9-10-26 What Will Inflation Data Do for the Fed?

0:00And I was something completely different. Forget everything you've been told by others before. Because there's chats in here about, uh, get your Lebo clothing fashion bets in now. Get ready for the real deal. The winner will be anybody that picked beach shorts and a t-shirt and flip-flops. Speedo. The full story. And maybe the Lebo Speedo. The Lebo Speedo. The whole Ancelada. This could be it. This could be, this could go in our merch storage. It's money news and information you can use to grow financially healthy, wealthy, and wise. Yeah. We'll get a speedo with Lebo its face on it. Now, welcome in the real deal. This could be a huge seller. Front or back. The real investment show with Lance Roberts. Lebo Speedo's coming up in the merch store soon here. Could be a thing. Could be a thing. Presented by RIA Advisors. And good morning. Welcome to the show. It's Thursday, second best day of the week. That also means that Michael Lebo its joining this morning. Of course, today is what today and tomorrow. Or the days for the week. Despite this being a holiday short trading week,

1:02today is PPI. And so that is going to be the first report that we looked at in terms of what this recent pickup and oil prices has done to the, to kind of the rate of inflation on the producer side. Tomorrow is CPI. So we'll see what happens on the consumer side. And of course, the expectation is that if those numbers come in hotter than expected, that's going to increase the odds that Kevin Worsh will hike interest rates at the upcoming FOMC meeting this month. So there's a lot on the table today and tomorrow in terms of market expectations and market outcomes based on really what this PPI and CPI report say. A much stronger one, a much stronger reading than expected. Right now, I think that PPI is expected to come in at 0.3 for the month and CPI is 0.4. You ever take? And so any reading hotter than that is certainly going to push rate-high expectations up. That's probably going to weigh on markets. Definitely push interest rates up a bit on expectations as being increased that term premium and expectations

2:04of higher inflation. A weaker number, good for markets, good for yields. So again, we'll see how this comes out today. There's other, you know, oil does play a big factor into these inflation reports. And we've seen recently, and Mike and I will talk about this some more this morning. But we've seen the correlation between oil prices and inflation pick up here really ever since this Iran crisis broke out. But there are the factors, right? Housing remains a factor. Homeowner's equivalent rent remains a factor in CPI. Those, that homeowner's equivalent rent has remained elevated above what's actually going on in real-time rents. So we'll see if there's a, you know, if the, and homeowner's equivalent rent makes up about 42, 43% of CPI. So if that number comes down, it could offset some of the impact from oil prices. Not saying that's going to be the case, but I'm just saying that there's other factors outside of oil prices that will inflect impact the inflation read. So, you know, we'll see what happens today and tomorrow. And importantly, but again, this is going to weigh on the markets.

3:06And as we talked about yesterday, you know, the markets have been correcting. We've been down three days in a row right now. It's been, it's been a bit sloppy week. It's not been a drastic week by any stretch of the imagination. You know, markets are doing what markets do normally. And that's all fine and dandy. But, you know, when you're taking a look this week in particular, it's been a bit of a rotation between markets and sectors. It's not been a violent sell-off by any stretch of the imagination. So it's been a little bit of a slow leakage of the markets going into these reports. Now, again, that volatility could certainly pick up here over the next day or two, particularly as these reports come in. We'll see what happens. But, you know, the markets, you know, we talked about previously, the markets coming down to test the 50-day moving average. That's kind of exactly what they're doing. It's just been very quiet, very slow. And again, this is, we've talked about how this is where investors tend to make mistakes. Markets are starting to come down here a little bit. Oh my gosh, you know, it's correcting. I need to go do something.

