Bonds To Reverse Soon As Yields Approach 'Line In The Sand'? Michael Lebowitz

0:00I'm not dumb, I realize that it's the narratives that are the short term driver of bond yields, bond yields can go higher from here. I do think that 10-year bond yields at 5% is potentially aligned in the sand for both the economy, the stock market, and definitely the treasury and possibly the Fed. We're pretty close to 5% at this point. In the short run, that may be our maximum upside in yield. And I think if the economy falters, the stock market falters, that could induce rates to start heading down, yields to start heading lower. Welcome to Thalphalmany. I'm Thalphalmany, founder and your host, Adam Taggart. Welcome you here to a discussion with Michael Liebuitz from Real Investment Advice. Michael, thanks so much for joining us today. My pleasure. There's a lot going on, so it's probably appropriate.

1:00It's appropriate, and there's just a lot that's been going on with bond yields. And so I've had a lot of people saying, hey, can you get Mike back on just to kind of tell us what's going on with bonds? And so he's a big bond expert. So Michael, bond yields are, they've continued to just grind higher and higher to yields that we haven't seen, why didn't like two decades or so on the 10 and 30 year US treasuries. So I know that at RAA, you and your partner in crime, their Lance Roberts, are at a point of view that bond yields will be coming down over the next couple years for a bunch of secular reasons. But I think the question from the peanut gallery is, is you're still holding to that outlook? Can you start in a sweat at all, given what's been happening over the past couple of months? What is the deal with bond yields? So, you know, Lance and I probably sound like a broken record here. We've been saying this for a while, and they were coming down, and then I ran kicked in.

2:05Tariffs kicked in. So kind of one of our themes is that there's bond fundamentals, and there's bond narratives. And at the end of the day, historically, fundamentals drive yields. That's, there's a very, very high correlation. I've shown charts on with you before just showing the very high correlation really between inflation and inflation expectation and bond yields. But in the meantime, a narrative and a narrative can be true or false, but a narrative can take over and drive remark. And we see it in the stock market all the time. There's a narrative behind the memory chip companies, behind the AI companies, behind meme stocks, behind Golden Silver, behind crypto, behind, you know, we've seen one after another. And those narratives at times can divorce a price from its fundamentals, right? AMC and GameStop are two great examples where the price is shot through the moon,

3:08the fundamentals of the two companies were not that good. And ultimately price or an arc case yield comes back to fundamentals. And what we see today is a divergence between fundamentals and narratives. And it just seems like it's just one story, one narrative, one thing hitting the bond market after another. And I think it's just because the bond market is susceptible. It's going higher in yield, lower in price. And I think just everyone's scared and just thinking yields are going to go to the moon. But if you kind of, you know, this is appropriate that we're talking to because the Fed meets a week from tomorrow, a week from today. And it'll be interesting to see what they say. Because let's just think about the fundamentals. And actually you modify share screen.

4:11I put this on a nice, pretty table. So you can kind of follow along here. Yeah, nice and pretty. It's beautiful, right? My assistant Claude did a great job making, taking my comments and making it look nice. Yeah, and you know, sorry, it's a bit of an aside, but Lance has been talking about how you guys have really been leading into AI there over at RAA. So many acronyms. It's hard to keep them all straight. But you're finding it to be very useful, even just in putting together presentations, right? And not just necessarily sourcing data, but actually how you present it, correct? Yeah, I mean, it's really like an assistant. So yesterday you texted me yesterday and said, hey, can you come on? I'm like, yeah, absolutely. And I was thinking, okay, what am I going to talk about? And I came up with like this PowerPoint that you see right now.

5:13And I said, okay, here's what I want. I want a PowerPoint. I want you to put out these things and these things, maybe put it in a nice order. So it's easy to follow and kind of use that, you know, this sort of template, you know, we've been doing stuff in and it spits out something. And it first of all, it just looks a whole lot better than anything I can do just visually. Then you just go through and you say, okay, that's wrong. Don't put that in there. Put this in there. Reorder it this way that way. It's really like having an assistant. I go get another cup of coffee, Claude's busy working on a new PowerPoint. I come back. Claude presents me and you know, you just iterate with it. And you get to a point where it can present your work in a much, for lack of a better word, prettier, more easy to follow away. So I find it incredibly valuable, not just for research, but just to presentation matters.

6:17That's so cool. This is going to be of interest to nobody. But I just think back to my early days as a junior level bottom, run, go to ladder and rest from banking analyst on Wall Street. And my first year to there, there was a graphics department. So if you wanted a slide like this, you had to bring it to a department of specialists who would work in the graphics program. I think ours was called Harvard Graphics. And so if you'd said, look, you spelled debt wrong. I need you to fix that typo or I want this box moved over a little bit. You would have to write that on a piece of paper. Give it to a person, wait for them to get to it and their queue, then do the work and hand it to him. It just took forever. And I remember we begged and begged to finally get the software ourselves. So we would then build it ourselves using the software, which was a lot faster, but still took a fair amount of time. It wasn't on high as best use. Now you can just tell Claude, yeah, I want to, I want a table here. I want these to be the main things. Just make it look pretty and voila.

