We are so honored. In short notice, she came into a Rebecca Patterson is with us with all of our work at Bridgewater over the years, and of course at best in her trust as well. What does boring quiet money do given the shock of a two hundred and fifty six thousands to woe is me, doom and gloom America forget about it? What does quiet money do this year?
I think quiet money is already invested in equities, and as long as the consumers holding in and they have jobs and the confidence to spend in today's data says they do, then I think you can stay in equities now. Given valuations, the upside's going to be a little more limited unless we keep getting positive surprises. The challenge, I think is where do you go in the equity market?
Right small cap initially rallied on the Trump win, thinking deregulation, lower rates, it's going to be great, and they've given back all of those gains right after the election because of rising yields. Small cap needs strong growth and lower yields, and right now they're not getting enough of both.
Lisa, thanks for doing that report. Sweeney was occupied. I saw him on the phone with his realtor. Yeah, I got a thirty year bond four point nine to ninety percent. Wow, does that change the landscape?
It does, Tom, and you we got big movement on the front end of the curve, the two years up ten basis points four point three six percent. There. So, Rebecca, how do you think the Fed is going to digest this data that received today? Because wait, the labor market looks pretty solid.
Yeah, I mean, I agree with Ellen who has just done before me that January pause is baked, fully baked, gotcha, And now the market is discounting that the first or next i should say cut or the first cut this year doesn't come till October. Who the heck knows? Right, It's going to depend on all the policies that get rolled out. If the economy slows, if something cracks with the upper income consumer to hurt their confidence and cause them to pull back spending, this picture can change. If
immigrants fall sharply, wage costs go up, that could. I mean, there's a lot of variables that could move us in either direction. So to me, in October cut doesn't seem crazy. I'm more interested right now and what's going on in the long end. The tenure yield going up, pushing up mortgage rates, which is hurting the housing market, but also what's causing it, right, and we should talk about term.
Pre Well we're gonna do that right now. We're going to talk about term premium because doctor Patterson said, Tom, we're talking about term premit. Look, let me cut to the chase you have been vetted. Is a FED governor, a president, I don't know, somebody you know carrying coffee at the Echos building. Whatever you've been vetted, Rebecca Patterson. This, this live tweet says it all. The last cut was a mistake. It killed the Santa rally. Fold the last cut into your concern about rising yields.
Well, it's fascinating that as the Fed has cut a hundred basis points, the tenure yield has gone up more than one hundred basis points. It's highly, highly unusual. What I'm worried about now is if the rise and yields is not a reflection of growth. I think today's move right now in the ten is stronger labor markets, so a higher Fed funds rate and strong growth. That's not
a bad thing. But if the tenure is going up because of uncertainty around policy, around FED independence, around inflation, then you are going to see rising yields hurting stocks. And we've seen that pattern over history. That's what I'm worried about, not the level of the yield. What's causing the rise in the yield.
Well, just to that point towardst the slock just in a matter of minutes was out with a little note here. Higher for longer continues to be the key theme in markets. Higher for longer in the front end because of the strong economy, higher for longer in the long end because of a strong economy and fiscal worries, which goes to your point. So I guess that kind of goes to the question when are higher interest rates a real problem for stocks?
Again? Psychologically maybe if we crack five percent, that could do some damage in a short term basis, but I think I think the bigger deal is going to be again, what's causing it. I'm watching things like Economic Surprise Index. If growth prizes are disappointing, that's bad for term premium, i e. Term premium goes up in a bad way. If inflation expectations we have data Monday, we have CPI coming up. If those things are moving in the wrong
direction and also earnings. Look what these CEOs and CFOs are saying, if they're highlighting fiscal worries, if they're highlighting rates, that could get reflected pretty quickly in term premium also pushing up you.
Yes, that's right, we wanted to go. I'm gonna pick on Brian moynihan. I could be James Diamond or Frankly any other C class officer out there. They've got the bright lights of inflation. I got a two hundred and fifty six thousand jobs report four point one percent. I'm sorry, that's an anominal GDP locked in. Do we underestimate the revenue growth that we're going to see. I'll a Delta Airlines, Yeah, six percent up in business class because Rebecca's flying around the country on Delta.
Well, Delta's great. I mean, if you have to pick one, that's that's the one that goes domestically.
That's my first seat's taken.
Yeah, it's true.
In France and the fistfights exactly, they're all talking in French. I don't know what they're saying.
So what are we doing here? I think with the equity markets, one of the concerns is boy, we really have to If we're not going to get a rate cut until October, then boy, earnings really come front center to support this market. Is that a risk issue for you?
Yeah, because again there's a smaller and smaller chunk of the consumer that's holding everything up. Right. The lower end consumer, we know, is hurting. So you need the upper middle class and the upper income consumer to continue spending. They can they have the jobs, they have, the income, they have wealth creation from housing inequities. Do they have the confidence and willingness to keep spending? And that can change quickly. Right now, it looks good.
But with a nominal gd I mean, where would you model out nominal GDP? I don't want you to do it because I know you're not doing it, because you know you're on in this wonderful garden leave. But if you had an Excel spreadsheet in front of you, you've got you've got to model four point eight percent, five percent five percent plus nominal GDP.
Right, Yeah, yeah, No, it's hard to get barish on equities in that environment. Again, the question is given valuations, where do you go and the other thing beyond just the consumer and the job market, think about tech, right, we know, forget about Navidia. The rest of the mag seven this year next year are going to be spending
two hundred and fifty billion. Yeah, the Microsoft eighty billion number less Friday exactly, and that's money that's going into the economy, also supporting this big nominal GDP number.
One of your family members calls in time lose the jobs report. Talk to her about the dollar. Oh, the dollar, call for remilglam Patterson.
I think we have another strong dollar year. The thing I'm focused on really is the Chinese Rememby. They intervened today to try to slow the depreciation. They need to depreciate. But if they depreciate in a Trump administration, he's going to come right back at him. And so what do they do. They have to They have to stimulate the consumer. That is are only way out and so far President she is not willing to give on that.
Can you model a vector of depreciation back to where they were with weakness pre two thousand and five. I think it was hoof. That's a big move.
That's a big movie trying to make some news.
Look.
In twenty eighteen, the rememby fell ten percent against the dollar, during the trade war. Most economists and strategists I'm talking to think that is very likely to happen again. So here's your headline. The Chinese rememby if the PBOC, if the central Bank lets it, is going to fall ten percent or more this year. The question is will they
allow it? Are they are they going to avoid capital flight worries and prevent it, or are they going to do it because they need it for exports, they need it for manufacturing.
Did to change your outloc at all? Just real quickly with its new administration coming in.
I want to see which policies get pushed forward first and the size that matters so much to me. So I think we're all going to know a lot more, probably by early February.
Thank you so much, are coming into the Rebeccan yours and