The Most Interesting Macro Moment of My Lifetime with Jens Nordvig

Do you have any friends in your life who you call and they say, like sarcastically, like you say, how's it going? And they go living the dream? - Hey, this is my stack. - No, do you? - Somebody, 'cause somebody did that with me, but they meant it. Like, they were like, living the dream, bro. - I'm living the dream. - Are you living the dream? - Oh, that's, no, that's sincere, that's nice. I like that. - No, they meant it, like, they are living the dream. - I love that. - No, because I don't, I go to a dark place. I'm like, really, that's your dream? I see how you live it. - You're sick. - Is that the wrong response? - No, usually, isn't it douchey though? - No, no, I'm living the dream. - I hear what you're saying. - But usually when people say that, it's like, all right, I'm not talking to you, dude. It's like, the conversation's over. 'Cause somebody says, "How do you live in the dream?" And it's like, all right, walk away. Like, I'm not gonna talk you about it. - Well, that's my point. It's a friend of mine. - I'm this dead serious. I'm living the dream. - But if that's your friend, I'm happy for your, I'm happy for my friends. - Or sometimes people. - But it's a weird response to literally say, dude, I'm living the dream. I just got this, I'm going to Greece. Like, I am (beep) killing it. It is, it's weird. I hear what you're saying. - I just think it's very douchey because if you feel that you are living the dream, you should have the emotional awareness to know that other people don't want to hear that. - All right, but you're doing okay. - Uh-huh. - He's not like talking to a guy in the street. - I can't work with him. - You never know who feel the dream, right? Like, everybody thinks, okay, the ultimate thing is to have an exit when you're like done something, right? - Yeah. - Are you about to break? I mean, you just had an exit. - Yeah, but it's like a. - But the next day. - The way that swear is like a roller coaster, so it's like. - But the next day, after the exit, isn't as good as the day before. - Yeah, and also you've spent so much energy into this exit that you forgot about, doing all kinds of other important things while you were doing it. - Okay. - So we're gonna get the story on your edge. - Conclusion, Josh wants his friends as miserable as he is. - No, I just, I was taken aback. I thought, I thought, 'cause you know what the other thing people say is, oh, another day in paradise. Like, say that. - Yeah. - Don't worry, this doesn't sound like an actual front. There's an acquaintance. - Oh, you know who it is. Actually, I don't want you to guess it, 'cause you probably could guess it within two guests. - Is it a home friend? They were a work friend. - No, work related. You definitely know who it is. - All right. - And you could picture them saying it. - It's one of your colleagues. - No, that's where it works here. (laughing) - Another day in paradise would suffice. We would take that. - What do you think about the iPhone? Duo. - I think I need to get it, because the last iPhone I got was really bad. So I needed an upgrade very soon, but I like to have a lot of real estate. - I was very on the fence going into the announcement of like, I don't know, I could see it like going either way. And 30 seconds in, I'm blown away. I am all the way in. I think it's so spectacular. - Yeah. - Have you been feeling it? - I think it's going to be a slam dunk. The iPhone do it. I think they'll sell out however many they can make, which will not be a lot. Probably go on order one before they sell out. - Tober 16th. - Yeah. - Is that when they go on sale? - Yes. - I think they'll sell out immediately, because it's novel. - Yeah. - So it's a long time since there was anything novel. - Yes. - People are complaining about the price tag, the headline price tag. - Yeah. - And Gene Monster said the 18 pro max, I think. It's like 38 bucks a month. This is 53. This is the thing, it's finance. Who cares? It's 23 dollars more a month. Nobody cares. - I also think Apple is targeting the person that's worried about the price of the phone. That's not who this is for. - No, I think it's different from the headset thing I forgot what it's called. - Vision Pro. - Right. - Like, nobody needs that. - That's different. - Everyone needs the phone, right? If the phone doesn't really cost you. - That's your spending $4,000 on your credit card. That's very different. - Yeah. - So the price is $2,000. - Mm-hmm. - I think there's one that was up to four almost, right? - The tech blogs thought that this was gonna come out of $2,500, so they actually surprised consumers with a lower average selling price for this thing right out of the gates, which leads me to believe the next iteration will be the Duo Pro, and it'll somehow be bigger and faster and a little cost more. They gave themselves room to raise the price rather than start out of the high price. And have to hear people say, oh, it flopped. - Yeah. - I don't know at $2,500 if it sells out. I think at $2,000, it's roughly comparable with what the iPhone 18 Pro Max will be. They'll sell them out. - Daniel, are you getting one? Were you excited? - He's waiting for the trio. - Hey, John? - I'm considering. - Queen. - I want the bargain D18. - To be honest, I'm still missing the blackberry for just typing without typos. - Blackberry was good. - For typing was better. - Right. - The key is to lean into the typos. Just let it be part of the situation. - So, John's loving the dream. Thanks, you're good. - Are you loving the dream? - You're living age, you're living age-wing. - Let's put it this way. I've been doing macro markets for a few years and they don't really get anymore exciting than we have them right now. - You think right now it's like prime time. - I've never seen markets being more interesting than they are now. - Okay. We're gonna get into all that. Let's not step on it. I definitely wanna hear that. - Do you mind just. - No, no. - No, I don't mind. - Who are on the left? - You could tell how he had an exit. Look how late. - Yeah, do you have a tranquilizer before you came here? You okay? We're about to do a show. - Is that way to charge this thing, do you think? - Yeah. - Yeah, we have cords. - Yeah, we can do that. - All right. - And if you can just say close to the like, please. - All right. - Do you have power? - We have power. - There you go. - All right, the cold. Give me one second. - Green. - Green. - Good. - All right, switch to room. - Here we go, everybody. (audience applauding) - Here's a stat that's stopped me in my tracks. Private capital is projected to hit $26.7 trillion by 2030, trillion with a capital T. Institutions have been swimming in private markets for decades. Most individual investors barely a towel in the water, but closing that gap takes more than access. Franklin Templeton brings a scaled private markets platform and well-optimized solutions to help advisors and investors incorporate private market allocations into their portfolios as they consider long-term outcomes. Private credit, private equity, real assets, institutional caliber capabilities made well-threaded with real people behind it. Honestly, it's the kind of stuff that used to be off limits to most of us. Not anymore. Check it out at ftprivatemarkets.com, all investing involves risk, including possible loss of principle, Franklin distributors, LLC, member, FINRA, S-I-E-P-C. Today's show is brought to you by Vanguard to all the financial advisors listening. Let's talk bonds for a minute. Capturing value and fixed income is not easy. Bond markets are massive, murky, and let's be real. Lots of firms throw a couple fleshy funds your way and call it a day, but not Vanguard. Lots of firms love to highlight their star portfolio managers, like it's all about that one brilliant mind making the magic happen. Vanguard's philosophy is a little different. They believe the best active strategies shouldn't be locked away