4:07I need to do something. You got to be a little bit careful with that because there's a lot of positioning now getting off sides in the markets, which are actually setting the markets up for a decent reflex of rally. At some point, so we need some piece of good news. Something to break with Iran. Better than expected inflation numbers. Something could actually put a pretty decent spark underneath the markets. With that said, let's go ahead and talk about what you need to know before the bell this morning because what I do want to talk about volatility in the market. So, as I was saying, the markets, you know, continuing to do what markets have been doing here, three days down, sitting right on that 50-day moving average. We talked about this the other day, that was kind of that initial target for this pullback. And so we're getting very close to that. We're not extremely oversolved, but we're getting oversold enough for amounts. And we may see that today, if PPI comes in, better than expected today, we can certainly see amounts of the markets. That wouldn't be surprising after the recent pullback. Overall, though, the market just remains within that consolidation that we've talked about,

5:08that range. We haven't broken out of that at all. At this point, again, we're sitting, moving averages are coming up that's holding support right below the markets. Momentum still remains on a sell signal. There's certainly some downside pressure in the markets. And September, as we've talked about before, tends to be a weaker trading month anyway. And so far, September has certainly kind of lived up to that expectation. But it doesn't mean there's got to be a drastic selloff, by any stretch of the imagination as well. I'm not saying there won't be. Again, if these reports come in a lot hotter than expected, we could certainly see a test of the 100-day moving average, which would put us closer to about 75-50 on the index. And that would really kind of be the next key level of support. And then beyond that, if we break through that level, we're going to be talking about these lows that we were setting back, kind of in mid-July. And that's going to be around 7,400-ish. So there is some downside risk, 3, 4 percent, in the markets based on kind of what happens here over the next day or so, and expectations about Fed, Brait Hikes, etc. But again, also on the other side of that,

6:08that consolidation, as I said, has been working off some of this overbought condition. So any type of good news could certainly elicit some type of rally here as well. So this is what I'm saying, be a little cautious with whatever action that you take here. You know, doing a little bit of hedging is certainly okay, raising a little bit of cash is fine. But I wouldn't do anything really drastic here, because this market could really break in either direction. And again, typically markets do exactly what everybody thinks it won't do. So, you know, there's a lot of bearish bets on the markets right now. Hedge fund positioning and tech stocks has gotten decently oversold. So there is certainly some catalyst here for a move to the upside that could surprise investors. So just be a little bit cautious of that. And that said, I said I didn't want to touch on volatility. This kind of recent sell-off has picked up just a bit on the volatility index. And now my chart's not going to work for me this morning. Hold on a second.

7:08But anyway, I can't talk about the VIX this morning, but I can tell you this. It's picked up here just a bit here over the last couple of days. And that's kind of expected with a sell-off. But again, that index remains very, very compressed right now in the overall market. And again, complacency remains here to a large degree. We haven't seen a lot of selling pressure in the overall market. We haven't seen a lot of Exodus again. Market, this market kind of pullback has been very mild. So volatility has come up just as smidge, but it's certainly not warning of anything more dramatic. Now that could change again today with this PPI report this morning and the CPI report tomorrow. This could all change very quickly. So again, just be a little bit cautious, a little bit of extra cash here. Certainly wouldn't hurt. But again, just kind of keep your positioning very stable at the moment. All right, that's what you need to know before the bell this morning. We'll come back, pick up with Michael Lee Woods. We're going to talk about these inflation reports, what kind of what's expected, what the Fed may do.

8:09We're also going to touch a little bit about Bessent claiming yesterday that he is the house now. And what does that mean for the bottom market as well? I'll go away. Get daily investment news you can use. Delivered at the speed of the internet. At realinvestmentadvice.com. You're listening to the real investment show.

9:28All right, welcome back to show this morning. Kind of my feed's not working over here for some reason. Yeah, I don't know. We're having technical difficulties. Give me just one moment here. It's one of those days. Give me just one moment here. I'm going to catch up with you. All right, but anyway, I will to suffer through without it this morning. So, Michael Lee Woods, welcome to the show this morning. How are you? I'm doing great. Lance, wonderful. Just wonderful to be here. This early in the morning, I agree. All right, a couple of things. Let's just kind of talk about PPI, CPI. That's the kind of the whole focus of the markets over the next two days. You're going to be on those reports. Kind of what are your thoughts here? If we just look at expectations, CPI, the headline number is 0.4, expectations, and the core number is 0.2. One of my screens is just blacked out too.