7:18Sounds like it's only about a cup of coffee is worth a time. Yeah, I mean, it's, you know, especially once it kicks out the first one, when you say, hey, you spelled this wrong or this is the wrong place, then it comes out pretty quickly. And you can even ask for ideas, you know, like let's say, you see the three boxes on the left. Is there some other fundamental I'm forgetting? And it'll spit out some ideas. Oh, yeah, I forgot about that one. Let's add that fourth box. Wow. So it's, it's literally like an assistant, but without the griping. And so not to wallow in my own pity, but like, I'm having flashbacks to where it would sometimes literally take me an all nighter to get a couple of slides like this done through that old graphics department way back when where now you can obviously get it done in a matter of a minute or two. Well, honestly, Adam, if you gave me this and said, can you just replicate it? So I'm me going to PowerPoint and just copy everything. It would probably take me two hours to get all the boxes aligned and the colors and the fonts and

8:24sizing and all that stuff. So I mean, it's just, it's really valuable. Wow. And I think it makes the presentation a lot more valuable. I mean, you've seen my other PowerPoints in hindsight, they're horrendous. I'm kind of embarrassed now at the stuff I've been sharing with your followers. It's awful. I apologize everyone. At the end of the day, it's the concept of data that matters the most, but the presentation does help. And sorry for the tangent here, folks, but it is, I think, you know, instructive just to see how AI is being used in ways big and small in the, you know, by the companies that are there on the bleeding edge trying to figure out how to work with it. Right. So anyway, is this worth the premium that AI stocks are getting because things look nice on PowerPoint? I don't know, but you know, it's still something. That's a topic for a, that's a huge topic for another day. I'm actually writing an article on this guy, Chad Jones. Stamford guy like you actually graduate, uh, business school, um, fascinating on

9:26how he looks at AI and how it will impact the future. So actually, if you could get him to do an interview, that would be great. I'm right now. Chad Jones, okay. Well, my brother-in-law went to Stanford after me. He was Chad Smith, but I guess I got to go track down Chad Jones instead. Yeah, we're just getting any Chad to talk to you. Maybe there's Chad Johnson out there. I can track down. There you go. Um, all right. Anyway, okay. So basically what I'm showing you here are the fundamentals and the narratives. And again, narratives are stories that the market creates to, to, and it's not just markets, it's everything to kind of explain what's happening, wire yields rising. So if we just focus on the fundamentals, inflation's running hot, right? Well, yes and no. Core CPI is 2.5%. We know energy prices have shot up, and the prices of some other goods have gone up

10:28because of the Iran war. We hopefully know this is transitory. And you know, fingers crossed, but it will ensune a price of oil. It may not end, but the straight-of-form moves will hopefully eventually open or will successfully bypass it over time. Price of oil will come down. So if you strip out oil and food, if we use the trimmed meme PC, which is what Warsh has said, he prefers, where you just take out the outliers, you have 2.3% and break even inflation expectations are 2.5%. All three of those are where they were before the Iran war started. So again, if we strip out some things and we can debate all day whether that's right or wrong, inflation is grounded where it was before Iran started. Okay. So basically the bond market is looking through the war. Looking bad. Well, the bond market is not. The bond market is worried about inflation and we'll get to that on the narrative side.

11:31But inflation itself does not warrant rates being where they are right now. Right. So same with setting who is setting the break even then. That's that's the difference between nominal bonds and tips. That's not it. So isn't that the bond market speaking through that? The bond yeah, the bond market is saying inflation expectations are basically what they were before Iran started 2.4%. Yeah, yeah, okay. And they tend to run higher than actual inflation over time. But it's not a narrative. That's money being put to work in the market. Yes. Employment we had a great employment report last Friday. But we've seen massive revisions. So trust it all you want. I'm not sure what I know one month does not make a trend, especially given the revisions we've had. And ADP is not confirming it.

12:34Jolts does not really confirm it. So you know, you got to be a little careful. And what we kind of if you just average out recent trends, we're growing it about a third of the rate that we should be growing. So you know, in real wages are flat, maybe even negative. And economic growth has been kind of weak. And if you strip out AI, it's probably been flat to negative. So the fundamentals driving the bond market don't warrant rising yields. But there are all these things out there. Some some true, some false that are really what's driving it. Oil prices are high. We know that. And is that reigniting, reigniting other, other inflation deficits? Right? That's we see a story about high deficits every day. The greater your deficits, the more debt you have to issue.