with one person, they should be shared across the team. That way, every client benefits from the collective brainpower, not just one individual's take. So if you're looking to give your clients consistent results year in and year out, go see the record for yourself at vanguard.com/audio. That's vanguard.com/audio. All investing is subject to risk, Vanguard Marketing Corporation, distributor. (upbeat music) - 259, lucky 259. (crowd cheering) Ladies and gentlemen, you are now rocking with America's favorite investing podcast. This is the compound and friends we're coming to live from Bryant Park in New York City. With me, as always, my co-host, Mr. Michael Badnik. Hello, my name is downtown Josh Brown, first time listeners. Thank you for joining us. That's for your new favorite show. Last time listeners, I'm sorry, we did our best. We have a very special guest. The last time he ends Nordwig was here, the phones lit up. People were like, who is that guy? He knows everything. You get that response everywhere you go or just from here. - Only here. - Did you read the comments from your video? - I have to say, yeah, and you gotta get closer. Come on, man, this is your second time here. - Yes, so it's quite a good response to that. So yeah, I've got a lot of people reaching out. - Are you invented COVID? I would expect that there will be a good response. We're gonna blow the phones up once again. Jens Nordwig is president and board member of Vanda, an independent data, analytics and insights firm, providing positioning data, flow intelligence, and tactical macro insight to investment professionals. Globally, Jens has spent his career at the intersection of global macro, markets, and capital flows. He founded X anti-data in 2016, building the firm into a leading macro strategy and data provider serving more than 100 institutional clients. Globally, now take us from there. What happened since? - Quite a lot of it's happened. It's been a busy year. So we merged, extended data together with Vanda. Vanda is another company. It's also focused on flows and positioning. So now we think we can absolutely be the best in class in that space. - So you sold X anti, which was yours. which you started 10 years ago to Vanda, and now you're involved with Vanda. - Yes, I'm the president of the company and leading essentially everything we do on the macro research, right? - Why did the two pieces work so well together? Like what was Xanti doing that Vanda wanted and vice versa? - So we wanted to have breath in terms of the asset classes. We covered, I've always been extremely focused on currencies, fixed income, and on the Vanda side, they were more focused on sort of macro equity. So there was a nice complementarity there. And-- - 'Cause they're known for tracking what investors do in stocks. - That's right, I know that for their retail flow staff, which is great. - So that's one of the key products that they have are an equity focused, right? So there was a nice way where we can cover everything. And then the other thing I think has to do with technology, right? So we're heading into a period where whoever uses AI most efficiently and smart is gonna have an edge. And it requires some resources. So the combined resources of the company are bigger than if we're separate. And we're really stepping on the gas on that front. So there's gonna be a new platform launch soon called Van Analytics, where we're really gonna have more breath, more depth in all cross-asset macro assets. And we're gonna use AI, I think, in a novel way. - So the business will not just be about selling the data, but actually selling the insights that you guys create from the data in-house. And that's obviously a premium product. 'Cause you're not just saying, all right, here's our data feed, figure something out. You guys are actually gonna figure things out and share them with select clients. - You know from yourself, when you run your own business, you have to learn from your mistakes. - Yeah. - So definitely one of the things we did at Accented Data early on was we try to have like data-only business. - Yeah, it's not enough, people want more. - Data-only business is very tricky, right? Because investors are busy, portfolio managers are incredibly busy, right? So they need to be told what data is relevant at a given point in time. There are exceptions, there are some quant funds that are extremely good at finding something in the data. But most people still turn on discretionary basis and we find that a combination of having really high quality data and some lay on top that tells people, okay, this is important right now, is the best model commercially and we're gonna continue with that hybrid. - You know what the corollary is for that to our business, the wealth business, like I could give you an ATF portfolio right now. I could do it off the top of my head without even thinking about it. Then what, like, 'cause that tells you nothing about what the environment's gonna be six months from now, you're from now, it doesn't answer anyone's particular questions about their own finances. So like, the data is not the standalone thing anymore. It's like, what do we get from all this data? And then you can, that's something that hedge funds want, asset managers want. - And then I guess what we really want to experiment with is that this insight that comes on top of the data, in my career, I have provided it together with a team, I'm very proud of the team we have, from Exxon to data now, Vanda. And the question now is whether some of this insight that we can generate in an AI environment. - Right. - And we have to get that right, because our clients still want to have the confidence that this is something that's been vetted. We're absolutely confident, it's true. But nevertheless, the stuff we can do at a higher speed if we create a robot for it. So we really need to find the right balance between still having a vetted, absolutely driven by like top notch, human sort of conceptual thinking. But then there's bits and pieces where we can say, okay, the robot can actually do this piece better and faster and then put the robot to work there. - Yeah, so there's parts of what you guys do that you can have a machine do like the heavy lifting, but the vetted part is important. In your business, people want your reputation. They want you to take a look at it. They don't want a black box where it's like, well, the machine said this, therefore, we don't need an explanation for it. Just take it at its word. No, people want that final layer of like, okay, I get it, you're using AI, but what do you think? - Yeah. - And then you have to have a point of view. - Like we can actually see it even in like, like when you run a business, like sometimes it kind of like goes full circle, like some of the things you thought a couple of years ago were a bad idea of actually becoming a good idea again. So we can actually see that there's some of the highest and clients actually more so than before. Actually, wanna get you on the phone. - Yeah. - Which a couple of years ago we thought, okay, that's facing out completely, but because there's so much information out there that is not vetted at all, that's actually some that really wanna pay for having something that has like an extra layer of like total real time personal color and vetting on top. I have this heuristic where I tell people, rich people don't talk to robots. Rich people pay someone else to talk to the robots and then take whatever that information is and bring it back to them. Like within reason, wealthy people don't plan vacations on Expedia. If they're a travel agent is utilizing Expedia for information, that's fine. But they want a person who's responsible. And I think that correlarily is a pretty good one both for hedge fund world and for wealth management world. - Yeah. - You talk to the machine. Tell me what it says, call me back. I think that's always, there's always gonna be a component of that. - And it's also a matter of