WEBVTT

1
00:00:05.910 --> 00:00:08.310
- So the FOMC meeting is underway.

2
00:00:08.310 --> 00:00:11.220
How big do you expect
this first rate cut to be?

3
00:00:11.220 --> 00:00:12.480
- No one really knows right now.

4
00:00:12.480 --> 00:00:16.590
Fed futures are suggesting
a slight favoring in favor

5
00:00:16.590 --> 00:00:20.460
of a 50 basis point cut instead
of a 25 basis point cut.

6
00:00:20.460 --> 00:00:23.460
But there's such a wide
dispersion in what opinions are,

7
00:00:23.460 --> 00:00:25.470
and that's what make this
Federal Reserve meeting

8
00:00:25.470 --> 00:00:26.670
actually very historic.

9
00:00:26.670 --> 00:00:29.880
'cause it's been decades
really since we've gone into a

10
00:00:29.880 --> 00:00:31.410
meeting with so much uncertainty as

11
00:00:31.410 --> 00:00:33.150
to what's gonna come out of it.

12
00:00:33.150 --> 00:00:36.960
Usually the members of
the Federal Reserve preps,

13
00:00:36.960 --> 00:00:40.260
the public, the investing
public as to what to expect

14
00:00:40.260 --> 00:00:42.570
by the way they couch
their remarks at various

15
00:00:42.570 --> 00:00:43.890
press conferences and so forth.

16
00:00:43.890 --> 00:00:45.930
Right now they were all across the board.

17
00:00:45.930 --> 00:00:47.430
So it's gonna be very interesting.

18
00:00:47.430 --> 00:00:50.880
- 50 basis points seems
drastic though we haven't done

19
00:00:50.880 --> 00:00:53.310
something like that since
the financial crisis.

20
00:00:53.310 --> 00:00:54.720
- Right? So I, I think the argument

21
00:00:54.720 --> 00:00:58.260
to do 50 basis points is we've
seen a tremendous reduction

22
00:00:58.260 --> 00:01:01.620
in inflation over the
last, let's say 24 months.

23
00:01:01.620 --> 00:01:02.940
And so right now,

24
00:01:02.940 --> 00:01:04.950
arguably inflation is moving
at about two point a half

25
00:01:04.950 --> 00:01:06.480
percent a year.

26
00:01:06.480 --> 00:01:09.720
While your fed funds futures
are up close to 5.5%,

27
00:01:09.720 --> 00:01:11.850
that 3% gap is huge.

28
00:01:11.850 --> 00:01:15.270
Most people think it should
at least be 1% lower.

29
00:01:15.270 --> 00:01:19.140
And so the question is, do you
take baby steps to get there

30
00:01:19.140 --> 00:01:23.610
or do you, you know, start out
with a bang and move quickly?

31
00:01:23.610 --> 00:01:27.390
I think the reason to take
more measured baby steps is

32
00:01:27.390 --> 00:01:30.090
because, you know, we could
still see another burst

33
00:01:30.090 --> 00:01:31.620
of inflation.

34
00:01:31.620 --> 00:01:34.950
We've seen the economy
be fairly resilient here.

35
00:01:34.950 --> 00:01:37.410
We still have a four
handle on unemployment.

36
00:01:37.410 --> 00:01:40.560
I think the reason to go big here is

37
00:01:40.560 --> 00:01:41.910
because we are starting

38
00:01:41.910 --> 00:01:44.340
to see those jobless numbers creep up.

39
00:01:44.340 --> 00:01:47.100
We were at about three and
a half percent unemployment.

40
00:01:47.100 --> 00:01:49.950
We got up to four three,
now we're at four two.

41
00:01:49.950 --> 00:01:53.070
Many economists say once it
makes a half a point move,

42
00:01:53.070 --> 00:01:54.960
it tends to go big and to try

43
00:01:54.960 --> 00:01:58.500
and get ahead of a slow down,
which would unnecessarily hurt

44
00:01:58.500 --> 00:01:59.850
so many people in the labor force

45
00:01:59.850 --> 00:02:02.820
because your monetary policy is so

46
00:02:02.820 --> 00:02:04.980
arguably unnecessarily restrictive.

47
00:02:04.980 --> 00:02:07.200
- So thinking about the investors,

48
00:02:07.200 --> 00:02:09.720
do you think they should
hope for a big move like this

49
00:02:09.720 --> 00:02:10.920
with 50 basis points?

50
00:02:10.920 --> 00:02:13.890
- I, I think on balance,
the lower interest rates,

51
00:02:13.890 --> 00:02:15.150
the better for investors.