13:34And that's a problem for the bond market absorbing all of this debt. On top of that, you have AI debt. There are, you know, a lot of these big hyper scalers have started going beyond their free cash flow and are now hitting the debt markets and the equity markets for capital. In the, you have to be crowding out, right? When we talk about it, yeah. And then in that same realm, you know, we've seen memory chip prices spike over the last six months or so. That's inflationary because it, you know, we saw Apple raised their prices. So that's having an impact. The yen. Well, how does, how does the Bank of Japan intervene? According to some, they sell yen or they sell dollars. Which means they have to sell their bond holdings. Now, that's a debatable one because the Treasury does a repo, the Fed does a repo program with them. So they may not be selling US Treasury bonds.

14:36But either way, it's a story. There's a, there's, this is the cocktail party inflation problem. Inflation is outrageous. You know, people will tell you, right? The price of this and the price of that is so high. I don't, you know, kids can't afford to pay rent at a college and this and that. It's not from the Fed perspective, from an economist perspective. It's not the price level that matters. It's, how is that price changing here and going forward? And we've talked about this a lot. If the price of eggs goes from $3 a dozen to $6 a dozen and then stays at $6 for a year, there is no inflation in eggs. Despite the fact that it's twice as much as it was a year or two ago. But, you know, we continually hear, you know, I think it's people think inflation is higher than it really is. And again, we're not comparing absolute levels.

15:38We're looking at growth rates. In the short run, I think it's hurting the bond market that Warsh is not giving guidance. I think the market feels like it's kind of rudderless a little bit without the Fed walking the market on its leash. You know, according to some, the credit downgrades deserve higher yields. So, you know, you take those narratives. There are some truth to all of them, but they can all be debated. And that's what's driving yields higher. But at the same time, the fundamentals that really in the long run set yields are telling you yields are already too high. Now, you also need to think about the market has tight and rates. Right? You know, think about auto loans, credit card loans, mortgages, corporate loans. They're all tied to, like, anywhere from the three year to the 10 year

16:42rate. They've gone up significantly, 50 to 75 basis points. So, there has been a lot of tightening in the economy. And that can take anywhere from three to nine months to start showing up. So, you know, I think the bond market has become overly stuck in narratives. Whether some truth, no truth, partial truth, a lot of truth, and stop looking at the fundamentals. So, you know, I think when I look at bond yields, I realize, and I'm not dumb, I realize that it's the narratives that are the short-term driver of bond yields. Bond yields can go higher from here. I do think that five year, I'm sorry, 10 year bond yields at 5% is potentially aligned in the sand for both the economy, the stock market,

17:42and possibly the definitely the treasury and possibly the Fed. Don't hold me to it, but we're pretty close to 5% at this point. So, in the short run, that may be our maximum upside in yield. And I think if the economy falters, the stock market falters, and that, you know, we'll see what the Fed does next week, that could induce rates to start heading down, yields to start heading lower. But with the narratives out there, I don't anticipate that if there's nothing severe, you know, bad going on with the economy, that that would happen quickly, it would take an event to push yields down quickly. Yeah. Okay, so can I just restate that real quick? Where it sounds like you think, look, left alone given enough time, yields are going to come down for all the fundamental reasons. If they don't, they continue rising up to 5%. You think that's from the central planners are

18:43going to get involved. They're just saying, look, we can't let this stand. It's too high. We got to come in and intervene to get those down. And the only other thing that could bring them down in the interim would be some sort of event, like a shock that sends the country into economy into a deep slowdown or something like that. I don't want to use the word recession necessarily, but something maybe a little bit more fast action, fast acting to that. Let me edit that a little bit. I think the market may step in at 5% before central planners. Insurance companies and downmits, you know, the largest institutional money managers will likely be willing to chomp at 5% to take it in. Because from an asset liability perspective, that is big. That is very helpful, pension funds. I think the stock market could show troubling signs as we get to 5, as yields keep going up.

19:51So a lot of money has gone from bonds to stocks. Why not make 20% a year instead of flat to losing money in bonds? So if stocks start heading lower, some of that money say, you know what, I want the safety of bonds. And if I can earn 5% or close to 5%, that's a no-brainer. So I think the market over the central planners, but I do think at some point, and Bessent has already come in and increase their buybacks. I think the Fed is a little less likely because Worsh has been so adamant that QE is a bad thing. But you know, nothing would surprise me at some point, whether it's 5 or 5 in a quarter. Now I do think that when the tide turns, you get narratives go the other way too. And again, those narratives may not be true either, but narratives can push yields lower.