making sure that you know, the machine, even though if the machine is mathematically correct, like the machine might get outdated. Right, so we need to continually make sure that we know what's happening in the market. Like there's a lot of our models that are, is based on what's the sort of market microstructure that's relevant right now, but it changes all the time. Right, so we can do like one is okay if I give a specific example. Yeah, so like Korea is a pretty interesting country now. Right, because it's probably the country where the AI revolution is impacting everything the most. It's obviously in the US, AI is very important, but it's US a bigger country, right? So it relates to the size of the country, it is an enormous boom that is happening. - It has to have the stock market is memory. - It's unbelievable. Like the trade surplus is just exploding. I've never seen anything like it. And by the way, the currency is having, having its best run ever now in the last three months. So it's all playing out, but in relation to this microstructure, I was talking about, it used to be the case that the stock market in Korea was driven by foreigners. And now we've had a period where the stock market has gone up so much and is driven by something else that actually we have the stock market going up and foreigners have to sell to rebalance their portfolio. So the correlation between those flows and the cost be as totally flipped. - So what happened to retail population caught stock market fever this summer? - The local. - The local. - Yeah, so if you had a model that was based on foreigners in the past that I would have gotten totally wrong what's happening now. So you need to adjust your models all the time to capture what is new and that requires that you continually just focus on understanding what's happening and-- - Sometimes the data isn't good enough to know when the environment around it has changed. I was reading about the thing with LLMs that is constructing what they can actually do. LLMs are great at taking existing information, synthesizing it and giving you insights from it. But it can't think creatively or if it does, it's getting itself into trouble with hallucinations and somebody was saying is a paper arguing that and this probably relevant to the research that you guys are doing now and what your end client actually wants from it. It's very good at induction LLMs. It can't do what's called abduction and it's like a second thing where like the AI can do statistical pattern matching. It can do all the deduction. It can take all these facts and spit out a response but it can't generate novel explanatory hypotheses. Like it will never discover Einstein's theory of relativity. Like it can't make that creative leap and we don't want it to. The way we've built this is we want it to be accurate. We don't want it to be creative. So that's where somebody like you comes in where you can look at the output and then you could say okay. Here's what the machine says but here's why that might not be the right thing to say to the client. - I think that's exactly right. So there'll be new themes developing that we've never seen before. So where's the LLM gun on stand those new things from? So that's one example. The other example just has to do with, we're incredibly focused on actually having a prior to data as a part of our platform which the LLM will not know about. - Would you do a deal with, have you smiling? Would you do a deal with Anthropic? If they said we want this data as part of our model? - This is a real balance there, right? Because we definitely have clients that want to consume pretty much everything they consume via cloud, right? - Right. - And we obviously want to help those clients, right? But if we have. something that's proprietary and we feel that that aspect of it being proprietary is threatened by us sharing it that way. Clearly we'll have to balance those two things. Okay. Yeah, as you said, this is the most exciting, interesting macro environment you've ever witnessed in your long career. What are you citing like we're all going to have to lose a lot of money. So I think last time you said that Bessent was a client of your former firm. Are you surprised with his comments today where he said, "I am the house." And I assume this is the most interesting part of it is what he's doing, what interest rates are doing, what he's saying, what the yen is doing, the dollar. Is that everything? Is that out of the crux of what's making this so interesting? We had Scott Bessent speak. We had a 10-year anniversary conference for Exxonza data in March and Scott Bessent was one of the speakers and he touched on some of the issues you were talking about now. He is a very unusual treasury secretary. Yeah, this is not normal. It's on purpose. Yeah, on purpose. He has traded tens of billion of dollar yen personally in his life, right? Clearly no other treasury secretary has done that. And he's not afraid of the market. Like you would have asked almost any other treasury secretary, right? There would be very scared about the market kind of rolling them. Currency fluctuation. Yeah, I think the currency market is pretty scary. But now we essentially have a form of intervention both in the currency market and dollar yen. We also have a form of intervention in the treasury market and that would be his long and buybacks. He said he doesn't want to intervene in the oil market. For some reason, he thinks that's a little bit different. But he is clearly willing to intervene in a way we have really not seen for a long, long, long time. And I think what is happening with Japan is fairly logical in the context of his history. He's always been a Japan expert. Actually, the reason I know Scott Bessent is that I was headed research in the Moro Securities, which is the biggest Japanese broker, right? And we always talked about Japan together. You were ranked the number one currency strategist by institutional investor for five consecutive years. Oh, yeah, what's the younger tomorrow's money pants? When were those years? Was that 2010 era? Yeah, that joined the more in 2009 and those were the years. Yeah. So that was that when the euro crisis happened. And you think what we're about to see might be even more interesting than that. I think it already is because like investors really have to pay attention to a number of things that have not really been in play before. So obviously, we have a productivity development around AI that is potentially totally unprecedented, right? We can compare with previous industrial revolutions and technological shocks, but this seems more profound than any of them. So that's that why this is tech that improves itself. Yeah, and also it's just impacting all industries at the same time, right? Like we think about the railroads and it was important, but it was like one very specific thing. And this is impacting everything at the same time. Everything is software these days, right? And it's driven by by that, obviously. So that's important. And then we can see what's happening with all the hyperscaler build out, right? The build out is now so enormous. And we're just doing these calculations and trying to make them very precise. But roughly speaking, we now have as much bond issuance by hyperscalers in the long end of the curve as the United States government. What this year, right now, the moment not early in the year, but we're getting to this bonds that exist now. It's equal to what the US Treasury has. I would say let's call the flow. How much is coming out right now? Wow. This is and it's not that the US government is not issuing a lot. The US government is issuing a lot. We have a six percent of GDP deficit, right? Which is also the, like I'd par with the biggest deficit Reagan had when he was, but people thought he's going as hard as you can, right? And nevertheless, we have these a few private sector companies that together are managing to issue as much debt in the long end of the