Bloomberg播客：美债波动与股债负相关回归

I think it is the most important because it's very much at the center of the discussion around what's going on in the Treasury market this week. And when you think about the underlying fundamentals of the economy. Uh, you know, 6.5% year over year growth in nominal GDP is, you know, I think a very sort of very indicative, of course, of what we're seeing in terms of the EI boom. But I think also in the context of inflation as well.

Um, you know, you can't really get inflation down to 2% unless you see sort of the greatest productivity boom ever. So it's not it's not a bad thing. I don't mean that in a bad way, but I think that to the content, you know, to the point of this sort of booming economy and the resilience that we see in the US, um, we have sort of entered this new normal where it's now more normal to see nominal growth of that kind versus what we saw pre-pandemic, which was much slower than than 6.5%.

I want to talk about the bond market, because Tom and I, earlier in the show, we said that is the big story of this week. What did the market learn from the bond moves and the best input, so to speak. And it's rapid reversal. Is it that they're skeptical about this move? I mean, many people have called it the ban it just a band aid, really. But no, I mean, I think that's probably the right way to think about it. You know, the sort of duct tape on a on a leaky pipe situation where, you know, that can only lasts for so long.

And in terms of stemming some of the, you know, some of the drippings there. But, um, I think that the, the whole discussion around, you know, higher deficits and the fact that, you know, no one's really do anything about it, uh, on either side of the aisle. That's been a theme, you know, in a feature of, of the US for so long. Um, but that in, in, in, you know, combination with this structurally higher growth backdrop that we've been in, plus the fact that you have sticky inflation, all of these elements, you know, fuse together and you get a higher for longer interest rate world.

And it's very, very hard to pull down yields in that environment, especially of course, at the long end. You also introduce, I think, another interesting dynamic, which I mean to be a fly on the wall right now for for any of the fed meetings and discussions. It would be so fascinating because you do have a little bit of this, you know, vicious circle dynamic at play, where on the one hand someone is sort of actively trying to, you know, pull down yields or do what they can to stem the rise.

But on the other hand, you did have Fed Chair Kevin Warsh sort of take some comfort in the fact that the long end had risen and it was sort of, quote, doing the Fed's job for it. So that dynamic, I think it'll be interesting to see if he addresses it at all in Jackson Hole. But I think an over the medium term to see how those kind of combat each other, that'll be that'll be interesting to me. I would love to go to Jackson Hole.

And where to a Jackson Hole outfit. I love having you because then you can talk all asset classes. So why didn't stocks respond more to Washington signaling that it wants easier financial conditions? Well, you know, I think, you know, in terms as powerful as signaling might be. And we've learned that, you know, over the past couple of days, it isn't as powerful because of the reversal that we saw in yields. You know, we've been in this environment and where we don't have too much high conviction these days because it's really hard to do.

So, uh, but what we're we do have higher conviction is the fact that, uh, or the feeling that we have sort of exited definitively this great moderation era where you had this harmonious relationship between the stock market and the bond market, where when yields were going up, they were responding to positive growth impulses. Stocks were also rising post-pandemic for most of that time, most of the cycle. That relationship has slipped into negative territory.

So that means that all else equal, which is of course, never the case. But when yields are rising, that's putting downward pressure on equities and then vice versa. And you've seen that play out this week almost. And it's happening again today. You know yields are up. Stocks are down vice versa. So that's not to say that if yields continue to go higher a year from now that the market will be. The stock market will be lower.

That's certainly not the case. If anything, when you get these more aggressive moves in yields, that's when you sort of have that reset period for stocks. Across America on this Friday, Kevin Gordon, with his use of The Charles Schwab Yeoman's duty reappearing today, he's taking to Sikorsky reappearing 12 noon Bloomberg Weekly. I dunno oh my folks I got ducky bumps over it's sleepy August. No it's not Rebecca Patterson in the Kevin Gordon Big names can't be doing books in Paris because everyone's there except me and Scarlett and me.

And, yeah, we're not in Paris. We should be in Paris. We should be in Paris. And I want to remind ourselves of, uh, Emily Roland. Coming on, folks, it's a Friday. We're going to brief you on the madness. And can we recall that Broadcom has free cash flow growth coming out of the Covid. 16 1719 2632. And an anticipated $50 billion of free cash flow. The heart of the matter is we forget these are profitable juggernauts we're whining about.

Yeah. No, the profitability aspect I think is huge. And it is one of the biggest things we point to, you know, especially when we get questions because we still get a lot of client questions around this, I think rightly so. Is this a repeat of what we saw in the 90s? And I know this is sort of been, you know, beaten a lot, but I think it's important because when you do look at the factor in the equity market that was most correlated with strong performance in the late 90s into the peak, it was negative earnings.

That is not the case today. So I think that's a really important differential. Not to say that you can't have disruptions and you can't go through these, you know, sort of momentum implosions like we did recently. But that I think for the broader structure of the equity market is much more important, especially in the context of an S&P 500 that has more than 70% of its members above their 200 day moving. You get on the Schwab Gulf Stream, you go down to Louisville, you're in some hotel room with 400 major Schwab hitters in the 15th row.

Someone raises their hand and goes, what do we do with cash? It's it vibrates across America right now. Yes. What to do with cash? Well, full disclosure, there's no Gulf Stream in my life. Um, very much in the in the commercial world. So I just make decisions and, you know, the cash question, we get so much, um, I think more in the context. And I know you covered that. You've covered this recently in conversations with Bazan, but the cash question we get is sort of what is the potential for that firepower for the market.

And I mean, we've looked at the so many ways, but when you do look at it relative to market cap, the total cash position today is is quite small relative to history in terms of allocating that cash and where to put it. I mean, we can't answer that question in a broad sense because we have, you know, tens of millions of clients. But if you're thinking about, you know, the sort of how the market has looked this year and the fact that it is not just the mega cap I trade that is that is outperforming.

There are other parts of the market that are participating, some of which had been sort of asleep for years. I point to small caps as an example. Not to say that you should just pack up the truck and load everything into small caps, but that is an example. I think, of how you don't necessarily need to be so singular focused in, in terms of, oh, it's only the mega caps that really isn't the case hasn't been the case for a couple of years, actually, in terms of outperformance, there have been other parts