RenMac Off-Script: Shoot ‘em in the Back

RenMac Offscript originated as a weekly internal research meeting designed to summarize and discuss what happened in Washington, the markets, and the economic data over the past week. It was always intended to be and remains a free-flowing conversation with no discernible objective other than to extract the wisdom and opinion of our analysts and their expertise. This is a conversation among colleagues.

Individual circumstances are unique and nuanced. Do not mistake these conversations for investment advice because it's not. Here we go. All right, welcome to Red Mac Offscript, where we openly discuss markets, economics, policy, history, and life. It is Friday, May 29th, 2026. I'm Steve Dutton. I'm Jeff DeGraf. And I'm Steve Pavlett.

Well, I think we got to start off talking about the uh the equity markets at all-time highs. Although I see Jeff in what is it, Terry Cloth? What kind of shirt is that? It is. I g I What is this? You go you go out to Coachella? That's exactly what is it. You hit the nail on the head. I'm in Palm Springs and I'm a little short on clothes. And my wife's I'm like, you know what? This got such a nineteen sixties vibe out here. I'm going for it. Not only that.

But my wife comes back and we're having a nineteen fifties party tonight. So uh is you're supposed to dress up like you were right out of nineteen fifties. I don't know exactly what that means, but I think this shirt probably works. Yeah, well The shirt's gonna go just fine. With the martinis and the and the Born in the nineteen fifties, so you can just go as yourself, right? You know, that's a little too close to home, Neil. Damn it.

Well, I can't wait for next weekend or next week when we talk about your fifties party on this podcast. It's gonna be good. Yeah, we'll see. Can you make martinis in a in a batch? And I'm like That seems like a terrible idea. Like I you know, w you're not serving m I mean you can I guess you can serve martinis at a party, but like you have one and you're already, you know, halfway to the moon and you have you know, you have two and you're at Mars.

Those glasses back in the fifties and sixties for the martinis had to be smaller than they are now, right? Probably the two and three martini lunches. It's like McDonald's, like supersize everything now, right? So yeah, that's probably right.

All right, so let's talk about those equity markets, Jeff. Uh how do you play this? We're at all time highs. What do we do? Well, um look, you've got uh you've got trends in place. Uh breadth is kind of mediocre. It has improved since last week, but it's not, you know, it's not stunning by any means.

Uh you know, I'm trying to be the the uh the sober driver here, you know, at the speaking of parties, right? Yeah. I'm trying to be the sober driver here at parties, which means I still wanna play, I still wanna be at the party, but I you know, I wanna be able to drive home too, right? So

Um, you know, one of the things that that we um we published in the last couple days here um is this relationship that we have. We have this model that we call CERM, this is a standardized excess return model. Um so it measures how much return you're getting per unit of risk. And we'll offset those so sectors versus the market, industry groups, whatever. Doesn't work that well for individual stocks.

But it works for industries and sectors. Anyway, so we use that um against each other and we've done that for say discretionary versus staples. You can get some sense as to where that rubber band is likely to revert. And Um you know, here this week we've got um We should have healthcare equipment um versus the market in its worst condition since the late nineteen eighties. So you've had you you have not experienced this bad of return per unit of risk, which is even a bigger disaster.

um in healthcare equipment since the late nineteen eighties. But the real punchline is If you look at tech, this is equal weight, but you look at tech versus healthcare, that disparity is as large as what we saw back in two thousand. I know there's a lot of two thousand parallels that are getting thrown out there, but What I would say is that, you know, when when you're looking at um, you know, taking profits or trying to reduce exposure, if that's your game.

uh in tech, the logical place in our view is some of these breakouts they're developing in healthcare. Now some are premature and we'll see if that happens. You had a big day in Agilent yesterday and some of these uh life science or uh yeah life science tool names.

um that you know didn't break out but they were there were big days. Uh and that's pretty typical of something that starts to develop when the group is washed out. So I like that. This isn't a New York term call. This is kind of a thinking the next three years. And you know, one of the things that that we've been wrestling with is um is AI gonna start to transition from, you know, the producers of AI, the Clauds, Geminis, etc., microns.

um to those that are the beneficiaries of the usage. And I don't know if that's gonna happen or not, but um certainly that's something we're keeping uh on our radar. And I think you've seen it in biotech and I think you'll probably start to see it in some of the healthcare names. So

Pharma looks pretty good to us. Um just, you know, we we can talk about semis all day. Um there's not much to say other than they're you know, they're going up, they're high momentum names, they're getting into nosebleed, you know, kind of thin air. Um and as uh uh uh uh Chancellor said, I think I put it in the daily today, um in his book, Devil Take the Hinmos.