curve as the US government. How much do you think that's pushing up yields versus all of the other stuff, the war, the competition for treasuries versus a half percent? How do you think about that? I think it's hyper important. Let's put it that way. Like obviously oil prices matter today. We had a massive move, right? Again, ECB responded to the oil prices and so forth, right? But in the background, this is something entirely new. We've been worrying about the US government issuing too much debt. And now we have another issue or a group of issues that is equally big. So like all these years where we were used to, okay, we have a low inflation environment, right? And if you have a little bit of carry in your credit instruments, you can always sell it, right? Those days are just gone. Now we have such competition for capital that yields are being pushed higher. Is that bad? Well, it'll be nice to know whether that those investments are going to be productive investments, right? But I think- Which ones, the hyper-scale ones? Yeah, hyper-scale investments. But I think what we can say with great confidence that the companies that are going all in on this Google, Microsoft, Amazon, Meta, and so forth, they're not going to give up anytime soon. Like their CapEx plans for this year and next year have continued acceleration in them, right? And in terms of how many bonds they're going to issue, it's kind of like a non-linear thing because initially they could fund it out of their free cash flow, right? So every extra 10 billion is like mapping into the issuance with like high and higher beta. So next year is going to be like dramatically more than this year. So when I look at the long end of the yield curve, it's already pressured, right? We've seen like multi-decade high bond yields now, even if the the treasure- excuse me, the Fed Fund rate is not at the high, but the long end is, right? So it's 10 years. The 10 years at 492, the last time I looked. Yeah. The last time it hit that level was October of 2023. People were nervous about it then too. Yeah. And it got over five. It got over five for a cup of coffee and then the stock market rallied 80% as it fell. Now it's back up at those levels. Stocks have not given up much. We had a momentum wipe out last month, but the hyperscaler equities are sort of stable. They're not at highs, but they're not at lows. And now the question is, if we go through 5% on the 10 year this time and we're already seeing 2007 era highs on the 30 year. Yeah. So what does that do to the market mechanically or how does that change psychology? So I would say when you compare with like in 2007 we got close to this level, right? 2003 is the right number now. Okay. It sounds like we've tried this. It's only, you know, 23 years ago we got there. Real rates. No, 2023. We were exactly where we are now in the 10 year. So real rates were higher. Yeah. But so people go, yeah, but the bottom line is it's a long time ago, since we really been at these levels in a sustained way. If we look at the last time we were at this type of level, which was before the global financial crisis, that that levels are totally different. So what we could handle back then with that level of yields, it's hard to imagine we can handle it now. And this is why Scott Besson is buying back bonds, right? At this level of bonds and the 30 year is like meaningfully higher than the 10 year, right? Cove is pretty steep. They don't want to see those bonds yields going any higher. Mortgage rates like 7%, also not that great for that sector, right? So really what's different now is that debt levels are so high. I just wrote a report on the way in here on the train. And the CBO, right, which is supposed to be a bi-partisan conservative. Grational budget office. Yeah, like a, like a, a nerdy outfit that just does numbers, that objective numbers, right? Everyone then, everyone then ignores it. I hope that the director's not listening. He's a great guy. So nerdy is a compliment. Like if you look at their debt projection, right? We got above 100 a couple of years ago, right? It's going to 200 within like a couple of decades, like the trajectory is so steep now. So this is why we really have to start to look at these debt levels in a different way, right? And there's lots of people who've been scaremongering about debt levels forever, right? So it's either we've had the wolf crying for a long time. But I do think you can really see assets start to behave differently here. Right? So which assets? So I think you can all already see it in terms of the long end behavior over the last three or four months has been kind of divorced from economic data, right? It's just doing its own thing. It's not anything the Fed is really saying or data is happening globally. It's also happening globally, yeah. And then I would say currencies, currencies, you can see it like we have like if you do kind of a basket of who has not a lot of debt and a lot of debt, it's starting to really favor the ones who don't have a lot of debt. So who is at Switzerland? The currency looks better than all the other develops. Yeah, like at least Switzerland, Singapore, Australia is a country that actually doesn't have a lot of debt. So if you have long exposure to those, you've done very well places that have a lot of debt. Okay, you can rank the top 30 economies in the world. Guess who has the worst debt metrics? Japan and us. It's actually United States now. Japan used to be the worst. But isn't the worst the best like we are able to sustain and we have a bigger economy. Yeah, like it's a tricky thing, right? Because the dollar is obviously still the reserve currency, the main reserve currency of the world, right? So is it, is it special? Yes. And it certainly is more resilient, everything else because of that. But it's not, it's not trading fantastically well now. So I think you can start to see some kind of correspondence between when the 30 in US stars are wobble and the dollar is starting to leak. When I say leak, what I mean by that is that you can have a model for, okay, what are the standard things that drive the dollar, obviously short and rates, maybe rich sentiment and so forth. And what you're starting to see is that there's some little residual that is how to explain with those normal things that is leaking in a weaker direction. And that's what's happening. It's something going to break. Are you like nervous? That's something that happens. I'm nervous. I think actually also so now I work, I work in a company now where we have a lot of equity focus, right? Massive like Eric Lewis is the head of our equity efforts, right? So massive focus on whether like we are getting into sort of a nonlinearity in terms of like the 10 year or the 30 moving to a degree where we really have an equity pukes. So we're very close to an amount of move in the yield curve where the equities get very vulnerable. Just explain what Besson is doing, not without the end, we'll just focus on the US, explain to the audience what Besson is trying to accomplish by buying longer dated treasuries in the open market. And then tell us whether or not you think it's meant to succeed or is it kind of Besson getting his boss off his back and doing something very publicly so that he can tell Trump, "Look, I'm doing all the things." Like what do you really think this is about and do you think can succeed? So I think what's important here is that if you did not have a lot of debt, and you had a few coupons you had to pay in the long end, you would just pay, pay, right? Retire it. Yeah, it wouldn't be a big issue, right? But because that is a problem and because they don't want to issue at high and high yields, they're trying to do something to save themselves money. So the essence of what is happening is that they fear that the debt dynamics is going to take over and it's going to be a negative spiral run. They're trying to stop this negative spiral by holding the yields via these buybacks. That what he