20:52But it's like a stock that's divorced from its fundamentals. Ultimately, it will catch up to fundamentals, but it can happen quickly or it can just grind for a while. All right. So I know you've got some extra slides here, so I don't want to slow you to go through them if you want to. But a big question that this raises is, well, then you're starting to see opportunity here in the bond market, right? Give me a little bit of a way to tell me, you've got a lot of reasons why you think yields should likely go down from here. So do you want to start taking an unloved asset, you know, bond duration and investing in that because that would perform the best if you're correct. So I don't know if you saw this graph and there have been a lot of other graphs like this. It's just tenure annualized returns for bonds. So look at what happens when at the low points, when when the last 10 years were pathetic returns.

21:57Right. You got the 1950s, you got whatever happened in 1861, but yield the returns shoot up afterwards. This is almost the opposite of the Cape chart. We know that that equity returns are tied to valuations. When valuations are high, long term returns tend to be low in vice versa. Right. So right now, Cape is sitting at like 41. Implying that returns for the next 10 years are going to be zero. This is almost telling you to some degree the other thing that that the prior 10 year returns have been so bad that we should expect something decently better if not much better. So you have this juxtaposition of equities that are have done really well. They're like at the top almost poised to head lower while bonds are, you know, putting in a horrendous performance. Now keep in mind the one reason that this is worse than other experiences is because

23:00they kept braids for so low, so low. Right. Low for so long. So while prices went up and they've gone up more in other instances, I mean, prices have gone down in the last, you know, especially 22, 23 in that period. They've gone down more in other periods, but there was no yield, no coupons all said it. We had a little bit of that in the 50s, but yeah, that time coupons were two and a half, not one and a half. So, you know, I think yes, there's opportunities, some potentially good opportunities, but for the patient, for those that are willing to wait and timing, I don't know, because again, it's one thing after another that just weighs on the bond market. Right. But the difference here, starting to interject, the difference this time is you're getting paid to wait. You're getting paid near 5%. You know, if you're sitting out in some of these longer duration,

24:02some cases, maybe even over 5%. So it's not like it was, you know, years ago where there wasn't much there, you're actually getting some meat on the bone now. So even if it takes a year or two, yeah, maybe the stock market puts in another double-digit year, but you're not getting nothing. And you've got the potential safety of, you know, if the caprice, you'll prove to, you know, start mean re-burning or whatever, you know, you're sitting here in safety and actually then, hopefully, you should rhyme the resizing as capital comes back in the bonds. And you have, you know, essentially a free option. Let's say you buy a five-year bond today, 5% arguments say, right? And you're comfortable, you know what? Worst case, I just hold it for five years. I get my money back and I've earned 5% every year for the last five years. But let's just say bond yields fall rapidly, stocks fall. So stocks are down 30%, bond yields are 2.5%. You have that free option to sell the bond, take your price profit,

25:06and now buy stocks on sale. So, you know, it doesn't mean yields can't go higher. And certainly this market feels horrible, right? And it can get worse. I'm not telling you that, that I'm saying 5% is the limit, but I certainly feel like, you know, at the same time, while it feels horrible, that's usually when the best opportunities. Studies are, yeah. And you are kind of saying that there's both a central planner and a market put around 5% in your opinion. And I think the market puts probably more powerful. You know, and it's probably already creeping in. If you're an insurance company, a pension fund, and you can lock in, you may say, you know what? I don't need to wait for 5%. Let's buy a little bit here. Let's buy a little bit more higher up. Let's ladder into it. And a lot of corporate yields are already over 5%, because they're at a spread to treasuries.

26:11So you can easily get 5% in good corporate names. Right. An additional risk. But so it's already there for some investors. All right. So you're painting a pretty compelling argument here. I'll say, Michael, how is this actually translating into action at RIA? Are you guys actually acting on this yet? Or are you still waiting to see certain signs or certain yield before you start shifting? So again, we're starting with good bond position. So we're not, we're not, we're not starting with an empty slate. I mean, you've got lots of portfolios, but you've got the main 6040. That's, you know, right. And it's got, right. Now there is about 10% cash in there. And there's a 20 year bond. And there's shorter term bonds and mortgages actually. I want to see technical signs that that the tide is turning that I want to see narrative starting to change.

27:14I want to see what the Fed is going to do. Not just here, but in the next few months. And I think we still need more data. We got CPI this Friday, PPI Thursday. That's, you know, if potentially they're, you know, 0.10.2, I think 0.2 is expected. That's three months in a row of relatively benign inflation. We're starting to make a trend. You know, but oil prices are back in the low, you know, low mid 90s. There are still things pushing, pushing up, but at the same time, they're pushing down on some prices. So, I'm curious, are you looking at things like that and almost kind of rooting like, yeah, come on, push yield tire right now for these not fundamentally driven reasons and let us buy bonds more attractively so that when we ride the right sizing, we'll have more