10:28And PPI is 0.3 and 0.2. And I think it's kind of a tale of two numbers. So, you can take, let's just say, come CPI is the more important. Let's say CPI comes in at 0.4 as the headline number. Well, 0.4 times 12 is almost 5% inflation. If it comes in at 0.2, the core number, that's 2.4 roughly percent inflation. So, they're telling two different stories. And the problem is that food and energy, particularly energy, is driving these numbers. So, you know, you're going to see a lot of hawkish. If it comes in around 0.4, you're going to see hawkish articles screaming, the Fed is so far behind they got to raise rates. And you're going to see an equal number of dovish ones, why would you raise rates? Inflation is 2.4 percent if you strip out energy.

11:29And last I heard the Fed camp print oil. So, if the Fed camp print oil and they don't have very, their rates don't have much control, you know, then they should not be thinking about raising rates. So, you know, you're going to see it's going to be probably confusing and you're going to see articles on both sides making a case. I personally am on the dovish side that you shouldn't hike into a supply shock. And all indications are if you strip out a couple of few volatile prices that inflation is getting pretty close to the Fed's 2 percent target. Yeah, and that's, you know, and that's hard for some people to digest that because they just kind of look at, you know, what they see in the grocery stores, an example, or what they see in the price of gas. Oh, inflation's rampant. It's running everywhere. But, you know, again, it's, you know, inflation's a poor measure of people's personal kind of realities.

12:30And it's very different across the country where you're depending on where you live. I think inflation's much higher in California than it is in Texas, for example. But, you know, but again, you know, these don't let that kind of personal narrative also interfere with your investing because what the markets care about is what the market reports, not what your personal expectations are as we've talked about before. But, yeah, go ahead. Now, I was just going to say, along those lines, that's very interesting because Beth Hammock is probably the most outspoken hawk. And she is a very, I actually used to work with her a couple of decades ago. She's a very intelligent person. And one of her messages has been kind of more of a populist message is that, that her, so she's in the Cleveland Fed. And the people in her district, you know, businesses that report in and tell them what's going on, are telling her that just prices are too high. And look, we can all, look, whether you're a dover or a hawk,

13:31prices are too high. They were at a control for too long and they let prices get too high. But, it doesn't, that's, that does matter. But what really matters is, what is the price trend? How is it growing? And that's, that's the tough part because, yes, prices are too high. But if prices come down, if we actually have negative inflation, disinflation, deflation, we're going to have a depression. So, you kind of, with inflation, it stinks. We get up to higher levels, but it's really hard to back down from those levels. You know, the best you can do is just grow very slowly. And hopefully that prior trend catches back up. Well, and this is one thing about, you know, disinflation, deflation, that's that kind of alludes a lot of people. They're like, well, you know, we need inflation to come down. Yeah, I don't disagree with that. But, but to your point, you don't want deflation. And the reason that deflation is much more insidious than inflation is,

14:33if you have inflation, the economy's growing, wages should be growing. Things are doing okay. You just don't want out, you just don't want inflation like we had back in 2020, where you had this massive spike in inflation, because you shut down the economy and flooded the system with a bunch of cash. That's not good inflation. But inflation itself is good, right? Control inflation is good. And this is why price stability is an important mandate for the Federal Reserve, because you want that, that growth in the economy deflation is a psychological problem. And that's something that the Fed really can't fight very well. And that's why they want to avoid deflation kind of at all costs, because once you get to a deflationary environment, that's a consumer psychology. They're just waiting prices keep coming down. They go, well, if prices are coming down, I'll just wait to buy and see if prices come down more. And that doesn't matter what you do with monetary policy, it doesn't break that psychological factor. So deflation becomes much more dangerous and insidious to the economy than inflation is. Inflation is controllable.

