going to realize that job losses and a recession are

far worse than a bit of inflation. But Peter, the FED is looking at housing market that I mean, these rents are not going to come down anytime soon, probably because I mean it's part of the nature of things. Rates are high, so nobody's buying now, and so you know people will rent and there's demand, and so the rents are going to stay high. And that's a third of CPR, So it's gonna take some time. One there's a lag effect on how they calculate the rental equivalent.

They basically, I think, take about one tenth of the homes. So I they heavily understated the inflation that we're seeing on the rent a year ago, but now they're going to be overstating that for a period to come pet we're just talking about about the fet just conclude on that subject essentially by asking you whether j Pale has turned and heaven for saying this taint turned tend Pool

Volca just at the wrong moment. Well, I think Jackson Hole gave him the opportunity to sound very very hockeysh there were no Q and A, there was nothing he had to respond to. I think it's gonna be a little bit more difficult, given where yields are, what we're seeing in some of the economic data and even stocks for him to sound quite as hockey. I expect he'll kind of come across a little bit doubbish here, and they're not massively but just enough to spur a little

bit of a relief rally. And the other thing I'm looking for him to talk about is quantitative tightening and if they can do something to address the market's concern about needing to sell mortgage backed securities. That's been a big part of the rise in mortgage yields, which is really hit housing. So look for him maybe to say something about that where maybe quantitative tightening switches a little bit more to the treasury side of things rather than

the mortgage side. It feels like we do have some residual strength in the US economy, and I'm curious how we can measure the slow down. The slowdown in housing for instance, is it prices falling, is it the number of transactions dropping general activity? Is it rents? And then when you look at the economy, it seems like both consumers and companies their balance sheets are looking okay. So I'd agree that consumers and companies the balance sheets look okay. Um,

particularly investment grade companies. I'm fine with that. You look at some of the retail spending numbers, though they were okay but not great. You saw some and what's concerning me is on the retail sales, you also saw it in the jobs numbers. You're starting to see revisions to pass data. So maybe it was too optimistic and I'm stuck in this is we're really trying to figure out, Okay, where's the ball going to be? Where should we be

moving to, not where we're at. And you start looking at mortgage rates, what you're seeing in the housing data, what you're seeing in terms of um confidence, whether it's builders, you look at the inventory overhangs, you start looking at the Baltic dry shipping. Things to me that are better leading indicators have all rolled over a little bit. So I think you're gonna see the So you'd rather see I mean, let's let's put it this way. You just much rather see a little patience from the Fed. That's

your basic point. Yes, I think I'm really concerned. They've already gone too far, and let's not push it even further. Let's see where this things plays out. And look at housing, right, the cost of carry was negligible, inventorious, cost of carry was minimal. All those now have real cost of carry. Let's see how this goes out. Let's see how the winter plays out in Europe, because that could be a disaster economically as well. So rather than pushing this too far,

let's say we've done a lot. We're going to not pause, but we're gonna be very very data dependent, and we want to see where this is playing out. And I think that's necessary to keep the economy on pace. But as the strength of the dollar been hinders or help for the US of con me you know, I think it's been good in respect that it's been driving down commodity prices since most of those trade in dollars, but I think it's going to be tough for companies who

have to translate earnings back to dollars. So right now, I would say it started the summer as being good because it helped push inflation pressions down. Right now, it's about neutral. If it continues, I think people are going to be really worried about US earnings because we've moved so far in certain directions, particularly with the dollar, but also with a pretty broad sell off in equities. So if you look at the equal weight e t F for the SNP, those valuations are not high at all.

Those those stocks have suffered a lot. I mean, really, um, you wonder whether or not if the FED pauses, or if it does fifty instead of seventy instead of fifty, whether or not it's just kind of unleashes revenge reversals. So what are you thinking about in that area. I'm less concerned about how much they hike and more about the messaging. And I think that the messaging is that we get a pause. I think we get a very

nice relief. Rally, what I'm seeing it's we switch from over brought to oversoul that record pace two weeks ago, we felt overbought and now we feel all oversould. So yes, I think that could raise a really nice rally. But then I think we're gonna have to sit back and say what are earning is gonna look like? Where is cash flow coming from? And I keep looking at crypto.

I think we get a short term bounce in crypto, but if that falls off, I think it's going to be a symbol that all these very aggressive assets that rose from almost nothing too really high could continue to go down. And yes they're down, but many are still up fift or from two years ago, so I think

there's more room to fall. And if we are headed towards a nominal recession in the US, not just a real recession, but a nominal recession, which I think is a real possibility, no pun intended, we will see further pain in equity markets while yields fall. So we have not yet seen a really good risk off type moment where yields go much lower and equities fall, And I think that's going to be the final capitulation. I think

we get that sometime eight to this fall. Peter, what is the deal in your view of quantitative tightening and how is it playing out with regards to liquidity in the economy itself. So I find it easier to think about quantity of easing easing first and to me, quantity of easing pushed people out the risk spectrum. So when the FED came in and bought treasuries, whether it's ten year, twenty year, or thirty year, whether they bought mortgages, it

made people along the curve have three decisions. You could either take on more duration, you could take on more credit risk, or you could take on less liquid assets. And I think that pushed everyone out. And I use this example. It's called Newton's cradle, but I don't know if you've ever seen those little things that have six balls hanging on strings, and even with the one ball, it hits the first one and it's the last one that moves out. So I think that's what we saw

when they were doing quantitative easing. That risk got pushed out, and you saw the cryptocurrencies of the world. You saw the arch type stops of the world really just skyrocket because there was no more risky asset for people to invest in. So that creates the opportunity. I think quantitative tightening, you're going to see the opposite, and you're gonna see people be able to move down the risk spectrum take

less risk for the same returns. I don't think it's going to be quite as dramatic because one thing to remember is the set was buying ten year treasuries, thirty year treasuries, laundated mortgage backed securities. By and large, they are going to allow things to mature, so you're not going to have that duration impact, So it's not going

to be quite as dramatic. But I think you're gonna see on the fifteenth of the month and the thirty month or the end of the month, because that's when treasury is mature, you'll see pressure on markets as people have to deal with that lack of liquidity. So there's still pressure on the stock market. But does the bond market look fairly well supported here with a two year yield really pushing fo Yeah, I think it's very well supported.

I really think you want to own yields here. Even if the economy stabilizes, we do well and more and more. I'm looking for that big risk off move, so I do want to own treasuries. YEA. Looking at the treasury market itself, and you know, do you think it's bottomed yet. I think it's very close. And you know, we're talking and we've seen people talk about say ten percent return for the long bone of people. Well, that seems aggressive

in the next month or two. But if you look at the current US long bone, the thirty year, it was issued around ninety eight cents on the dollars trading at ninety one and less than a month and a half. So that sort of potential return is there. And I think the upside is much better in the rates market right now than the downside. So yes, I want to own that. All right, Peter, we will close it. There are interesting discussion. Thanks very much for joining us here.

Peter cheer, and of macro Strategy at Academy Security said