28:18opportunity to gain. Yes, and no. I mean, we own bonds already. So it's like if you're, you buy a stock and you buy more, you're not rooting for it to go down. Yeah. Okay. You know, as much as maybe you do want to buy it at a cheaper price, you know, you also want to confirmation that the trend has reversed. And obviously there's none of that right now. Right. That's, that's a very important point. And I'm curious. Let's, let's say you get to that level. I, well, Adam, I think I'd rather be at a point where we buy it, let's just hypothetically say the tenure at 450 versus 5%, but a lot more confidence that we're at 450 going to 250 versus catching a falling knife at 5%, or 5%, makes total sense. And I'm glad you mentioned that because folks, that's a lot of the discipline that a good financial advisor brings into the equation. It's all about, you know, the risk of war ratio. And when you, when, you know, you see evidence, even if even if you didn't top ticket, but

29:25you've got much higher confidence that risk is lower, that's really, you know, would you want to get, that's really when you want to act. So I'm curious, we're talking about buying bonds here, Michael. Let's assume you see that sort of scenario where like, hey, we think we've, we've seen confirmation that the reversal is in and we've let a lot of the risk out of where we think this trade is headed. Will you just be buying bonds or will you be doing anything like, you know, using call options or a levered bond fund or anything like that that might be a smaller but more speculative position than just the underlying bonds themselves? Sure. I mean, yes, I don't know the answers to that, you know, that's like asking me what kind of stocks I'm going to be buying in March. Right? I don't know how the market will play out. We could be in an environment where short term yields drop like a rock, but this inflation narrative persists and just holds up the long end of the curve or this lack of confidence in the Fed or the Treasury or the deficits that keeps the long

30:30end pin then we may just want to be in three and five year sectors. We may want to be in corporate bonds. We may want to buy options. You know, there's a whole host of potentials that will sway that decision when the time comes. But you're not limiting yourself to the bonds only sandbox. No, no, no. Okay. All right. I keep asking all these other questions, but you've got a few more slides here. Do we want to pound through those? Yep. So we got a Fed meeting. Actually, I'm I'm this will be the last slide. The other two just kind of get to those fundamental factors that basically show that the growth transfer employment and inflation are actually weakening. So, Warsh has been relatively dovish until he spoke of Jackson Hole two weeks ago. We could go whenever that was. And it seemed like he made a hawkish pivot. So the question is why this comes after we've had two months of

31:33you know, CPI that was minus point four and plus point one or two. That inflation has slowed down. And the labor market was when he gave the speech very weak minus 23,000 jobs for that month, the most recent data. So why did he turn around and paint a more hawkish picture? And in particular, he made a if you look at the transcript, it's about a paragraph where he just goes through details on why he's concerned about inflation. And I have part of that quoted in a beige at the top 54% of goods show price increases above 3% and he's going on with some kind of, you know, specific statistics. And this is where it gets very confusing because at his Senate testimony, one of his first speeches as Fed Chair. So it's not just be asking to the Senate to get, you know, to get the seat, but he actually said it after he was the Fed Chair that what he really likes to look

32:40at is these trimmed means. Basically, you cut the fat, the highest, the biggest gainers in price, and the biggest losers in price. And he called it rough swag, the headline numbers, the headline PCE headline CPI. And when you look at the Dallas Fed mean trim, that's 2.28%. It's been there for four or five months. So you're looking at it's not core in a sense that the CPI, PPI core, PC core is less food and energy. It's that middle group of goods. What are they and services? What are they doing in price? Medium PCE is 2.7%. Core CPI is 2.5%. So it's it's odd that he kind of took this this basket of about 200 goods. And he's trying to make generalizations. The other, you know,

33:44I'm going to skip around, but you know, he talks about the the components that are rising, greater than 3%. Well, all these goods are weighted. So why do we care if hypothetically price of orange juice was up 10%, but all these other goods weren't right? It's waiting is so small. We care about the big ticket items, not not these one off items and the number of items is less consequential than the waiting of the items. It's kind of like the S&P 500, right? We care a lot more about what Nvidia does or Apple does or Microsoft than that 5th 500 499th company. They can they have so little weight in the index versus 8% for Nvidia. There's also a lot of fed research that shows a lot of this recent impulses due to tariffs and that impulse is waning. So it's just curious that he comes out with this hawkish view at a time when Bessent is coming into the bond market

34:51with bigger buybacks and we're kind of approaching 5%. So where what I think he's doing is trying to talk a tougher talk and put more credibility towards the fed's inflation fighting on prowess. And the question is though, is this just talk carrying a big stick or is he going to hike rates on next Wednesday? So the reaction to this speech was twofold. Short-term rates went up. Long-term rates kind of flat to you know kind of stable. So the yield curve has flattened. That's telling me the market kind of buys into this that he cares about inflation because short very short-term rates are driven by fed funds. The further you go out the curve,

35:52the more it's about you know expected inflation and inflation. So that's kind of the initial take from the market. I think he runs the risk of a big policy mistake if they hike, especially if they hike multiple times. Especially since the market has effectively like we talked about earlier, has effectively hiked with higher auto rates, mortgage rates, corporate bar and rates etc. So you know that's why I think whatever happens next Wednesday will and it may not be immediate the impact. But I think it will have an impact over the next few months for bond yields. Good again. And if he comes out and they do nothing, the market may say he's being weak on inflation and that may be what gets 10-year yields to 5%. So last time I talked to him which was a couple weeks ago maybe getting on the month although he'll be on later this week close.

