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We are thrilled to bring you Bob Michael Global had a fixed income JP Morgan Asset Management the real yield out of two point one one percent. I haven't done a standard deviation study. When does a higher real yield impinge on the American economy and on industry in America?
Well, I would argue right now it's already starting to have an impact, because it was only a week ago that we came out of the FOMC meeting expecting a couple rate cuts, and you looked at the labor market that was their primary concern for good reason, it seemed a bit soft. Now you're paying a lot more to fill up your automobiles, and if you're a business, your input costs or energy's gone up. I would say it's having an impact right about now.
If that is the case, certainly for a lot of full are starting to feel it. How does the FED react to that? There's really not a whole lot they can do, is there?
I think the problem is at these levels there's no obvious solution because even ourselves with one hundred dollars oil, we don't see recession. We see growth. Slowing down a lot from where we had it, inflation going up a little bit. Then they just have to wait and see what cracks First. Does the labor market come under a lot of pressure and unemployment go up? Or do they see energy prices passed through to finish goods and services and consumers still buying and demanding wage price spirals.
David Rosenberg in Toronto publishes moments Ago Rosenberg Research quote, still no market panic inequities even with a vis out of twenty nine point five three. How do you measure in Is there panic in the Bob Michael world? I mean price down, yield up? How does it you know? Equity panic? How does it work in the bond space?
It's well, there are also volatility indicators in the bond market, and they've actually been muted. So it's been a surprisingly orderly sell off, a little bit at a time. A lot of confidence that you have an administration looking for an off rapp they'll find one. They watch the markets, they know the midterm elections are coming up soon. They have to figure out how to extricate themselves from the Middle East, and that's what the market's hanging it's hot on.
So the FED has a little bit of leeway the US economy. We are a net exporter of oil. But boy, I guess we're all learning how exposed other parts of the world are to this pinch in Mid East oil. How do you expect other central banks around the world to react here?
It's strange, right, because this all started with us being told that twenty percent of oil passes through the Strait of Hormuz. So you say, okay, sixty dollars a barrel, let's go to seventy two dollars a barrow, maybe a little premium in there. You're up at eighty. Not you're going right to one hundred and hanging out there and expectations I saw one could be two hundred dollars a hour. I think that's a bit extreme. I think by the time you get to one twenty to one point fifty,
you'll create a tremendous amount of demand destruction. So it's a bit puzzling that you're there. Unlike the FED, which has a dual mandate, they have to watch the labor market as well as inflation, the ECB and the Bank of England have single mandates. They have to watch inflation and there's no differentiation between core and headline. All they know right now is headlines going up a lot. Hence
they're talking hawkish. You would expect the ECB to hike rates once or twice in here or watch for the Bank of England.
You have a sterling academics which goes back as far as Persian. You're work in Greek and Latin with all of your academics at pen and your work of course driving the bondship for mister Diamond. The cultural overlay here of Persian patients. What I keep reading in informed articles is these people are patient. Is that what you would would you agree with that Iran will be patient beyond anything?
Well, if you look at their position, there's little else they can do. A lot of the infrastructure in their country has been destroyed, and yet somehow they're able to control the global supply of oil by controlling the Strait of Hormuz with a fleet of drones, despite all the military might of the West. And I think this is what the market's starting to get concerned about. The administration may want an off ramp, but the Iranians don't need to give him one.
That's that simple. Bob Michael, think us so much,