15:34Right. But conversely, the Fed has enumerous times over the last few years. Inflation can be insidious, too, because people buy stuff today, because the price is going to be higher tomorrow in their head. So it pulls demand forward. So both high to high inflation and too low inflation or deflation are problematic. And that's why the Fed likes their 2% target. It's kind of not too hot and not too cold. Yeah. And again, that's about what the economy is growing at. So if the economy is growing at 2, you should expect about 2% inflation, since those all, since personal consumption expenditures make up about 70% of the economy. It's not surprising those are kind of close together. But again, this is going to be something that we're watching. Of course, the markets, again, I agree with you. The Fed should not be making a rate hike decision based on what you've got going on right now with an oil price spike in particular, because that could change very quickly. And now you've high, you just hiked rates and all of a sudden oil prices collapse

16:38because we get to an agreement with Iran. And then the Fed's going, oh, well, wait a minute, I got to cut rates now. So that's not really managing monetary policy. That's just reacting. And I know there's a lot of people saying, well, the Fed needs to make a PR hike. They just need to hike it for PR reasons, showing that they're serious about fighting inflation. But that's the same trap. You know, your don't hike rates just for the sake of hiking rates. Hike it because you're really concerned about the trend of inflation, remaining elevated or continuing to rise. So in other words, there's no end to this inflationary pressure. We've got this massive surge coming from economic growth due to AI. This is going to be very, very sustainable. Yes, you would hike rates into that type of environment. But we don't have that right now. Right, we have a relatively weak economy. The economy's been growing below trend. Employment numbers have been well below trend. Right, we had a really good employment report last week. But we've seen one number after another get revised sharply lower. So, you know, when you look at ADP, the BLS, all that,

17:40you can say the payrolls are growing 50, 60, if you want to be optimistic, 70,000 jobs a month. But that compares to 150 to 250,000, which was kind of the running pace before the last year or two. So the jobs market is slow. You strip out gas and a couple and, you know, a couple other items. And inflation is really not that far from target. And again, you factor in growth, which has been on the weaker side and normal. And there's not really a strong case. I think the case is to support this credibility that we're fighting inflation. Right, Worsh has said, getting inflation at 2% is my number one goal. But I think the market wants him to say, and I'm going to do something about it. Right. And I think that's the trap that the market's laying for him. But he is starting to justify it.

18:42So, you know, I was actually on with Adam. I don't know when he's going to put it out or if he put it out already. But he was telling me that Darius Dale thinks the Fed is going to hike twice this year. And then they'll be cutting throughout next year. And I think what Darius Dale is kind of saying the same thing there. The Fed is going to make a mistake. They're going to hike rates. They're going to quote unquote boost their credibility. And then they're going to be forced to cut rates. So, you know, I think that's the risk for the Fed. And Worsh, in particular, he's a brand new Fed member. He wants credibility. And you start cutting, cutting, and then go from a cut to an ease in one or two meetings. And that without an obvious event that drives that. And that could be problematic for his credibility going forward. Well, again, I think you meant a hike to an ease. But, you know, and I agree with you, he's in a tough spot. And this is what we've talked about previously.

19:44Is that every time there's a new Fed chairman, they come in with the best of intentions. And then something derails that that best of intention, whatever it is. And it puts them on their, you know, they're on their heels having to do something that wasn't in their game plan to start with. And it's interesting now because, you know, we can kind of shift gears and talk a little bit about best. But, you know, this is, you know, one of the, the kind of the, you know, interesting issues that are going on because you've got Kevin and Worsh command saying, look, I don't want the Fed to be giving a signal to the market. And you've got the Treasury command going, giving signals to the market. So the market's confused as to what it's supposed to be looking at. And the Fed's not being very helpful here. But the markets have become so dependent on the Fed. As we've talked about before, this market's going through this gyration right now trying to figure out how to survive without this message from the Fed. Yeah. Well, what's also interesting is that Worsh has been very outspoken about that he does not want to do QE. He wants to actually reduce the Fed's balance.