36:56Darius Dale. His default expectation was that Worsh was going to do a hike quarter point, maybe even another quarter point hike at some point this fall. Really just to sort of establish his bona fides as a hawk and I'm serious about inflation but really trying to set things up to start being able to cut going into 2027. So this is more of just kind of like a flex, right? I'm curious. If you have a default here, what would your default be? It's a flex but if he actually raises the rates, he's actually pulling out the gun and threatening right versus just showing his gun, his muscles. I don't disagree with Darius that he may do that. And I think if he does it he'll be cutting rates in 27 as well. What really bothers me is it's really in reaction to a supply shock, right? Before we went into

37:59Iran, no one thought the Fed was going to be raising rates. Now they're raising rates that employing the market has gotten decidedly weaker since Iran. And again, if you strip out all the food, energy and some of the outliers, there's really no signs that there's inflation is picking up. It's still above 2% and the Fed needs to get it down to 2%. And that's Beth Hammock's case who's been one of more hawkish members and I agree they need to get it down to 2 but be careful how you get it down to 2. I personally don't think he's going to raise rates this September. I think there's, and this is hard to gauge a lot of political pressure. I mean Trump was ready to fire Powell for not cutting rates. What's he going to do when the guy he put, he put Powell on 2 but what's he going to do when his new guy raises rates a month before midterm election?

39:03So there's some political aspect that I just don't have a good feel for how that plays out, that we also need to consider. But the market is saying there's a two-thirds chance they raise rates. So we have to assume they will and I think the market reaction to that could be muted. I think long rates could fall, long yields could fall a little and short rates will kind of base their movement on what the market implies about what are they doing next. So if they think that they're going to raise again and again the market has to start pricing that in fully. And as it prices that in fully I think longer yields can actually come down. So the curve will continue to flatten. But I'm not sold. I'm not sold. I think he's trying. I don't know. Look, I don't know, but I think he's trying to talk to talk. Yeah. Okay. And hopefully not have to walk the walk.

40:06So even though he said, look, I'm going to try to communicate a lot less. He's still going to job on as much as he's able to and potentially hike reluctantly if he feels he has to. But you feel like if he hikes now, he'll be cutting next year. I agree with the areas. Yeah, I think that's most likely. Okay. You mentioned the midterms were briefly. I don't think I saw that on your narratives list. But is that playing a role here as well? Just the uncertainty of where Congress might be going? I mean, I think that one can work both ways. If you know, it looks like the Democrats are going to take the House Senate is still leaning Republican, but there are some chances they could take the Democrats could take the Senate as well. So I think a split Congress and you know, Senate and House potentially being different from the president could limit some spending. So that may cut both ways, but dysfunctional is not good either. So I haven't heard. I haven't,

41:14it probably would have been one to put down. I just haven't heard it as an excuse for higher bond yields. Okay. But it's, you know, it's definitely a big consideration. And it probably will be a narrative at some point. Okay. All right. Well, look, I appreciate you coming on. Like I said, I kind of reached out to you and just said, hey, Mike, well, can you drop what you're doing and come on here to talk about bond yields, given all the questions that we've had about it? Is there anything else really material to your bond outlook that I haven't thought to ask you about yet? Not really. I mean, you kind of got, you know, the bulk of it is these narratives. What's the Fed going to do over the next, not necessarily next week's meeting, but the next few meetings? What, how does inflation play out? You know, we're going to get CPI Friday. We'll get, you know, another round of employment, then more inflation. Do are the trends? Is the employment trend getting better? That that may be our use for a rate increase, or was it just a fluky number that will give

42:19revised lower? So, you know, we're kind of flying on the seat of our pants right now, understanding there's this divergence and understanding why there's the divergence. And just trying to gauge how the Fed, how the market will either perpetuate that trend or reverse that trend. Okay, and I don't want to set an unrealistic expectation here. So, you know, caveat this anyway you like. But again, there's sort of a central thesis under what I hear you saying, which is that you, Enlance, still think that secular, lower bond yields lie ahead over the next couple of years. First off, I'll take a beat. True? Yes. Now, there's a little complication to that and that's AI. Right. How does AI impact the economy? Does it create explosive growth? Does it, does it create disinflation? And I think the answer is yes, it creates growth and yes,