52
00:02:15.150 --> 00:02:17.850
That raises the present
value of everything.

53
00:02:17.850 --> 00:02:19.200
That reduces the cost

54
00:02:19.200 --> 00:02:21.780
for CapEx expenditures by corporations.

55
00:02:21.780 --> 00:02:25.170
It reduces the cost of big
ticket items like automobiles

56
00:02:25.170 --> 00:02:28.830
and mortgages, of course for individuals

57
00:02:28.830 --> 00:02:30.540
and of course investors.

58
00:02:30.540 --> 00:02:33.330
People like me advising my
clients every day we're looking

59
00:02:33.330 --> 00:02:36.360
at, well if we invest
our money into bonds,

60
00:02:36.360 --> 00:02:37.530
what are we gonna get?

61
00:02:37.530 --> 00:02:39.630
What's the interest rate?
If we invest our money into

62
00:02:39.630 --> 00:02:41.130
stocks, what are we gonna get?

63
00:02:41.130 --> 00:02:44.130
As those yields on bonds
come down on balance,

64
00:02:44.130 --> 00:02:47.820
that tilts the proposition
towards stocks, causes people

65
00:02:47.820 --> 00:02:50.550
to move into stocks that
pushes stock prices higher.

66
00:02:50.550 --> 00:02:51.750
That's good. For investors,

67
00:02:51.750 --> 00:02:53.850
- This is a change that we're seeing

68
00:02:53.850 --> 00:02:56.400
where it's like now we're
starting a rate cut cycle.

69
00:02:56.400 --> 00:02:59.680
What do you expect
subsequent rate cuts to be

70
00:02:59.680 --> 00:03:01.960
after this one And the timing of them too?

71
00:03:01.960 --> 00:03:03.070
- Absolutely. I mean,

72
00:03:03.070 --> 00:03:06.340
I think the Fed Fund futures
are seeing 1% of cuts

73
00:03:06.340 --> 00:03:07.540
by the end of the year.

74
00:03:07.540 --> 00:03:10.030
We will know a lot more after Wednesday

75
00:03:10.030 --> 00:03:13.060
because they will have the
so-called dot plot, which shows

76
00:03:13.060 --> 00:03:16.810
what the consensus is for
each meeting in terms of

77
00:03:16.810 --> 00:03:18.910
what the federal funds
rates will end up being.

78
00:03:19.750 --> 00:03:21.490
I think we're gonna see probably rate cuts

79
00:03:21.490 --> 00:03:24.820
through next summer,
which could take us down

80
00:03:24.820 --> 00:03:29.560
to potentially a three handle
on the Fed Fund futures.

81
00:03:29.560 --> 00:03:32.110
But I think right now
the expectations are,

82
00:03:32.110 --> 00:03:33.460
we've got three meetings left.

83
00:03:33.460 --> 00:03:35.680
We're gonna have a full
hundred points of cuts,

84
00:03:35.680 --> 00:03:37.630
which suggests one meeting has

85
00:03:37.630 --> 00:03:41.170
to have 50 basis points in
order to have that 1% goal met.

86
00:03:41.170 --> 00:03:43.000
- So what would the market reaction be

87
00:03:43.000 --> 00:03:45.790
with a 25 basis point cut
versus a 50 point cut?

88
00:03:45.790 --> 00:03:48.400
- So my best guess is the
market would pull back,

89
00:03:48.400 --> 00:03:50.470
there would be a sell
on the news phenomenon.

90
00:03:50.470 --> 00:03:53.710
Why? Because a lot of people,
at least half the people,

91
00:03:53.710 --> 00:03:56.410
maybe more, are hoping for a bigger cut.

92
00:03:56.410 --> 00:04:00.220
And so the Federal Reserve is
keeping monetary policy more

93
00:04:00.220 --> 00:04:03.520
restrictive than it
should be unnecessarily.

94
00:04:03.520 --> 00:04:05.260
And so people sell stocks.

95
00:04:05.260 --> 00:04:08.080
Remember of course we are
close to all time highs.

96
00:04:08.080 --> 00:04:09.520
The Dow just set a record yesterday.

97
00:04:09.520 --> 00:04:11.656
The s and p, it's just 70 basis points

98
00:04:11.656 --> 00:04:12.940
from an all time high.

99
00:04:12.940 --> 00:04:15.670
So there's not much cushion
in terms of valuations

100
00:04:15.670 --> 00:04:16.930
for any kind of disappointment.