20:45And I guarantee you he's getting a call from Besson every day. Maybe even Trump telling him he's better, he better start doing QE. Right. So, you know, again, this is one of those things. If he introduces QE, even if it's some weird program that they don't call QE, but is QE, again, his credibility is at risk. And that's, that is a problem. Well, but again, we saw the same thing with Powell, right? Powell, remember when Powell first came in, we all said, oh, he's so different than Bernanke and Yellen. You know, he's a former kind of hedge fund guy. He's really knows markets. And then almost immediately, you know, he stuck with a 20% downturn of the markets. And he's having to start, you know, dealing with the repo crisis that was going on. And, you know, by early 2020, he's having to cut rates to zero because of the pandemic. And again, you know, it was like, well, yeah, he had to do that. So, you know, it's kind of the same thing is that, you know, Worsh is walking into the scenario going, I don't want to do QE. I want to shrink the bed,

21:47the feds balance sheet. Great intention. Certainly fine with that. The question is, is the market going to let you? Right. And what's interesting about Besson, or I'm sorry, Worsh, is that at the Jackson whole speech, he, he stayed, there was a paragraph or two in his speech where he started quoting some inflation data. And he was talking about something like 54%, a 55% of the components were above 3%. And that's well above the pre pandemic norm, even though it's below what it was after the pandemic. What's really fascinating about that statement is that Worsh has argued from the Senate confirmation hearings all the way up to his first speech that the fed should use trimmed me, the Dallas Fed trimmed me CPI, which is essentially it's almost like core CPI. You strip out the highest and the lowest price gainers and losers. And you kind of focus on

22:50the core, I don't mean core less food and energy, but, but the median, the core prices. And if you look at that, it's 2.3%. If you look at core CPI, it's 2.5%. And he's kind of going out and arguing against that. The other thing when you say, well, 54% or higher than 3%, what's their waiting? Right. You're not, every item has a different waiting. It doesn't matter. It does matter. Vehicle insurance is up a lot. It affects all of us, but it has a very small waiting. What matters is what's shelter doing? What's energy doing? What are the big ticket items doing? They matter a lot more than core insurance. He kind of came, everything he said until Jackson Hole, he went against to some degree. So in my mind, he is, I think, I don't know if he will vote to raise rates, but I think he's trying

23:52to make a case if he decides he wants to. And it kind of goes against all his logic from things he said, you know, within the last six, nine months. So, you know, I think that's something the market has to prepare for is how does Worsh come out on this? The other interesting thing lands when they meet next Wednesday, Worsh can vote no, but if there's a majority, they're going to raise rates. So while he does manage the hearing, the FOMC meeting and direct what they're going to talk about, what they're not going to talk about, he has the same vote everyone else has. So, you know, even if Worsh votes no, we could still get a Fed rate hike. Right now, the indications are that there are two thirds of about 66% chance that they do hike, but it seems like there's only three or four that are truly in that they would vote for it immediately camp, but they've been a lot more

24:53quiet. So it's hard to really know how that vote would come out. So, and by the way, there's a comment chat says, you know, maybe have task force changed to trueflation. By the way, if you have not watched Monday's interview with Oliver Rust, Oliver Rust is trueflation. He is part of the team at trueflation and they are in contact with the Fed. They've been talking to the Fed. They're not on their task force, but he taught me, I asked him about that in the interview and said, it's, you know, it's, are you on this or you're getting consulted for this Fed task force? He says, we've been talking to the Fed for a while, but it's a really, really good interview about trueflation, how they calculate things, you know, the differences between them and CPI and other stuff. So, it's a really good conversation if you haven't listened to it yet. It's on the YouTube channel. Let's go to the real investment show on YouTube and it's Monday's interview, interview series that we have there. But again, really, really good interview. Mike, let's switch gears here a little bit because I've seen just a lot of commentary about Besent, of course, making the statement that

