Closing Bell - Closing Bell: Fed Cuts Rates by 50 Basis Points 9/18/24

Episode Date: September 18, 2024

The Federal Reserve cut rates by 50 basis points today … and stocks fell in response. DoubleLine’s Jeffrey Gundlach gives his first take on what this could mean for the economy and your money. Plus, expert analysis from Senior Markets Commentator Mike Santoli. 

Chair Powell saying moments ago, you heard it in the news conference, that there is greater confidence that inflation is moving closer to their target, that the labor market has cooled, but that the economy remains strong overall. Important to note, too, today that there was one dissent from Governor Bowman. That's the first from a position of that stature since 2005. Stocks have been a bit volatile following the decision. We can take a look now. We are higher across the board. We'll track it, of course, over this final stretch. Welcome, everybody, to Closing Bell. I'm Scott Wapner. We're live today in downtown Los Angeles at Double Line, and we are joined now by the firm's founder, CEO and CIO, Jeffrey Gundlach, who always joins us on Fed Day. Thanks for having us here

once again. Nice to be here. You said yesterday when we spoke, 50 was your call. That's what you thought it was going to be. Now we have that. Now what's your reaction today? Obviously, I'm not surprised because I thought it was going to be 50. I thought it was interesting that later in the press conference, Jay Powell admitted that they maybe could have gone in July. I remember when we met six weeks or seven weeks ago at the July 31st meeting, I said I think they should have cut. And what probably spurred my confidence that this cut was coming was since July 31st, the two-year treasury yield has dropped by more than 50 basis points. It's changing. There's a lot of volatility in rates today, too, after this Fed meeting. What do you make of that? Why are rates up today, you think?

Well, the short end is down. Well, it depends what minute you look at it. I'm taking a quick look. I guess it is up a little bit in yield. It did initially rally. Yeah, two. I mean, I can look at it now as we have this conversation. Twos, threes, five, seven, 10, 30. All those yields are up. Why? They're all up. Well, I think that the bond market at the long end is in particular where the yields are up. And the long end ofterm bond market doesn't want the Fed to be easing aggressively because they're worried about inflation. The rates have come down a lot this year on the short end, not very much on the long end. And the Fed easing strikes the long-term markets being inflationary. And so they're building a premium against that.

I think the word of the day was recalibration. He said it a lot of times that they're recalibrating the rates. I think he seemed to relax to me. He even cracked a couple of jokes, which you don't see much from Mr. Powell. I think he felt good that he was now more in sync with the bond market. The bond market is very flat in yields from two years out to five years, even 10 years. It's right about 350, which to me suggests that the base case is that the terminal rate for the Fed funds rate, given current circumstances, is 350.

And interestingly, they sort of said at the end of 2025, they think they'll be at about 350. And so he's now very much in sync with the bond market. And I think he was uncomfortably out of sync with what was going on, particularly with the two-year treasury, which I always say, the Fed follows a two-year treasury and they really had to do 50 to get more in line with that pricing. You've made the argument, and you did again with me yesterday, that the Fed's behind the curve. The chair himself was pretty emphatic that he says we're not. Your reaction? Well, now they're not so far behind the curve. I think

they are a little bit because they're still up at four and seven eighths on the middle of the Fed funds rate and bond markets down at 350. But it seems to me that they're very open to keeping this process going. It's interesting that the next Fed meeting is after the election. Usually it would be before the election. I think they punted it a week. So they'll have a lot more potential to cut 50 in November than they would have if it was right before the election. Then it starts to—I don't really put much credence in this idea that the Fed is worrying, thinking about elections. Jay has said that

repeatedly. I actually take him at his word. But I still think it would be rough if you did it two days before the election had a 100 basis point cut. The Fed is, I think it's fair to say, never really been in what you might call the insurance business, right? They're data dependent. They react when the data suggests that they should react. Was today a bit of an insurance policy? Yes. By doing that, because he noted multiple times the economy's basically fine, he said. The economy's solid. He went on and on about that, and multiple times. He used the words risk management more than once, and that strongly suggests an insurance policy type of mentality, at least partially, because he knows that the uh...