Um what did he say? He said, Capital chases the parabola until there's nothing left to chase, then it goes looking for the rooms nobody wants to sit in. Uh and I think that's you know, that's uh uh really a a a shorthand way or a longhand way of saying what we were talking about in the CERM model between healthcare and tech, right? So um I think you play it, you know, you're we're there, I'm there uh personally. And as a friend of mine said, I had lunch with him uh last week. He said, so

What you're saying is you play it until, you know, until they crack and then you go. So you shoot'em in the back. I'm like, well, that's a that's a crass way of saying it, but that is true. You know, you you go as long as you can and then you shoot'em on the way down. You don't shoot'em on the way up. So anyway, that's how uh how we're thinking about it.

Paddock, I expected you to chime in there about your uh your gun. Yeah, what would you use, Pad? Look a forty four, a Glock nine? What's uh what's your what's your gun of choice there? It's nine millimeter. I haven't had to use it yet. Hopefully it won't have to, but it's there if anybody's looking to come to my house and you weren't invited. So Wow. The good news is you could if you do and you go to capital, you can, you know, participate in the compensation fund.

I thought you were gonna shooting in the back. I thought that was gonna be like the segue to what's going on in D C but Yeah, we can we can go there in terms of the the compensation fund. Look, I'll take the politics outside of it just because these so called like settlement slush funds have been used by both parties.

But uh in terms of the practical impact here, uh there are two things that I see. One, it derailed Republican efforts to get this reconciliation bill done before they left, which was something they were looking to do, which means they're gonna try to do it next week.

I haven't seen any public reporting to suggest they've been able to resolve their concerns with the administration and really just poor timing because I don't know why they had to unveil it the week they were trying to get this bill done, uh but that's just me. But it's also bleeding over into crypto, uh because

I think if you look at the Clarity Act and its prospects, you know, if you look just near term, if they were to have a vote right now or early in June, it's hard to see how Democrats would be able to support that. uh because one of the issues that they're still demanding are that these ethics concerns that they have and ethics concerns is just code for we want some provisions in this bill to prevent the Trump administration from benefiting from its crypto holding.

And it's hard to see in the context of this compensation fund how they're gonna get what they want and it's still gonna be in a position where Trump will sign the bill. It's hard to see how you square that circle right now. Now that said, Two months from now is an eternity in politics. So that's sort of what I'm watching is, you know, can they actually get this Clarity Act bill signed uh by more the say the the end of July, August before they adjourn? Because

I don't really think it's likely to happen if they don't do it uh at that point. I know when you look at the prediction markets They're saying it's about a thirty five percent chance that it's gonna be done by August, but they're still giving about a fifty three percent chance it's gonna be done before the end of the year. And I just have tough time seeing how that's gonna be done during the lame duck session.

if the election goes the way that polling and prediction markets suggest, which is what Democrats win in control of the House. I just don't know why they would have the incentive to do it then, uh which is why I think we talked about last week. These next few months are really important if you're in the crypto

And that was with uh Zach Pandel uh last week, who's all over that. But something Jeff's going on in that space, right? I mean, I don't I don't wanna be uh have a narrative looking for an event, but you know, if you look at payments companies, if you look at some of the banks of crypto stuff, it doesn't look that prominent. No, crypto looks bad. I mean the the there's big tops in everything, with the exception of maybe Neil's pet pet project.

Um but they look uh they look weaker and the payments look terrible. Um in fact the XL F made a fifty two week relative strength low yesterday. Um so You know, financials are not, you know, really in a good spot here with the with the market. And I would say I g the good news is that of the financials that are actually doing well, um, you are seeing it in kind of the regional banks, not the big guys and certainly not the second tier kind of brokers.

Um so there's some big tops are developing. You know, we've been uh talking about the the private credit stuff for a while and how it bleeds into into the um private equity funds. And you know, you're seeing big tops in a lot of those private equity funds. And that from a sequencing standpoint is about right. You know, you you miss the payments, the private credit stuff, uh they s they start to get come under pressure. Those marks tend to travel back uh into the private equity side.