25:54he is the house, which is interesting because this certainly flies in the face of Kevin Worsh, who says, I don't want to give a market signal. And then here's Besent saying, don't bet against me on the house on this. So, you know, it's a very different view that we've got. And you actually wrote about it this morning and today's daily market commentary as well. So just, you know, kind of what are your thoughts on Besent? I kind of wouldn't touch on some of the, you know, things I've seen on X and other places, you know, with people that are now treasury experts, you know, talking about this. But let's talk a little bit about it. What's, what's, what's kind of your kind of initial thoughts? Isn't everyone a treasury expert? Exactly. Everybody understands monetary policy now. Yes. On top of energy. So Besent came out and he made a comment that said, I am the, he said, I am the house now. So when we intervene with the Japanese, Jan, I pretty good insight into what the Japanese, what the bank of Japan is going to do, what Japanese policies are going to do. And you

26:56can bet against me if you want. So it's kind of a threat to currency traders in the yen markets. But I think what it, I think it equally serves as a threat to the US bond treasury markets. Because I'm not sure why he would kind of take the lead role. I know, you know, it makes a lot of sense for that for the US, US treasury to support Japan in their intervention efforts. But I'm not sure why he would kind of take the lead. So I think in my opinion, he's using that opportunity to kind of create an unveiled threat to, to the US treasury market to bond traders. Hasn't really worked, you know, bonds have sold off since his comment. But you know, what's really interesting about the whole thing. And you can read in today's commentary, which is out right now, we talk about the threat. But then we talk about Besson's history. And Besson, when he was in his

28:02late 20s, worked for George Soros along with Stanley Druckenmiller. And the three of them put on a bet against the bank of England. The bank of England was in somewhat similar shoes as the bank of Japan, supporting their currency. And they were just throwing, they were just shorting and shorting the bank of England against German marks at the time. And eventually they broke the bank of England and made a fortune on that trade. It's estimated over a billion dollars. And this was in, I believe, it was the early 90s. So it's funny that we now have Druckenmiller on the other side of the trade, saying, just leave markets alone, let them talk and let the fiscal side of the, let the fiscal, the legislators fix the problem. They need to hear the problem from the markets. And now Besson's on the other side of that. And more she's saying the same thing as Druckenmiller. And Besson's on the other side of that saying, nope, we can't let the markets talk. I don't want to hear what they have

29:05to say, you know, whether it's the Jan or Treasury yields. So for someone that, you know, broke the bank of England. And apparently it was his idea. He presented it to Soros and Druckenmiller at the time. So it's kind of a funny, comes around, goes around. Well, it is. But you know, two things Besson, excuse me, Besson actually has a little bit of powder on his side because there is a massive short position against the yen, which if he does, if he is successful, whether using euros or whatever it is, that he does to help lift the, you know, kind of help reverse this issue with the yen and that short position has to cover. That's, that's going to weigh against the traders and really ambassence favors. So, you know, he does have some fuel behind there that he can, you know, use. He just needs to get that sparklet more than anything else. Well, yes and no, right? Because that big part of that short

30:08is the yen, carry trade. So you want it to appreciate the yen, but you don't want it to search. You just want a gradual upswing so that the yen, carry trade just slowly unwinds, because that has a big impact on the US markets. Right. But there's also a massive short in US treasury bonds 10 year, 30 year notes. So he has a similar dynamic here in the US that he can potentially work against. Well, the way Lance, did you, I know, I know it doesn't fit the popular narratives, but the 10 year auction. Did you happen to see that? Yes. I missed that one. More bids in this auction than the last 10 years. The dealers only took, I believe the number was like 4% of the auction, which is extremely, extremely low, meaning that real buyers came in far and domestic whoever they were. And it came in a percent and a half through where the market