that the employment rate the jobs there reported the first friday the month he admitted that that there are official actually said that today that there's something artificial about them because they keep revising them lower there is that monstrous eight hundred eighteen thousand eighteen thousand uh... under eight hundred thousand jobs uh jobs on the revision, and it seems to be happening consistently. He said we'll make a mental correction now on the first Friday of the month they come

out, which would mean about, just think of it as being 75,000 jobs overstated. And so I think if we get to an employment report that's at 100,000 jobs, that's going to be a real danger signal. Because if you clip 75,000 off of that, you're getting down and you're starting to fly the plane near the tops of the trees. And also I want to point out, as I always do, that the household survey, which is also an important survey, tends to be more accurate at turning points in the economy. That has had negative full-time job growth this year all through january now we're eight months negative job growth and the part-time jobs are almost zero so the surveys do not really jive with one another but they're clearly

weakening and he acknowledged that today but do you think the economy is weaker than the fed chair himself just said uh i think the present data supports, and it's backward looking, but the present data, which is backward looking, supports his statement that the economy isn't showing signs of significant stress. And GDP now and the most recent quarters of GDP, they're showing up at about 2% real, which is pretty solid growth. I mean, it's the growth that the CBO uses to make their predictions into the future. But I do think that the interest rate problem with credit cards in the economy is significant. I think the level of debt on the consumer is very high. And so I expect to see weaker economic data in the coming reports. I still think there's a good shot that the history books will say September of 24 was the start of a recession.

Steve Leisman's come out of the room. I want to bring in our senior economics reporter. Steve, how close of a call was this really? The Fed chair used the words broad support for a move today. And of course, we did have the one dissent, notably by a Fed governor, which we haven't gotten since 2005, at least somebody of that stature. Yeah, my old good friend Mark Olson, who dissented in favor of an easing of policy, which is what Fed governors typically did. We haven't had one dissent in favor of tighter policy in a while here. Scott, I want to bring your attention to the word recalibration and maybe a discussion about what that means here. The chair used the phrase about

five or six times in the press conference. It was part of his opening remarks. And I asked him the question, how can we know, given that the data has been reasonably strong, actually running near 3% on the GDP tracking forecast for this quarter? Retail sales were strong. Industrial production was strong. So I asked him, how can we know what you're going to do? And listen to what he said, and I'll give you my thoughts on this on the back end of it. You'll see that it's a process of recalibrating our policy stance away from where we had it a year ago when inflation was high and unemployment low to a place that's more appropriate given where we are now and where we expect to be. And that process will take place over time. So what you're doing here, Scott, is if you're recalibrating policy, you're almost in a way disconnected from what the

current data is telling you. And it means you're going to go down and you might go down and what Jeff is talking about, 50 basis point increments. If the inflation data is a little higher, if the jobs are a little higher, you're recalibrating to get to a place where you can respond to the data. But if you're way high, which is what the chair is suggesting here, you can't respond to the data. But if you're way high, which is what the chair is suggesting here, you can't respond to the data adequately if you're way off the marks. You got to recalibrate and bring it back. And I think that's where the Fed is going. And that's why I think I agree with what Jeff is saying. I disagree on the issue. I think it took a little bit more, I don't know what to say, it took a little more signal from that job revision that perhaps was warranted in part because

as Goldman suggests, there may be an immigration issue with that data. That being said, we're recalibrating now, Scott, and that means we're not really following the data quite as closely as we might to figure out what the Fed's going to do. Jeffrey's nodding his head as you're talking because there's a simpatico between the two of you and the way that you viewed this today with that word, because it's the first word that Jeffrey mentioned. Oh, I didn't hear that. That's the thing that caught me most of all, just like Steve Leisman. As you stay with us, Steve, I want Jeffrey to answer that. That's the