Uh about two or three quarters later. So that sequencing is about right. You know, um again, we don't think it's a 2008 event, but um certainly I think that there's um there is some some probably some fire underneath the uh smoke that's been billowing from from private credit. So keeping an eye on that. But the good news, uh you know, uh is that the kind of traditional credit measures that we look at, the

uh B double A spreads versus Treasuries made a one year low um last week or this week actually. So Um, you know, the kind of traditional credit measures in terms of how the credit markets are functioning are still doing well. The, you know, the kind of ancillary part of it. uh is the one that there's some concerns. The only reason I mention that is because that's kinda how it starts historically. You know, it started with subprime. It doesn't start, you know, with kind of the

the the big stuff first. It starts at the margin somewhere and that's what you have to be careful of. So you have these little sparks that can cause the forest fires. I don't think we're in a forest fire, but um certainly we'll want to keep an eye on it and make sure that it's contained. So we'll we'll continue to do that with

uh with updates to our clients on uh on Saturdays with what's happening in private credit. Yeah, you have those great reports out on, you know, as you said, the updates around private credit. You did that uh conference call with Howard Mason um on private credit, uh and he we both talked about like the potential risk in say the insurance companies.

Pavs, there's something going on in DC, right? The Bermuda Triangle, right? The thoughts around where the where this private credit uh issue may present itself. Well right. I mean building off what uh Jeff and Howard talked about during the call, I mean you're starting to see more

attention focused on this and sort of that uh three part relationship which is where you get the Bermuda Triangle reference. You have private credit, you have life insurance, and then where they're getting this reinsurance market, which is primarily in Bermuda. And there's a opacity there with in terms of what the reinsurance uh regulations are with respect to Bermuda.

more attractive and lower capital standards and the like. And so, you know, if this thing starts to actually uh spiral, I think that's probably one logical place to look at. And that's probably one of the reasons that the Treasury Department was hosting meetings uh with insurers uh and presumably

some of those from Bermuda as well, uh there are regulatory authorities there. But I mean I think that's something to watch.'Cause the fear is, you know, if this thing does spiral out of control, are uh these uh policyholders gonna be at risk. I think that'd be a very unfortunate situation that I hope we can avoid.

Well it always you know the and the important thing with credit too, right? And I don't this I don't want this to sound ultra bearish because that's something camp that we're in, but we're certainly watching things. um is that it it starts to become impactful when it hits the kind of kind of common citizen, right, who had no idea what was going on. Like you can you can say, all right, you know, tough luck at Lehman Brothers as a former alum.

Um, you know, tough luck, you know, you get what you what you signed up for. But, you know, when it's uh when it's mom and pops and they're like, What happened to my annuity? I mean, that's where it becomes, you know, uh more of a hot button. So It it and just to build off Jeff's point, because it's the mom and pops that are also voters and they start complaining to the legislators and that's when they get involved.

can not see it sometimes make things worse. Uh so I know that's sort of you're looking at the what the response of Washington's gonna be, I think that's an important thing to to keep an eye on. Hey, Jeff DGraff here. If you're enjoying offscript, you're gonna love our free RenMac newsletter. It's quick, it's concise, it's got several of the charts that we're mentioning here on the podcast. We cover markets, policy, economics.

And of course, strategy. It's quick, it's easy, it's insightful. Uh, it drops on Friday afternoons. If you want to get yours, go to the show notes, sign up there, or go to renmac.com forward slash newsletter. Now, back to the show.

Neil, what's going on in your world? Inflation numbers. Uh I mean there's a lot going on, um, I think. Um You know Well I mean I w I would start with uh some of the housing data. Um so new home sales were weaker uh in April. Uh obviously Uh mortgage rates have g come up a bit since then. So if you know um sales were already sluggish in April, uh, it probably stands to reason that it'll get a little bit worse in May.

Um, because rates have gone up a little bit more since. And then on top of that you have um You know, builder profit margins uh are a lot weaker uh this year relative to last year. And there's not a lot of pipeline um in terms of new residential construction. So if you look at new homes sold that haven't been started.