means by "I'm the house," meaning I can buy more treasuries than you can short. Does that ever work? So it's a strong statement that was made in the context of the yen. Here's the statement. I am the house now. So when we intervene with the Japanese yen, I have pretty good insight into what the Japanese, what the Bank of Japan is going to do, what Japanese policymakers are going to do, and you can bet against me if you want. I mean, this is a lot. Whenever people say, "Oh, while Treasury Secretary is taking a risk," well, it's my dream. I have asymmetric information. So he's saying that he knows a speech that Oliver Stone would write from one of his characters. He knows what the Bank of Japan is going to do. It's almost like Gecko-esque. So he's saying what? You're right. They're going to raise rates. What is he saying? So I've known Scott Besson for a long time. It's extremely unusual what he's doing. But when the intervention happened, the question we got from clients was, "Okay, how can they intervene when the Bank of Japan has just passed on hiking rates?" They did not hike in July. Why would the intervene if the Bank of Japan was not serious about getting rates higher? And the explanation is very simple, and it's embedded in that statement you just read out. And that was, Scott was pretty confident that he essentially could somehow orchestrate that the hike would come at the next meeting, right? So he was willing to do the intervention on the expectation that the hike is coming. The hike in September, right, was priced by three or four basis points. So nothing was priced when the intervention happened, and now it's priced like more than 90% probability, right? So fully priced. So he wasn't wrong on this. But the yields haven't stopped moving. So in the long end, you mean? Just right. The tenure is screaming higher right now. Sure. So is he doing this Japan intervention because he wanted to achieve something specific in the US Treasury market? Or is he doing it because he actually want the dollar to be weaker? This administration is facing a pretty complex mix of challenges, right? Because they only have so many, you know, policy steps they can do, and they need to solve like 100 different problems with those different steps. So I think they would like to have a week of dollar against Asian currencies because they feel that could help manufacturing in some parts of the country. So that's the sort of week, week of dollar. Isn't it two things? It's one on showing if Japan exports are sort of the more try to it works against us. And also, my understanding is that this is a cheaper way to influence policy. So Japan, I think they had to sell, always reported, 94 billion dollars worth of treasuries in order to finance what they're doing. If he can prevent that, that is a more cost effective way to step in. Agreed. So so clearly, it is not really in the US's interest to have the bank of Japan or it's really the minister of finance in Japan. It doesn't matter. Those two wizards of finance. It's not in the US's interest to have them sell a ton of treasuries, right? That pressure job yields, right? So clearly, by sending some kind of signals where the intervention is successful with less ammo being spent, make some sense from a treasure markup perspective. There's also been talk about them being able to use kind of some kind of lending facilities more aggressively so they can get the funding to do their intervention without having to sell treasuries. So all that makes some kind of sense. But I think there's a, there's a, the currency dimension that is interesting. And it's, it's pretty interesting that we have this kind of currency dimension where the administration is willing to endorse currency weakness and even actively pursue it while we have inflation problems at the same time. Right. Those two things don't seem to go together. No. And yet, that, that just tells you that we have so many conflicting goals in policy. The administration's attitude toward inflation has been sort of like, well, as soon as we get the Iranians under control and we unblocked the straight of Hormuz, WTI will crumble from 100 back to 70 and everything will be fine again. Yeah. So that has not happened yet. But like, that seems to be what they're saying, even if they're not saying it that way. But it's already, it's already gone on for too long. And that's now, and now higher energy prices are embedded, like, are the new, like inflation expectation. And it's hard to shake that once it starts. Yeah. Do you guys think that it's strange given everything that we're talking about with yields just screaming higher that the, and, and mortgage rates are about to hit 7% although that's been a problem forever. So maybe that's not moving the needle. Gasoline, national average is keeps bumping up. And yet the VIX is at 18. S&P equate is like 4% off its highs. There's just no fear at all. Oh, and we just had the nastiest tech momentum crash on record. And yet the stock market is just yawning. Yeah. Are you surprised by that? I will be surprised if we have, if we have a couple of more weeks of this yield move, I'll be very surprised if there's not a reaction equities. And I think, I think the point you make about oil is important, right? Because we're now more than six months into this. Right. Right. And it was supposed to last a couple weeks. We had a deal on the way, right? That is obviously totally falling apart. And he called it like an interlude. Yeah. Or something like a day trip to Iran. And I think it's also increasingly clear that the US is expanding quite valuable resources. And the opponents sort of delivered. doing something to make that problem bigger. So that's not going to make the situation any easier. So this could go on for a while. I think we've also had rumors from different people in the administration that they know this could be a multi-year thing. So that's what's being priced into bond yields then. Yeah. And you can see it as well. Like if you look at the bond marker, right, there's a concept called break even, right? You can split the bonds into what's the real yield in the bonds and what's the inflation that's expected that people call the break even. And that is also started to move in the last couple of weeks. So if you look at five year break even, right, it was two two now, it's two four two five. So that's also relevant for this Fed meeting that's coming up, right? Like how chill can they really be the AI inflation is here? The energy inflation is there. And they're coming from an inflation level that is already above target. Like it's it's hard to be too relaxed. Do you think the administration was hoping that AI would be deflationary or disinflationary because it would cool down the jobs market, which really hasn't happened. And now they're looking at this like, all right, so it's a capex boom. It's great, great for photo ops every time they open a new data center. We can put an official there to cut the ribbon. But it's not disinflationary at all. And if anything, workers in the bottom 10 and 20th percentiles are actually seeing more meaningful wage hikes, people working in the trades have never been more employed. And it sort of is not playing out the way, maybe they would have hoped as recently as nine months ago. Yeah, this is an element of that. Absolutely. This this technology is. It's pretty, it's been pretty hard to to forecast. It's moving so fast and it's hard to compare to these previous technology shocks. And Worsh did a lot of public speaking before he was appointed right where he talked about deflationary effects of AI and kind of used that as an argument not to hike rates. And it's it's probably one of the things that made him a bit what should we say is schizophrenic in terms of like sounding hawkers should one meeting and die. Disinflation is not showing up anywhere that it matters. No, so I think I think that where we are is that there's a technology. That has a promise of being deflationary in