31:10was trading. So these are things you don't hear when it's all bearish narratives. Right. But there was record demand for a 10 year auction yesterday. Well, and it's not surprising. We've talked about before is that, you know, when you're getting up to 4748, if you're a pension fund that's got a fund future liabilities, for the first time in 15 years, you can buy treasuries and clip off a lot of your future liability concerns. And so for insurance companies for pension funds, for hedge funds, you know, anybody that and anybody that needs to create income, when you start getting to 4.7, 4.8 on the 10 year treasury, it becomes a very attractive alternative. Why, why take equity risk to get six or seven in theory over time when I can pick up 4.8 on the guaranteed basis? Right. And, you know, I'm sure that's what they're doing there. They are probably swapping from equities to bonds because from an purely asset life, forget where they think returns are from a purely asset liability perspective. It's just making more and more sense here.

32:14Yeah. Well, and again, like I said, you know, for, you know, we went through a 15 year period where interest rates were zero, you got paid zero for cash, and it forced all that money into the financial markets. And now you've got financial, and let me show you, I'm going to show you a chart here. I know you can't see this mic, but this was a chart out from Ned Davis this morning. And I posted this on our X or X feed if you haven't seen it yet. But this is a chart of the market going back to excuse me, 1920s. And this is a logarithmic trend of the chart. And since 2008, you can see that we've had this very, very strong, very extended bull market that has now taken us above the long term trend channel. The last time we were above the long term trend channel was in dot com crisis in 2000. So, and that doesn't mean that the markets are going to crash and, and you know, immediately and go down, you should get out of the markets now. But what it does suggest is that we're trading well above long term trends in the markets. And we're very mature

33:17in this current bull market cycle. Bring this down and bring up one other chart. And but again, this market rally is not unsurprising by, by a large degree, because we've had very, very strong earnings. And, but that is also something that's interesting because earnings, as a function hold on, this isn't the one I want. Just give me once I can't print one moment, please. Yeah. So, this is earnings. And now you'll notice a very big similarity between the chart I just showed you and earnings. Earnings are also breaking out of a long term 90 year trend channel. And, you know, not surprising when earnings grows. So does the markets. We've been since really 2008. We've been in an uptrend in earnings. Earnings have been doing great. We've had a couple of blips along the way. But earnings are now well above the top of the long term trend channel. So everything's firing on all cylinders right now for the markets. But that this is also kind of the point to where things are getting really, really good. And as we talked about before, for 15

34:20years, I was forcing, you know, the Fed was forcing money into the stock market by keeping interest rates at zero. Now investors have an alternative. Market valuations are elevated. If anything happens with earnings growth, et cetera, I have an alternative. I can go by treasuries and I can reduce my portfolio risk and I can pick up, you know, 4.8% on a return. So there's becoming a much better argument for people to own bonds here because where interest rates are trading. And valuations and and extensions above long term trends and all that. Because again, it does suggest we're in a later stage of this 15 year bull market cycle that we were 16 years now. This 16 year bull market cycle we've been in, we're probably getting to the latter stages of that secular bull trend. And then again, just as with all things, you eventually wind up with a secular bear trend. And which is also what valuations tell us is going to happen anyway. Right. And that's, you know, it's kind of the juxtaposition of these long term, you know,

35:21we talk about the Cape with the capes telling us it's telling us that over the next 10 years returns will be zeroish, right? Bonds are telling us, you know, 10 year returns are going to be 4.8%. If you buy a bond today and it matures in 10 years, you will make 4.8%. And that difference is pretty wide right now. And I think for long term, buying hold investors that don't care about, you know, the day to day week, week, even month to month market, there, there probably is already some shifting out of equities into bonds. I'm not, yeah, they're not, I'm not saying some people probably are, but I'm not saying just go all into bonds out of stocks. But this is a time when I think a lot of investors, especially the institutional investors are starting to shift. They're starting to change allocations because again, you know, every investor's goal is not necessarily to keep up with the S&P 500. They have a goal of pension fund, endowment fund, retirement, right? When we