Uh they're down about I think twenty-twenty-five percent against last year. Uh so that probably introduces some downside risks, at least in the near term, to uh single family residential real estate uh construction and home starts. Uh so Uh that's I think one thing to keep a m keep an eye on. Um the other thing that's kind of caught my attention is uh you know what's going on in the rest of the world. You know, I mean uh the can the Canadian economy, uh

Sluggish. Not surprisingly, the markets are pricing out rate hikes. From the Bank of Canada. Um, if you look as an example at residential investment in Canada, it's very weak. So that would kind of argue for the idea that maybe neutral is is lower. Um And you see a similar kind of situation unfolding uh in the UK, uh, where they've had uh weaker than expected employment data, weaker than expected

uh consumption like sort of retail sales numbers. Similarly in France, you know, there's been some sluggish economic uh data. And then lastly, I think even in Japan, I mean they might hike later this year. I mean some of these banks might hike later this year, but if you look at If you look at the uh the inflation uh data in Japan, I mean it's nothing to be particularly alarmed by, I don't think. Um so

I think that matters because a lot of what drove I think and I mean I I suspect Jeff would probably agree with this. I mean, a lot of what drove the increase in US interest rates. Was yes, expectations of hikes, but a lot of that was being driven by what was going on in the rest of the world. And um That's coming undone now. Uh so I just think it's interesting. Um, you know, it's kind of one of these things where.

You know, let these uh you know, let the idiots uh cross the pond and uh, you know, in uh in the igloos up north uh be the big guinea pigs with this and see how it goes. Um and uh you know the federal gym Gracias. More and eat. I would say igloos are surprisingly warm though. I have uh spent spent some time in igloos, but anyway, beyond that.

I mean I just I think it's it's you know, it's a reminder that um, you know, we're I I do think that we're fortunate that uh I mean, it's it's good, uh especially when you think about what goes on with the E C B that You know, we don't have a single price stability um mandate, right? So it kind of allows us to avoid Listen. I mean to Neil's point, you've got real yields, right, which are have been driving particularly the short end and and frankly the ten year um

So when you decompose the rates, right, you can decompose rates into three components. There's credit risk, which believe it or not, there's a few basis points of credit risk in every treasury, which is kind of ridiculous, but it is out there. Uh and then there's real yields, which is the um the residual of accounting for nominal yields minus the inflation component minus the uh the credit component.

And real yields are, if you take those and look at them as a percentage of each one, real yields are above 50%. They're about 55% of that of that math. Um and so th that that tends to be more of a risk off environment that the markets are pricing um, you know, more of a slowdown or at least demanding more of a premium.

Um, and so what we do from there is we then look at well, what's happening in credit spreads, because if real yields are going up and credit spreads are going up, well then you've got the recipe for a recession and the market is is looking at that.

Um and that's not what's happening, right? So you can start looking at the the acceleration in real yields taking place as you would expect when at the beginning of March when these hostilities started with Iran. Um they've since cooled off from, you know, the the the kind of hotness we're with the hotness of the war.

um, but they're still more elevated, right? So I think, you know, to that point, you've got um not the, you know, as we've said it before, not the Ray Dalio story of the end of the dollar and the end of the empire. This is more just demanding, you know, a higher

uh return as a hurdle rate and you're seeing that in real yields and I suspect that that'll cool if uh we see continued cooling um with uh with Iran. So I think that's the good news that you know this is really about uh a premium that's in the market.

uh through uh through fixed income more than it is this fear that um you know oil's gonna stay at one hundred and twenty bucks or w whatever is gonna drive this inflation premium out because

You know, the five year, five year forward inflation rate, I think, is at two twenty-five today, which is, you know, within twenty-five basis points and kind of the Fed's long-term uh stated objective or loose objective. And, you know, that just says the Fed still is maintaining credibility, which I think is important. Well, we did get a sixty day extension on the ceasefire, right? Well we're recording this Friday at nine thirty.

There's the public timestamp. I knew it had to come in sometime. The public timestamp. Yeah. Uh We have reports, but as of the time that we're recording this, uh President Trump has signed off on that. Uh so I think it's probably in both sides' interests to try to reopen the street.

uh and I think that's pretty clear, but sort of delaying these difficult issues with respect to uh Iran's nuclear capabilities and aspirations and the sanctions relief. The administration sort of putting out this, hey,

No dollars, no dust. Um, so, you know, linking the two uh I think is gonna be uh very difficult to try to reconcile and resolve those issues uh in a sixty day time frame. And so even if we do actually get some In theory, reopening of the strait, what's the appetite gonna be for the shippers and the insurers, uh, knowing uh the fragility, uh some would say fiction, of the ceasefire getting both sides continue to shoot at each other.