the long run, but the technology is being built. And as we already discussed, building is so expensive, right? That that demand is creating incredible pressure on DRAM. That's why Korea is benefiting so so much. And some other things as as well, right? And at the moment, we're just experiencing those inflationary effects. And if the cap is going to continue to ramp up into 27, which seems highly likely, right? It's it's it's very hard to to imagine that that this inflationary force is going to go away anytime soon. There's a guy called Elon Musk, you might have heard about him, right? So he he knows something about some of these issues. So he said, yeah, we we're obviously going to get a supply response, right? So we're going to get a supply response clearly. Like you can make a ton of money. Making that will build more memory plans. Exactly. Yes. And by the way, that's that's what's happening in Korea now. Like we're going to have a massive investment boom in Korea. I think roles is going to surprise in Korea in a massive way. But his point was, okay, if you really step on the gas and build a lot of extra capacity, maybe within a year or two, you can get a 20% increase. And what we need is 100%. Like that, that's what does it just quoting him, right? But he he he's built some data centers himself. I think it's not irrelevant to to get these projection from people who are actually in the data center business themselves. And I think it's going to be very hard for supply to match this demand. And therefore the price effect is going to be there for a sustained period of time. So that's it. I mean, to not overthink things in terms of why is the market looking past all of these geopolitical interest rate risks. Because the stock market is not particularly expensive. And earnings growth is 20 plus percent. And it's expected to be that way for a while. Now, obviously this could look foolish in three weeks of stocks do fall to 20%. But you just said everybody's saying the same thing. They're not going they're not slowing down. No. And until they until somebody says otherwise, the market will act as if we have bond vigilantes show up in the debt market for corporates. Meaning could could alpha vet or meta or somebody come to market with another debt offering that instead of being two to three times over subscribed, it's actually underwhelms. The rate goes up or the deal gets canceled. Like that has not happened yet. But wouldn't that be the ultimate signal that the party's over? I think that a lot of people have been looking at Oracle as as the less strong play in the space. Right. And their credit spreads have also been volatile. But I saw today like there was a major bank that upgraded meta. I think the price forecast got raised by 25 or 30% because that company is like having all its existing businesses. And now they'll actually have like an enterprise AI business on top. They launched mules which is going to be like an open weight model. I guess like a free to use model that don't make money from people using it. So there's a lot going on. So I agree when you look at some of these companies, right? Like actually their evaluations, if they are going to be the winner as a one of the winners, like the valuations, not that extreme, right? The trick that was like 17 times phone earnings. Nobody wanted it two weeks ago. Yeah. So so the trick is, okay, who's lunch are they going to eat? Well, but so so this is this has been a rally in three stages. The initial stage in 2023 was mag seven. The consensus was the hyperscalers are going to win AI. They are going to be the engine behind it. And that's where the profits will accrue. And then sometime mid 2024, late 2024, everyone's minds were changed. The hyperscalers stopped going up and the semiconductors became, I don't know, 20% of the S&P, biggest semiconductor rally in history for half of 24 and all of 25. And in this year, it's switched again. The semis are now reporting blowout numbers and the stocks are falling. What's going up? The software layer. Now the market seems to have become convinced. Actually, whenever it'll be the SaaS, the enterprise SaaS companies, who sell the most AI shit to people, and they will be the winners. So we've had like a horse race with three different horses leading in three years. The narratives are changing so fast. I wouldn't even rest comfortably on this new software thesis just because Salesforce came back. What are they going to decide is the AI winner next week? I don't know. If you zoom out and you look at a racer chart of IGV divided by SMH, obviously, it's in a long, long downtrend. It bounced back to its 200-day barely. I mean, if you zoom out, the rally looks like nothing. So we can easily, in six months, be talking about this all over again, actually software as f**k. I would add a fourth way, right? So this is a little bit harder to see. But we deal with a lot of hedge funds around the world, but we also deal with people who take more long-term investments, like pension funds, our wealth funds, and so forth. And I think their main focus has been on the energy, right? So they would invest in the power plant or great infrastructure. No matter who wins, it all needs energy. Yeah. Or even in the metal space, right? Copper is going to be a part of this as well, right? So there are a lot of kind of derivative expressions. And some of those plays will be maybe not so much in the public market, so you need to have a very big checkbook to participate. But very big investors have definitely been doing that aspect of it for several years now. You mentioned copper and industrial metal. Earlier, we didn't speak about gold, which traditionally has been the debatement trade. All right. I don't like what's happening. I don't trust the government. There's too much debt. I just don't like this. I'm going to buy gold as an alternative problem is when real rates are growing up, like they have been, they're the highest they've been since 2007. That is the legitimate competitor. I don't really want to own a precious metal. I'm going to own something that has a very positive real rate of return. So that further complicates matters. So gold has been a lot of fun to analyze in the last couple of years. Like I never really have found that that gold was a particularly exciting asset until 22. Like it moved with the dollar, it moved with real rates. And if you knew what the dollar was doing and you knew real rates, you're doing like, you know, roughly what gold was doing, but it wasn't doing anything on its own. But since 22, and especially in middle of 23, gold has been doing something that's totally different. So I'm not saying that real rates are not relevant, but there's been something else. And we think it's central bank buying and speculative is betting on more central bank buying. Yeah. We've been, we've been through different waves, right? So there was, I would say the lift off when that correlation to real rates really broke was China. China style to accumulate a ton of gold is that the Chinese central bank, China is incredibly skilled at not being totally transparent about what's going on. So finding which specific balance sheet it's on. It's hard, but we can see the way you know, it's coming from there. They, they, they, they, they're absorbing it somehow. So that was the first wave. Then there's been broader central bank buying. Then last year we had an incredible kind of spec wave that both played out in ETF space and also all those GLD options. So, so, so, so vertical. Yeah. This is, this is what we do on a day to day basis like. tracking all those flows in incredible detail, right? So I would say right now, it's hard for you to imagine that we're gonna get the same level of bonanza in option trading, retail option trading in gold. So I think that means that the target you wanna have for gold in the next couple of months needs to be tempered from, okay, we already had the biggest bonanza ever, right? And it's probably not gonna repeat