101
00:04:18.640 --> 00:04:22.030
Now if there's a 50 basis
point cut, what happens,

102
00:04:22.030 --> 00:04:24.520
I think unbalanced the market surges

103
00:04:24.520 --> 00:04:27.400
because it lowers that drag

104
00:04:27.400 --> 00:04:30.550
of interest rates across the
economy makes stocks look on

105
00:04:30.550 --> 00:04:32.110
the margin more attractive.

106
00:04:32.110 --> 00:04:35.890
Now the opposite argument
is why do they need to do

107
00:04:35.890 --> 00:04:37.540
that 50 basis point cut?

108
00:04:37.540 --> 00:04:41.170
Is there something about the
economy that we don't know

109
00:04:41.170 --> 00:04:43.570
that's causing them to
bring out, you know,

110
00:04:43.570 --> 00:04:47.830
the heavy artillery to
start fixing the economy?

111
00:04:47.830 --> 00:04:52.510
Do they have advanced word
on deterioration in certain

112
00:04:52.510 --> 00:04:55.780
areas of the job market or the economy

113
00:04:55.780 --> 00:04:58.540
or overseas that we
don't yet know about and

114
00:04:58.540 --> 00:05:01.510
therefore we should be
suspicious of their motivation

115
00:05:02.440 --> 00:05:04.060
Now on balance?

116
00:05:04.060 --> 00:05:08.560
I prefer the take, take
good news for good news in,

117
00:05:08.560 --> 00:05:10.480
in terms of lower interest rates.

118
00:05:11.350 --> 00:05:12.700
We have seen time and time again

119
00:05:12.700 --> 00:05:14.770
that many times the Federal Reserve has,

120
00:05:14.770 --> 00:05:16.810
does not really have a crystal ball

121
00:05:16.810 --> 00:05:18.280
anymore than the rest of us.

122
00:05:18.280 --> 00:05:21.100
And so for them, for people
to think that's some sort

123
00:05:21.100 --> 00:05:23.500
of a conspiracy that they
know something we don't know,

124
00:05:23.500 --> 00:05:24.580
I would bet against it.

125
00:05:24.580 --> 00:05:26.260
But some people will be saying that.

126
00:05:26.260 --> 00:05:28.900
- So if they cut 50 basis points,

127
00:05:28.900 --> 00:05:30.460
what do you think they
know that we don't know?

128
00:05:30.460 --> 00:05:32.560
What's your guess of the suspicious thing

129
00:05:32.560 --> 00:05:33.670
inside the economy?

130
00:05:33.670 --> 00:05:36.580
- Well, they may have certain, you know,

131
00:05:36.580 --> 00:05:39.670
out in the hinterland some sort of sense

132
00:05:39.670 --> 00:05:42.100
that layoffs are coming,

133
00:05:42.100 --> 00:05:46.030
that particularly low income
consumers are struggling more

134
00:05:46.030 --> 00:05:47.590
than is generally known in terms

135
00:05:47.590 --> 00:05:51.310
of making their car payments
in, in, in terms of being able

136
00:05:51.310 --> 00:05:54.190
to make their rent payments.

137
00:05:54.190 --> 00:05:56.230
There may, they may
have some advanced word

138
00:05:56.230 --> 00:05:59.390
of some large corporations
preparing for layoffs,

139
00:05:59.390 --> 00:06:00.590
which will be very negative.

140
00:06:02.390 --> 00:06:04.850
Those are things, or it
could be something overseas.

141
00:06:04.850 --> 00:06:07.400
Perhaps they have some inside knowledge as

142
00:06:07.400 --> 00:06:08.480
to what's going on in China.

143
00:06:08.480 --> 00:06:11.210
Remember that, that one of
the, the tough things, one

144
00:06:11.210 --> 00:06:14.750
of the headwinds for markets
in the economy here is the fact

145
00:06:14.750 --> 00:06:19.100
that the second largest economy,
China is back on its heels.

146
00:06:19.100 --> 00:06:21.740
We don't know how bad that's gonna get.

147
00:06:21.740 --> 00:06:25.190
We know that the Chinese
government wants to do something,

148
00:06:25.190 --> 00:06:27.050
but they haven't pulled out the art heavy

149
00:06:27.050 --> 00:06:28.190
artillery themselves.

150
00:06:28.190 --> 00:06:30.350
They've got some big
problems in their property

151
00:06:31.220 --> 00:06:33.585
sector if there's defaults there.

152
00:06:33.585 --> 00:06:36.770
How could that ripple
into ultimately the rest

153
00:06:36.770 --> 00:06:38.720
of the global economy,
including the United States?

154
00:06:38.720 --> 00:06:40.670
They may have more sense on

155
00:06:40.670 --> 00:06:42.740
that than Wall Street generally has.