I don't know what the update's gonna be to to resume uh travel through there. Uh but then knowing that, you know, you hey, th the more difficult issues here, if you have you don't think they're gonna be resolved, um, you know, what's your willingness to really endure that kind of risk? I'm not sure that

it's gonna be there. But you know, I hope for everybody, uh, that, you know, if it does work out and we uh have a more peaceful world. I guess I'm just not necessarily banking on this. The other thing I'm sort of watching too is you know, we have these reports uh and we don't really know uh I guess what we don't know in terms of, you know, I think Iran's economy is being hurt by this. Um and clearly uh there's been this effort to focus on their oil production and get to a point where

um, you know, Iran's gonna be forced to basically shut down these wells. Well, I mean, we're always assuming that we're dealing with r rational actors and, you know, I think they don't have the same political pressures we do here. I don't think the IRGC necessarily carries cares as much about

the economic harm they're causing their constituents. Are they gonna actually stop producing? Are they just gonna start dumping oil out to keep this production going? I mean somebody saw on TV the other day we was talking about, oh, they wouldn't do that because of the environmental impact.

Really? You really think that's what they're concerned with? I mean, you have guys over there like riding around on camels and chopping off heads, and you think because they're concerned about the environmental impact, they're not gonna dump the oil in the ocean. I digress, but you know, I just didn't think that was the best take that I saw out there that day. D do they um how do they handle the bathroom situation in public schools, do you know? Th that I don't know.

Well I know, but I'll just let that one go.

Uh let's go to the mailbag real quick. Harry, good morning. Hi, good morning. Today we have the question come from Tim Pirati. Υπότιτλοι AUTHORWAVE To what degree do you see the wealth effect of asset prices and the general wealth transfer driving spending given the discount between spending and real wage growth? That's it. Thank you. Tim Parati. Thanks for uh s putting that uh question in. No, Tim? Oh uh good friend out at uh Wealth Act.

Yeah, thanks Tim. I mean I think Tim knows my answer to this. Uh he saw he sees he's on the work, right? So um but at any rate, um no I think Yeah, absolutely. Um g throw'em some golf balls too. Um Uh yeah, I would just say that um You know, I mean the wealth effect is having a profound effect on consumer spending, right? Like so you know, at one so for example this week uh we got the personal income and spending data.

And I think it's pretty clear that consumer spending is sluggish. Um, and that's as income growth remains weak. Not just nominal income growth. I mean, if you I mean, it's important for people to remember that um wages and wage and salary growth is only up about 3.5%.

uh in the private sector over the last year. That's that's really no great shakes. I mean it's essentially whenever you have a situation where uh nominal wages and salaries are running at about the rate of the overnight Fed funds rate, it's normally not a good thing. Um It's sort of a classic sign that policy might be a little bit restrictive. And that's kind of where we are.

To Tim's point, the wealth effect, the fact that um, you know, asset prices are up relative to incomes, um or net worth excuse me, is up relative to incomes. It's probably one reason why the savings rate is as low as it is, right? Um so you you do have this um

you know, kind of view that, you know, the savings rate should keep going down because w where wealth is going up relative to income and people look at that wealth creation as sort of a low risk form of income generation that they can spend out of. Um

You know, we'll see. I mean it's like anything in economics. You put two people in a room and, you know, you get multiple opinions. Some people look at the decline in the savings rate as a function of the wealth effect, other people look at the decline in the savings rate as a sign that consumers are running on fumes.

Um it's probably a little bit of both. Um and I would just say that You know what that what that means I think implicitly is that we're not going to be able to Uh because the wealth effect uh wealth effect has had an important uh sort of uh you know has been important in driving uh consumer spending over the last year, it probably makes you vulnerable to a market sell off if it does happen. Right? I mean financial market sentiment can shift abruptly. Um, you know, I mean that's

That's happened many times in the past, right? So um if that happens, I mean I could see a scenario where consumer spending slows a bit more. Um You know, the other side of this of course is the inflation piece. Um inflation has come up because of energy prices. Um you could make the argument that maybe people drew down their savings because they view the shock as temporary.