what we had in January. But the ETF flows have been incredibly strong, especially on a euro, actually. So there is some very persistent demand that I think is gonna mean that even if real rates continue to go up, gold's gonna have some support. And it's to do with what we started speaking about, right? People are not comfortable buying long and bonds, right? So they feel that there's some kind of hedge involved in the gold trade. And I think on a multi-quarter horizon that demand will be there. - You mentioned earlier that when you're feeding data into a model as the world changes, we might be using an outdated playbook. And I think one of the things that I don't subscribe to anymore is that discretionary stocks tell you a lot about either the stock market or the consumer. So yesterday I saw a guy, Q Capital, 2020. That's a satirical account, I don't know if he's kidding or not, but it doesn't matter because what he's showing is real. A lot of the consumer stocks, specialty retail, have been blown to smithereens, right? Like American Eagle today, down 15%. Dicks in the last month, down 38%. Burlington, Casey, general star, I mean, a million. They're all getting killed, advanced auto parts, whatever it is, you name it, they're getting killed. So I brought some charts that I want to go through. Let's start with chart 11, please. So this is the United States Red Book Index and retail sales, right? Just retail sales year over year, nothing really in here that is noteworthy. I had the guys take a look at all of the names of companies that reported same store sales going back to 2001. So we have like a decent data set here, chart 12, please. So this looks pretty similar to this latest chart. So in here, it's a composite of raw stores, bathroom bodyworks, Starbucks, Costco target, AutoZone, Dine Brands, Brinkler, Williams Sonoma, Walmart, Macies, Gap Home Depot, Abercrampian Coles, and same store sales, all right? It's up 5.1% year over year. So where I'm going with this is chart 13, please. If you look on the left, at an equal weight, discretionary, relative to the S&P 500, this thing is at the lowest level, it's crashing, but guess what, it's been crashing. It's been going from the top left to the lower right for the last decade, and it's told you nothing, nothing at all about the stock market. This has happened while the stock market, equal weight and otherwise, is at all time high. So instead of looking at the stock price, which has all sorts of information in there, it could be valuations, it could be idiosacratic risk, it could be this like portfolio managers just don't want to own those stocks. It could be a million, no matter how well they're doing. What does Nike say about the consumer? I don't know, I don't know. So I look to Bank of America as a set of charts that they put out every month, I'm sure you're aware of this. Let's go through some of these. Spending, consumer spending is a little in July, chart 14, but the overall picture remains robust. Bank of America, total aggregated credit and debit card spending per household increased 5% year over year. Next chart, so that spending, this is household savings inflation adjusted relative to 2019 levels. Of course, coming off the sugar high of all of that money printing, but still. - That's, it looks like back to normal. - Above where we were in 2019, inflation adjusted. Next chart, we're looking at total card spending, excluding, it's not just gas, excluding gas and online retail. Still growing, now there's inflation here, okay? So if you strip that out, it's whatever, it's flat. It's not crashing, lastly, and this is maybe my final, this is my final point here. Necessity spending versus discretionary. And Bank of America serves the nation. It serves millions, tens of millions of American households. And discretionary spending is doing, it's hard to say a bad thing about this. It's freaking booming. So I don't think, chart off, please. I don't, on the one hand, it is a little bit disconcerting to look at all of these discretionary stocks, not all of them, targets working, advertising is working, but there's a lot of them that are down 30%. So I don't want to completely dismiss the stock market. But if you go to the source of the truth, I don't know that it says a lot. I don't know that the consumer is cooked because the stocks are. - Yeah, so I think, I think one thing that's pretty tricky that she is that we had these big tax refunds, right? So the big Trump too budget, give away was beautiful bill. - Yeah, it was the fact that we had no tax on overtime and no tax on social security and those types of things. And whatever happened last year only got refunded when you filed your tax return this year, right? So there was a lot of people who got refunds and you can file really in February, but most people file around deadline in April, right? And then you get your money, maybe in May. So a lot of people got money in the bank in May, and then it takes some months to spend it. So I think some of what you're seeing in these charts, you show there was sort of the juice from those tax refunds. And then the big question is how, over how many months it's gonna spend. If it's just a couple of months, then that could be something coming after that. If it's spread over six months, we have another couple of months of it. But I think that's one thing that worries me a little bit that we had some extra juice from those tax refunds. So we have $5,000 coming. What are you gonna do with yours? - Yeah, let me put it this way. I don't think I'm gonna spend it before it's in the account. - I think you're dividing the charts wrong. So, no, no, you're not making a mistake. I'm saying the way that the market thinks about consumer spending when they look at stocks, they break it up into the discretionary versus staples, right? Like consumer staples, mostly food and tobacco. And but the reality is if you were to break up the discretionary sector by experiences versus items, you would find that the experiences chart tells the same story as all those credit cards spending cards. - Correct, correct. - So if you just had a bucket that was golf courses, - High up data lines. - Yeah, you're right, you're right. Hotels, live nation, like things that people can do versus items at Dix that they no longer wanna fill their garages with. I think that's more close to the truth of what the consumer is doing with their capital right now. - Yeah, you get that from the airlines as well that like I think Delta is expanding the business class. - They had record spending in Q2, like during all of the shit. - Moynihan was on TV today. He said there is, I forget the exact wording, but it was literally like, well maybe this is yesterday, he said, so Moynihan is Bank of America CEO and most of the credit cards run through his hands. And he said the bank status shows consumer spending in credit remain healthy despite rising gasoline prices. Quote, consumers spent in the month of August about 4% more than they spent last August. Last quarter it was 5%, so it's kicking along that's consistent with a strong growing economy. He would love to be able to come out and say, things are slowing. I think he would love to be able to say that 'cause it's easier for him to make his numbers for next quarter. It's just not what he's saying. And people are dying for him to say it. But he's not saying it, city's not saying it, JP Morgan's not saying it, none of them are saying it. I trust the credit card data, more than I trust the stock price of dick sporting goods. - Yeah, we had, we've obviously had a big debate about what's happening in labor market, right? The labor market has surprised massively on the upside. Last couple of readings, right? So the economy's not falling apart, right? And that's also why we have these inflationary pressures, and the labor market is not soft, they have to respond. - Yes, it's amazing how much shit has been thrown at this economy. Tariffs, inflation, frozen housing market. I mean, a