43:25it creates disinflation, but when? Right now, some of it is more inflationary, higher memory chips, like we talked about. This data center building is massive. It's a good chunk of the economy, economic growth. So, when do the benefits of AI start seeping into the inflation levels and growth levels? That's, you know, that's difficult to know. Again, that's that Chad Jones interview is outstanding for more insight on that. Okay, well, I will reach out to him as you would suggest it. But right now, you're defaulted over the next couple of years as you expect bond yields to be trending downwards, not upwards. I've got that correct, right? Yeah, more towards the real growth, right? Okay. So, for the, yeah, fairly substantial percentage of viewers of this video, who are 15 older and are approaching retirement or maybe retired and income and safety become a higher priority? You know, is this a period to be watching what's happening in bonds and fixed income

44:35instruments? Because there might be an attractive accumulation opportunity here so that if we do get, if your default expectation plays out the way, I think it will, these people will not only be blocking in kind of higher yields, but they'll be able to also enjoy the price appreciation of the underlying fixed income instruments as well. Again, I don't want to oversell this, but is this a period of time where they should be kind of following this a little bit more intent? I think they should be watching it, but I always, you know, as an investor, you should be watching all asset classes and you should be diversified. But I think this makes sense as part of your portfolio, doesn't make sense as a larger part of your portfolio than it did yesterday. Maybe that's for you to decide, but this is one of those kind of traits too, where, and look, we've been wrong for the last couple of years, you know, right for a while and now recently wrong because of my Rand, but you just have to have a little patience. And I think if it makes the stress easier holding bonds

45:39by a five or seven year bond and just by the actual bond, tell yourself you're holding it to maturity. Worst case, you're going to make 5% for five or seven years or whatever it is. If things go differently, maybe you'll sell them, take a profit and reinvest into some other assets, stocks or whatever else. So, you know, I think you have to have with bonds a more patient outlook. I don't disagree at all. Again, the thing I'm trying to just sort of shine a light on here is, again, assuming your perspective proves to be correct, there's an opportunity here to lock in higher yields, potentially lock in higher yields that'll be relatively more attractive over the next couple of years, plus get the price appreciation. At the same time, you mentioned, you know, caper ratios and stocks up in the 40%. If there is a correction stocks, no guarantee that will be, but you know, there may be an opportunity here to, you know, look at your portfolio today and say,

46:41well, maybe I'm actually a little bit too exposed to stocks. I've had a lot of gains or whatever. I've talked a lot recently on this channel with a multiple different analysts, including Lance, where we just see kind of record levels of percent equity exposure in all cohorts of investors. And it seems to go up the older the investor's, which is crazy because they should be de-risking. So, I guess if I can boil this down, I think this is the time, if you haven't done it recently, to sit down and look at your overall portfolio exposure and say, look, am I too exposed to equities because of gains or just my reaching for risk or whatever and given my age, maybe I'm out when it takes some gains off the table here and start thinking about increasing some of my bond exposure because of the reasons that we just talked about here. This isn't a blanket, it's certainly not personal financial advice, but I think that this is a worthwhile conversation that people should be having either with themselves, if they're a DIY investor or with a professional

47:44financial advisor like you. And I also, for old geezers like me and you in our 50s, I'm older and you actually, but we're kind of thinking about our retirement, right? And we have some time, you know, whatever it is, five more years, ten more years, what rate of return, you know, like this becomes pretty important to us, what rate of return do I need to meet my goals post retirement or in retirement? And let's just pick a number, say it's 5%, right? Well, I can make 5% on a 30 year bond, on a 10 year corporate bond, on a 5 year corporate bond. Maybe I'd lock in, you know, my goal is to make 5% or more. My goal is to beat the S&P. The S&P is a important benchmark, but that's not my wealth benchmark, my wealth benchmark in this example is 5%. So think about the things you can do to basically lock in your goals. And

48:51potentially adding fixed income just secures that a little bit more versus other assets. Totally agree. And I try to hammer that point on a lot. I'm glad you brought it up, which is if your probability is high of reaching your goal at a safe, through a safe pace, with a safe instrument, why get tempted to screw up your odds for success? Just lock in what's sure and safe and you'll have confidence that you're going to hit that goal by the time you need to. And then just live your life, right? And sleep well at night. So anyways, I'd recommend folks do that. I would also say and I love your thoughts on this. I would say folks if we're, you know, what we're saying is sort of resonating with you. You're like, yeah, I should probably maybe think about doing that. I would say do so sooner rather than later only because, you know, we're recording this right after Labor Day Michael, right? And so I think people just always forget how fast the end of the year comes once you're past Labor Day. So they think, okay, yeah, I'm coming back from Labor Day. I'll try to