Um but then that begs the question um if They're right, and the shock is temporary and gas prices go back down over the summer. Does that mean they're gonna go out and spend the money or does that mean that they'll go and replenish the savings that they drew down? I'd argue it'd probably be the latter. So you kind of have to you just go back to first principles, which is like where are wages and salaries? and um you know what is the you know financial market kind of equity market uh tailwind and

Um, you know, I still feel I it still feels like wages and salaries remain pretty sluggish. Uh you know, I mean it doesn't look like the labor markets are really reheating in a meaningful way. I mean wage growth is benign, I think. So there's not much of an inflationary impulse out of the job market. Um and we'll see what happens with stocks. But um

You know, I don't think it's a particularly controversial thing to argue that maybe the equity wealth effect flattens out over the next, you know, twelve to eighteen months as people rotate away from tech into something else, as hyperscaler spending slows down. I mean that's That's well within the range of pl of possibility. And if that happens, I mean you should expect consumer spending to be somewhat more sluggish.

You think we're gonna be talking about Fed cuts by the end of the year? The market's gonna be thinking about it? Yeah, I do. I mean I don't know. I mean but I look I've been I have to do like a mayakulpa. I mean, you know, I don't I've been on the dovish end of of the of the of the fence for a while. It hasn't you know, it's it worked well, you know, in twenty four and twenty-five. Hasn't worked as well this year. Um

But I mean, you know, let's sort of go down the list, right? I mean, um In um, you know, as I mentioned uh the first point, um Wages are Basically running at the level of the overnight Fed funds rate. That's normally not a sign that policy is loose. Um we know that fiscal policy transitions from a tailwind now to a headwind later this year. Um, you know, that's sort of the nature of uh the the OB three um

And um, you know, people seem to be thinking that it's the level of deficit to GDP that matters, uh, for growth but that's not what matters for growth rates, right? It's that's sort of the change. So, you know, policy is is less of a tailwind. And it's a modest headwind. I mean, if you look at the Brookings uh fiscal impact measure as an example, it it goes from tailwind to headwind. Um, you know, sometime in the second half of the year. Um, I think hyperscaler capex.

is probably not as strong a year from now as it is today. And I think the rest of the world is hiking. And at some level, you know, I mean, uh I don't know how many times they'll hike. I mean they'll probably hike once or twice. Um I don't know how wise that is, but at some level that's probably doing a little bit of the Fed's work for it. And um

I would just remind everyone that exports were a big driver for growth over the last year. They've added like half a percentage point to Gd P. A do we think if global growth is more sluggish? Um With with with rate hikes in those economies, is that is that gonna be good for US exports or not good for US? That's kind of where I'm at. I mean, so yes, I mean if you're asking me like, do I think the the conversation can shift uh in a year's time? Uh yeah, I do. Uh

And that d and by the way, that doesn't mean that they're gonna, you know, ease by the end of the year. It just means the conversation is gonna is gonna start to shift. Yeah. Well, I th I mean also like I also don't like and I wrote about this last week. Um I I really and maybe we talked about it too, I d I don't recall, but um I don't like how the sell side kind of just says, well, it's like sort of stages of grief, right? Like it's like, oh, they're not going to cut.

Oh, uh they're gonna remove their bias around additional adjustments. Okay, fine. Oh, they're going to hike. How many times are they gonna hike? Oh, once. Sometime in Q2 2026. That's not going to happen. Okay? Like for the f I don't think the Fed doesn't hike just once. Okay. Um if they're gonna hike, they're gonna take away all the insurance cuts that they put in place.

Last year. So that means I think at least like a baseline. If you're gonna call for hikes, you should be calling for 75 at a minimum. And they should be starting soon. So it's either it's either they go 75, and even even the Hawks are basically saying now that they don't think that that hikes are necessary right now. Like Kashkari was just on the tape set.

So I don't like so I think to me it's like you either like for the markets it's the distribution is basically either they hike 75 basis points. Uh they don't do anything, sort of an extended hold, or You know, I mean things turn out the way uh I mentioned earlier and you know, you're kinda back to pricing in like a couple of, you know, cuts because you think neutral might be a little bit uh more higher than you do right.