frozen housing market, gas prices and nothing is budging up the internet economy. - It's unbelievable. - Yeah, we have been through a lot. What are you worried about? Is the bond market, is currencies? Is it somebody saying the wrong thing in front of a microphone? That's in a position of authority, like what? What's the thing that people are coming to you and saying they're worried about? - Yeah, so like, people are definitely worried that we're gonna just have all prices continue to go up, right? They've gone up in the last couple of weeks substantially, but we could go up more, like there's not really any solution around the corner. So continued rise is there. That's number one. Well, I don't know. I don't know. I'm not ranking them. So they'll have to say the bond, the bond might-- - You're hearing that from a lot of your clients. - Yeah, like we have trading clients all around the world clearly that's hyper focused on the oil price now. The long end is really concerning people and concerning equity investors. - Do you think it's concerning equity investors? - Yeah. I think it's making people nervous that there's this non-linearity. When the long end moves quickly, you know, 20, 30, 35 basis point, we get into danger territory, so we're very close to that danger territory. So that's, that's the second one. And then I would say people are also worried that, okay, like, is this election going to go? Okay, we're getting a lot of questions. Is the election going to be all right? Like, is this going to, like, the sanctity of the election? Does that and then assume that it's also, it's also a long time since we've had a, a damn sweep, so there's some investors that are concerned about, is that going to move markets too? Yes, does all these worries make you worried, or do you take a little bit of comfort in the fact that there's so much worry that the market doesn't for you? No, I think I do, I don't think I've been like a debt-scaramunker my whole career, but I do think at some point you have to take it seriously. And I think we're starting to sniff that it's starting to impact the asset allocation. Right. So what matters is when investors respond to it. And I think we can start to sniff it. Don't you think there's enough demand that a 10 year above 5% gets aggressively bought by allocators who have been waiting for something like this? Or, or we might find out the emperor has no clothes and there are no buyers? Yeah, I would, I would say the fact that we have to eat the bonds both from the US treasury and the hyperscalers at the same time is a bit game-changing. Okay. So I think that makes it harder to say, okay, what kind of level is this? So, so why is investment saying that? Yes, the why not just going to say to the hyperscalers, hey, asshole, no more calm down. But that this has to do with the conflicting objectives. They want the AI sector and the US to be strong. They want them to come and rescue the growth of the US economy. Like, and it is a big source of growth now. Probably a part of the reason why we have the silences that that growth is there. So they don't want to hamper that. So that's why they're doing these buybacks, right? To make sure it doesn't go after rails too quickly. But I do think getting heading into next year is going to be a problem. It could be a massive problem for housing markets. And so like, what if we have mortgage rates that I 8% right? What's the difference? Don't forget. How's the market already out of it? Don't forget that a lot of people have mortgages that are 3% and 4% that eventually have to roll. And it's almost like because there was so much QE and so forth when we locked in those mortgage rates, we have the hangover of those mortgages resetting to a higher level with a huge lag. So there are going to be housing sector issues that are going to be exacerbated. On that point, isn't there was so much financial suppression in the last couple of decades that was pissing everybody off? The same people that are pissed off now about government spending were irate about how much interference the Fed and the Treasury were having with the bond market. I'm not saying that this is awesome and it's all roses and sunshine. But this is a lot more of a normal yield curve in a healthy economy, in a growing economy. This looks a lot more normal than that should do. Well, if you look at historically, it's certainly more normal to have a 4-5% bond yield than having one or whatever we have. Tell you it's a negative rates, that was abnormal. Yeah, agreed. And you can also see it like in Europe, right? We now have yields that are more normal in Europe. But ECB hike rates today, right? And banks are making money, right? So it's very hard for banks to exist and make money. We've seen in Japan as well. We've seen it all. Yeah, so in a way, it is a more normal situation we're in. The problem is that if this hyperscaler issuance continues to accelerate, then we might get another percent or another percent on top of what we've already seen. And then there's probably some non-linearities kicking in. It would be very ironic and interesting if the bond market for stocks comes to an end, because the hyperscalers went from being like the biggest cash generating companies in history, to being the largest debtor companies in history. And they did it on purpose to themselves. It would be very poetic if we say the market topped when, finally, yeah, I don't know if we've got that. The market topped when, finally, like somebody said no to Amazon and the bond market. Yeah, that would be sort of a poetic end. That would be the signal. Yeah, so we're not rooting for it just pointing out that I think that's something to think pretty hard about, because if you look at the flows, that's the direction we're going. Okay, last question. What's the most interesting trade right now going into 2027? Maybe something that you're hearing people putting on themselves or something that you're thinking about? What's something that no one's thinking about that actually might be a good trade? Well, I think one of the most important and pronounced macro trends is playing out in Korea. I think that trade can continue to go in a massive way. Equity market in Korea, or you want us to go on? Both, both. I think it's just such an extraordinary situation that it's probably the biggest macro countries shock I've seen almost in Korea. How do I buy that at the mall? How do I buy Korean mid and large caps that are going to benefit from a richer consumer, or do I have to buy these memory stocks? I think you can do both, because it's like the workers are getting paid. Right. The dividends are coming out. Right. The girls are going to be there. They're going to invest. It's like on all cylinders. Dude, we're going to JFK on Sunday. Let's buy the wine at the airport. It's an excellent call. We could do that. Yeah, it's JFK on the show today. We were super excited to have you back. As always, we've learned a lot from talking with you. I want to tell people where they can learn more about the work that you're doing at VANDA. I know the company officially changes over in October. Is that right? That's right. So we called VANDA macro research. So yeah, we have the VANDA macro data, and we have what we call VANDA macrointelligence, which is the blood type of stuff. So VANDA.com is at the main now, and you can find me on Twitter, X, if you want to do that. That's Jay Nordwick that hasn't changed. All right. Awesome, guys. Follow Jens, for sure. Check out VANDA, of course. Thank you so much for coming. We appreciate you. John, what do you think? Good? Daniel, good job. All right. Guys, thank you so much for watching. Thanks for listening. That would be very soon. We're out. The right window treatments change everything. You're sleep, you're privacy, the way every room looks and feels. At Blinds.com, we've spent 30 years making it surprisingly simple to get exactly what your home needs. 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