word of the day for sure. I think I got the feeling that Jay Powell was getting quite confident about the inflation trend. Our inflation model, which uses shelter and the price of energy pretty heavily, suggests that the inflation rate on the headline CPI, within about five months from now, will go down below 2%. And it'll depend on what happens with the commodity complex in those ensuing months, but it could stay below 2% for quite some time. And the commodity complex in those ensuing months, but it could stay below 2% for quite some time. And the commodity complex is strongly supportive of that. The Bloomberg Commodity Index is below its 50, 100, 200-day moving average, all three of which are falling. And it is interesting

that with the dollar having lost about 4% in value since the last Fed meeting, that the commodity complex is showing no signs of life at all. And the price of crude oil is hovering around $70 a barrel with signs that it might break to the downside. So it could be interesting to see how low the inflation rate goes. I feel that one should not be worried about near-term inflation, but one should be worried about longer-term inflation. And that's what's got the long into the bond markets a little bit concerned. Because when the economy rolls over, we're starting from a deficit of nearly 5% of GDP, and it's going to go up a lot. And that means a lot of bonds. And will we have a change in the pattern? And I'm quite open to this idea, though not utterly convinced,

that at some point in the recession, the fiscal and monetary responses will lead to the long end of the bond market perhaps going up in yield. And that could be sort of being signaled, even though it's for just the last couple of hours, by the action today. Steve, lastly to you, and you made this point, I thought it's interesting. Some of the criticism leading into today has been that the Fed's been too data dependent. Your suggestion with the move today of 50 basis points is in fact a break from that. Jeff and I talked about the idea of an insurance policy, that the Fed really isn't generally speaking in the insurance business, but maybe that's what today really was.

So, Scott, that's a great observation, except for when the Fed is essentially in neutral and trying to balance and fill the way as to where the right neutral rate is. Then it ends up being in an insurance business in terms of essentially getting policy to the place where acting on the biggest risk. Remember what Greenspan used to say, guarding against the low probability, high risk event. I think that's where Powell is right now. And by the way, Scott, we may end up, I hope Jeffrey's wrong here. It's a bad bet to bet against Jeffrey. I'll acknowledge that about the recession having begun. We may end up calling this if he's wrong here. It's a bad bet to bet against Jeffrey. I'll acknowledge that about the recession having begun. We may end up calling this, if he's wrong, the immaculate 50 basis point

rate cut. I'll read you what Powell said here. He said, what this means, the U.S. economy is at a good place. Our decision today is designed to keep it there. The economy is growing at a solid pace. Inflation is coming down closer to a 2% objective. The labor market is still at a solid pace inflation is coming down closer to a two percent objective the labor market is still in a solid place if if we end up being okay here this could be the only and the first ever immaculate 50 basis point rate cut scott yeah steve thanks so much our senior economics reporter steve leesman it goes to what uh what Claudia Somm said in the hour preceding the decision that the Somm rule says we're in a recession already, as you've been suggesting as well. Somm herself says we're not. Well, I guess she's violating her own rule, but I use something that's similar to

the Somm rule. It's simply the unemployment rate relative to its 36-month moving average. And we're observably, convincingly above the 36-month moving average. And there has not been any experiences where you've made that crossover without a recession. And so I'd watch out for that. You know, on this insurance policy thing, you see these ads on TV where somebody says, oh, our friend died of an aneurysm and he's only 47. They say, do you have life insurance? The guy says, no. He says, well, you better get on it. I think Jay seemed relaxed today because he's somebody that didn't have an insurance policy yesterday. And now he has the insurance policy and he feels comfortable about that. And the

recalibration is absolutely appropriate because he's right. I thought one of the best points he's made ever as Fed chairman was comparing where they were with the inflation rate up well above their target and the unemployment rate in the mid three and a halves. A restrictive policy is a no brainer under that sort of set of circumstances. But that's not where you are anymore. And I think it was a very wise way for him to make that point. And it set the stage and really offered a very good rationale for why 50 and not 25. The projections suggest 100 basis points this year. I mean, they're only projections, the so-called dots. You've said you think 125. Where will we be, do you think, by the end of the year on that? I think we'll probably get another 75. So it'll be down 75 from here. So we've got a four and an