Uh or or you know, or or excuse me, lower than you do right now. And um But that to me is the distribution. Right? It's not one hike. It's 75 basis points of hikes, nothing at all, or we go back to pricing in a couple cuts. So I think the market is sort of in that left tail zone where it's like, oh, let's price in more hikes. I think we'll gravitate towards like nothing to cuts at some point in the next um That makes sense.

What do I think? I mean the charts uh the charts are bottoming but they, you know, haven't officially broken out. Um, I think if you look at that decomposition between real yields and the like, I think that's, you know, a I think that's important because it does give that some room, you know, instead of just looking bluntly at the chart, um, which would say higher, uh if you kinda look at that decomposition, you could start to see it um, you know, at least be stable if not come down. So

I I'm I'm actually not as bearish in the bond market as what the charts would otherwise have me, you know, other you know, believe because of that um that decomposition. So uh cuts we'll see. Um you you definitely have to have something that um moves our market cycle clock in a more favorable position to the um uh the inflation inputs. I just think the Fed's gonna have a hard time with that. But if you start transitioning to it, then those conversations matter and to Steve's point, it's it's not

necessarily that they act, it's that the expectation is that they're gonna act and they've got room to act and and that has a big impact on on equities. You know, we don't live in a vacuum, right? I mean we all know that, right? But uh a lot of listeners might not where it's the anticipation of events that gets priced in. It's not that the event actually has to happen.

Um and it's one of the things that that I think is important with energy. I mean, one um, you know, one one sidecar here with energy is these these were good charts before, you know, US Iran. Um, these were relatively cheap charts in a market before US Iran. And if you look at kind of the expectations of what's gonna happen to oil, um, you know, there's uh if you look at the Calci markets or you can just look at the, you know, the the option pricing which we use.

Um, there's an expectation that those prices are gonna start coming down um as we get into the the end of the year. Um, so to me, if you get some resolution that's meaningful, it's probably priced. Um maybe it's not fully priced, but I think they actually the as these energy names become a buy.

because the longer this goes on, the more anticipation there is that there'll be this resolution and the more people position for it and therefore the actual event itself becomes, you know, more of a nothing burger because people have talked about it enough, right? So Um, that's where it becomes interesting. I mean, look no further than say NVIDIA last week with earnings, right? You know, people talking about it, talking about it, then they blew the

of the ball in every way, shape, or form you can imagine. Um and the stock just kinda said, uh, okay, thanks. Uh I'm sure uh that Jensen is pulling his hair out, but um, you know, rightfully so. Tim, thanks for that question. We'll get you a trucker hat for sure. Maybe we'll meet at the Elks Club. How about that for a cocktail? Speaking of the nineteen fifties. Uh how about

Do you have that move where you like hold it and you can stir with the one finger while you hold it? Where you you know you've you've got the that's that's a pro That's the move. With a cigarette hanging out of your out of your mouth and talking and then the cigarette kind of flicked with like that. I've I've never smoked a cigarette in my life. Sidecar in that in that little silic solicit you had there. Yeah. Martini. I'm more of an old fashioned guy, but yeah, whatever it takes.

There you go. There you go. Steve, what are you watching this week? Well we hit on Iran, we hit on reconciliation and Congress coming back. So I'm gonna look at something for the month and that's the Supreme Court because the court's term usually ends the end of June and we see a flurry of a lot of the decisions they've been putting off. And one thing we've talked about before that we're still waiting on

is the Lisa Cook case. Trump's ability to fire a governor for cause. Uh I think the expectation is the court will not allow him to do that, uh, but that's something that I'll be watching for and I'm sure maybe now Fed Governor Jerome Powell will be watching for too as he sort of assesses how long he wants to remain there uh as a government. Well it's gonna be pandemonium in New York next week. Uh I don't think I'm gonna be doing any client dinners uh next week. Uh I refuse to go into the city.

Um Did you hear by the way i if they make it to a game six? Oh, it'll be a disaster. Oh my god God, I know. Oh no. I'm not closing. Let's go next. I mean, this is like um I don't know if um should be happy or somewhat ominous guys because the last time the Knicks were in the finals it was nineteen ninety-nine. Um I gotta tell you, I didn't feel the same. Parallel. Nice parallel for sure. Um, I didn't. Was nineteen seventy three.