36:27think about retirement, you have a goal. If I can make 5%, I can meet my retirement goals. So making 5% is your goal. A lot of institutional investors have those kind of goals. So, you know, when they start seeing yields that are risk-free and can help that do a, that go a long way to help in their goal, I think that can be very enticing versus equities that they know are probably expensive. You're banking on AI and look, AI is real and it's going to provide tremendous benefits, but we don't know when and how. And the internet provided incredible benefits, but we had a pretty severe market crash right in the boom of the internet. The internet survived and it created all kinds of opportunities, computing power, increasing significantly, but that doesn't mean the market has to follow that path. It often gets extended. So I think that, you know, that allocation between stocks and bonds

37:27is changing for those very large institutional and some retail investors. Right. Well, and again, this is, you know, this is a more normal environment that we're moving into. And it's interesting because, you know, we look at interest rates like, oh my gosh, interest rates are so high, but as we've talked about before, we're just normalizing what was abnormal was 15 years of zero. That was, that was the abnormal period that we were in for such a long period of time. So now rates have normalized a bit and this is bringing back some investor choices that didn't exist before and as we talked about, I think we came before last in the newsletter, we're talking about the basis trade and 55, basically 55 hedge funds owned about 8 to half percent of the bond market and they're running this basis trade. So if anything causes that, and again, as you talked about earlier, is that because of that, there's a big short position against treasury. So anything that occurs, um, processionary downturn, whatever it is that causes interest rates

38:28to start to fall, there's a lot of upside potential built into the bond market if that short position has to cover because that's a very large outstanding position against treasuries that exist currently. Right. I mean, even if let's say we get a CPI number that's zero or minus one or minus point two, that means four month inflation will be flat to negative. I don't think that's going to happen by the way, but just in case, who knows? Well, I'm just saying, it's, you know, oil prices have moved a lot over the last two months. So you know, seeing flat inflation tomorrow, certainly possible, but I would be very surprised. That's fair. My point is board shock. Yeah, exactly. And some sort of inflationary shock or you know, many other news items could really, you know, there's a lot of pent up energy in the yen in bonds. So, sorry. So what did we cover today that you wanted to get into?

39:29Yeah, everything. We kind of talked around the article I wrote. I kind of put out a court case presenting the case for raising rates and the case for just staying hold, present my verdict, which you heard already, which is the Fed should just sit on their hands and do nothing. So, you know, I think we're going to get inflation today. We're going to get inflation tomorrow. And then all eyes on the Fed. And when I see you again on Thursday, we can discuss what they did. Exactly. Well, so it'll be interesting to see and we'll certainly, you know, get into this tomorrow, this weekend's newsletter. We're going to dig into those charts I was showing you just a second to go a bit. So we're going to dig into that in this weekend's newsletter. So simply go by the website. If you're not subscribed for a weekly newsletter yet, you can either go to our website, www.realinvestmentbuy.com or to substack, which is ever easier for you. Atlant's Roberts on substack. Subscribe there. We email you the newsletter every single weekend. We go through a full technical wrap. How to position for the next week. We've got some great technical indicators in. There are money flow breadth indicator that basically feeds in to portfolio allocations.

40:35That's in the newsletter every week. That's the only place we publish it. So if you want that indicator, it's in that newsletter. Simply go to the website, www.realinvestmentadvice.com, subscribe to the newsletter. We email it right to your inbox every Saturday morning. You'll have it and give you some weekend reading. Anyway, you'll have a great day. We'll be back tomorrow for Financial Fitness Friday with Richard Russo. In the meantime, you'll have a great day. See you then.