49:53look into this, you know, before New Year's. And then if you pick your head up and you're like, oh my god, Thanksgiving just passed. I only have a couple weeks left. I've got to get my RMDs in. Everybody's screaming at me. I get my holiday travel done, you know, works trying to get all the end of the year stuff done. It just doesn't happen. And you guys as financial advisors, you know, you get crushed under an avalanche of people who are there at the 11th hour trying to get stuff done. Nobody gets their best work done in that environment. So, you know, while you still have some time and a little bit of halo from some or folks get to ducks in order now and avoid that end of your scramble. And one of the things that we do that I love and I would love to say it's Lance and I do an our magic at portfolio management, but it's not. It's financial plans. And they are pretty complex beast with a lot of different scenario, but I've sat on some calls with clients where I go through the whole economic and market spiel and then I get kind of caught on listening to the financial

50:54plan details. You know, I want I want to buy a car every five years. Darder's going to get married hopefully in the next 10 years. We want to go to Europe every other year. You know, and you plot out these scenarios and this this really incredible software tells you well based on what you have and what you think you're going to spend and inflation and and a lot of other factors. You have a 98% chance if you can earn 5% or more of meeting your goals. And that to me tells you what you need to then go on your investment to figure out what you want to buy as far as your investments go. You know, so I think having some understanding whether we do it or some other bounty manager does it or you do it on your own is that's the north star that investors need instead of looking at the glimmering, you know, S&P 500 or NASDAQ or Nvidia or whatever it is

51:57and thinking that's going to get me to where I want to be. You got to look at that, you know, the true point. So I highly encourage people to either do it on their own, get software to do it, hire a money manager to do it. We'd be happy to do it. No, but RIA that's that's Danny and Richard and those guys, right? Right. Yeah. Yeah. So I chime in on that but folks have heard me piling on this point many times. So I'll save him from it, but I'm just a huge fan of financial planning and financial planning. And with my advisor, I bugged him about it so much. He finally just gave me the software and said, look, you love to geek out on this even more than I do. And I do. I like to go and there and just play around with all different scenarios. But we do the same thing. Or, you know, our clients can access our software and put in maybe we'll buy four cars, you know, in the next 10 years instead of two or you know, do whatever they want to do. Or you just you totally do them scroll like, okay, you know, what if what if my holdings get cut in half next year, right? You

53:00know, or you know, what if God forbid one of us get hit by a bus or lose air in the camera or whatever. And you can you can start seeing in a lot of cases, you know, either areas where you're really vulnerable and say, okay, well, look, we're really going to shore this up or like, wow, we can take more hits than we realized. And it's not a reason to go and, you know, be a spendthrift, but it's just to say, I don't need to worry as much as maybe that fear that fear was living rent free in my head. And now I can kind of kick it out because I've realized even if it materializes, it's not going to hurt me as much as I thought it did. I thought it was right. Okay, well, with that said, Michael, thanks so much again for doing this. This was super useful. If you don't mind, we'll do this on, you know, some sort of regular cadence going forward, just give people out of a call on what you're seeing in the markets and whatnot. And as you and Lance always say, you know, it's you follow the fundamentals because, you know, over time, you've greater confidence than market will eventually go there. But in the interim, and it can take a lot longer,

54:03sometimes, and you imagine, you just have to trade the market to have. So right now, the yields are continuing to go higher and we'll see what happens from here. That's that's well said. Okay, folks, please join me in thanking Mike for dropping everything to come on and give us this update to do that. Just hit the like button and then hit the subscribe button below as well as that little bell icon right next to it. And if you would like to talk to a financial advisor about all the issues that we talked about here, perhaps you'd even like to talk to Michael and the team there at RAA, whether it's about bonds, whether it's about a financial plan or whatever, just fill out the very short form at thoughtful money.com and whichever firm you're matched with will be in touch with you right away as a reminder, these consultations are totally free. There's no commitments involved, just a service they offer to be as helpful as possible. Lastly, the thoughtful money fall online conference is coming up fast. It's going to be just a little bit over a month from now on Saturday, October 17th. Don't worry if you can't watch live. Everybody who registers will get sent replay videos of the entire conference. I think the exact same night as the conference ends. And it's

55:09coming along gangbusters to get all the details as well as a register. Just go to thoughtful money.com, slash conference. And go now if you can because we're still offering the lowest discount we're going to offer the early bread price discount. And a reminder, if you're a premium subscriber to our sub stack, you have a code that will get you an additional $50 off of that early bread price discount. So if you're doing already subscribed to the newsletter and want to get that discount, just go to thoughtful money.com slash newsletter. Michael, thanks so much buddy. I really wish you a good week from here. I know we'll have Lance on again this week. So we'll get to hear from your cohort, your partner on crime there soon. But looking forward to have you back on the channel again soon in the interim. Just keep doing what you're doing. And if something happens where you say, hey, Adam, I actually am now making a notable call. Let me know and we'll put you back on here quickly. Deal. Sounds good. All right. Thanks so much, Mike. Everybody else. Yeah, thanks so much for watching.