Yeah. Which was basically like I think a recession year. Anyway, like not uh you know it doesn't um let's not go down that rabbit hole. But I will say, I mean just on a personal note, I mean it's it's great, I think. you know, this is like they actually have a chance. Like w in nineteen ninety nine we were just happy to be there. You know what I mean? It was like there was no way there was like that sort of ra you know

Uh ragtag group of uh you know Alan Houston, Latrell Sprewell. Uh Ewing was injured the entire series. Uh they played the Spurs. Um, you know, we'll see. uh what happens uh out out west. I mean hopefully they keep going, you know, triple overtime in game seven. I don't I you know, let them keep playing until uh until Tuesday for God, for all I care. Um But uh, you know, so anyway, let's go next. Uh in terms of the data.

Um we get the ISM uh manufacturing number. Uh we'll be firming up our estimates after the Chicago PMI, which comes out later today. Uh and we also get data on uh Joel. So that'll be important. Um job openings, labor turnover. And then lastly, we bookend the week with employment. Uh so that'll be the main event. Um

You know, there's a lot of chatter about like the labor market kind of rewarming, um you know markets looking for a hundred thousand on non-farm payrolls. Um I'll be keeping a close eye on wages. Um I think that's That's important. I mean the surest sign of a tight job market is accelerating wage growth. And wage growth isn't really accelerating even though employment growth has been. Um so we'll see how that

How that shakes out. There's typically a lag between the two. Um, but there's also like a lot of like incongruencies in terms of like where is the break-even rate, right? Like we're generating a hundred thousand jobs. Um Uh a month uh now, it feels like, but you haven't really seen the unemployment rate come down yet. Um and that's because the household measure of employment has been a lot weaker. So we'll see how all this kind of reconciles.

Hey Jeff, uh James soulful eyes harden. Yes. Is he coming to your party? That was my that was my wife comment, not mine. Uh I d I don't think so. I don't think he's in town. James, if you're a listener, You're welcome. You know, I think a couple things uh are important as we get into you know some of the the the parabolic moves as we talked about. Um we talked about this a little bit on the CNBC yesterday. Um you know

Y y you look for there there's kind of a couple of ways to think about this. You can either V top it, which is what the bubble watch does, it puts a higher probability of a V top than normal. And that would be things like uh gap openings, massive, massive volumes. So you gap higher uh on the day on the open and then you close lower.

um significantly and out some of the the terms we use are an outside reversal day on big volume. That would be troublesome. You can go back and look at Qualcomm in in two thousand. That was a pretty good case study uh in something like that. Um failure to to respond well to good news. Um so you get, you know, what is

unequivocally good news and you get some type of outside reversal. Those are things that that are warning signs. Um and you actually get narrowing with within the the industry, right? So we can see like the number of twenty day highs within semis. We measure that daily.

Um, and so, you know, if you start to see that narrow, then you know you're really dealing with just a few names that are are driving things, just like you do with the market. Um, but it just becomes, you know, more focused on on those areas of something to keep an eye on. And then if it's a little less of a of a uh you know critical kind of Eiffel Tower top.

uh you look for uh relative strength divergences, right? The stocks keep going up and the relative strength starts to lag. So we start seeing those and that's where I shoot'em in the back, right? That's where you you start saying, Okay, I'm not, you know uh I I'll I'll I'll start to let some of that go. Um and that's kind of a checklist that we're looking at. Right now, seven uh seven three thirty three, seventy three thirty three is the uh support level on the S P.

Um and um I'm watching the emergence of, you know, what's to come next, right? Where do I wanna allocate dollars um as I move away from parabolic moves that, you know, at some point are gonna give me an opportunity to start uh using them as a uh source of funds and where I want to look for that usage of funds. So I think healthcare is it. We're gonna keep an eye on some of those names.

That's good stuff. Well let's end it there. Uh we'll be back obviously next week to uh talk about all the things that we're watching uh for uh next week. Uh go Nicks. Jeff, have a great time at the uh party tonight. We're interested to hear what you have to say about that. Steve, good luck in the uh swamp. And Tim Ferratti Wealthfest will get you a uh hat uh at the Elks pub. Until next week, I'm Steve Duttenhoffer. I'm Jeff DeGreff. I nailed that up. And I'm Steve Pavlick.

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