eighth. There are dangers on both sides. I mean, the Fed chair acknowledged this as well. It's, you know, you move too fast, you risk reigniting inflation, you move too slow, you risk then tanking an economy that he says himself looks pretty good. How do you see the balance of those risks? I think that the interesting question about what this Fed policy is going to do is what's going to happen to the housing market? Is it really going to stay firm? Is it going to go up because of potentially lower interest rates? Or is it going to unlock supply? If you get interest rates into the high fives on mortgage rates, will that unlock supply of people who've been wanting to move? Will it help the economy? Because some of these people that took out mortgages a year or two ago might be able to do some rate reduction and monthly payment. I think that's the real wild card for the inflation rate and the economy,

is what happens to the housing market. And I don't think any of us really know. And the reason is that we've always experienced lower rates during recessions. And we have not had in hiking cycles such strong housing prices. So will they go down if they cut rates because of unlocks of pride? I don't really know the answer to that. And I'm very anxious to see the data as it develops. For now, I just think the inflation risk is lower than the unemployment rate and the employment risk and the economic risk generally with the consumer. What do I do

as a credit investor? Now let's switch to how to put this into action today. A lot of people are thinking about that now. Last meeting, I said that you should go from floating to fixed, which is the first time I said that in a long time because I said the Fed's going to start cutting rates. And certainly that's been a good call. I mean, one of the best performing asset classes since the last Fed meeting and the one before that is actually long-term Treasury bonds. So I think that credit spreads are very, very tight. It depends what index you look at. There's one from Bank of America. There's others. And the high-yield bond market got on one of those indices to a level of 280 basis points of excess yield over the 10-year. It's kind of quietly gone to 320.

So they're already starting to widen, which is another reason why I think that underneath the surface of the economy, you have to be careful. Because when credit spreads start to widen, that's a sign that things aren't all that copacetic. Also, I'll point out that the 2's, 10's yield curve is now, it's no longer inverted. And when you get near a front-end recession, it's not so much that it's inverted that you are at the front edge, it's when it has been inverted, particularly for a long time, and then it de-inverts. Well, that's happened. And we were inverted for a couple of years on parts of the

yield curve. Also, remember T-bill and chill? Everybody likes the six-month T-bill at 5.5%. Well, I said, don't do that because you're going to wake up one day and it's not going to be at 5.5%. And pretty soon, I think it's going to be at 4%. So the intermediate part of the credit market is still good. I mean, the middle tier of the capital structure, not the junkiest stuff. I prefer fixed over floating. And now with the dollar weakening, it might be time to start upping emerging markets. And if you're really intrepid in local currencies, I'm not convinced the dollar is going to accelerate to the downside. But I will believe that if we

get two closes below 100 on the Dixie and we're basically at 100 and a half, so we're not very far away. So the currency play might start to get really interesting for dollar-based investors. You told me yesterday you went from a maximum long on long-term treasuries, that you cut that back a little bit in recent weeks. Yes. What do you do from here then? Well, rates are kind of stabilizing. They're at a not-so-attractive level anymore. When you could get 5% and you thought the inflation rate was going down to even 3%, they were awfully attractive.

But now we're at 3.5% in lots of parts of the market. We've been favoring not so much trying to be long at the long end of the market, which had been good for part of the year, but rather the relationship between short rates and long rates, which has changed from twos tens by a hundred fifteen plus basis points since we were at the maximum inversion. I think that's going to continue. I think we're going to get the two-year Treasury rate to go down to about 150 basis points less than the long bond. So there's still a long way to go. And so that's sort of a trade.

So what we're doing is it's odd. You're actually taking a more positive position on two years, three years, perhaps even five-year Treasuries, and a less optimistic view of the long end. So it's really weird that you can actually shorten your duration and actually benefit from rallies. That's kind of weird. And that's because it's the short intermediate end that's rallying. And I don't think the long end is going to rally much anymore. I think that the easy money has been made on the long bond. You've also, you know, you've talked repeatedly about the deficit, this idea that you would think because we're embarking on this cutting cycle that yields all across the curve would continue to come down. You suggest that could happen,

but then on the longer end, certainly you could have interest rates actually go up as the cost of funding the deficit increases. Yes. Well, long-term interest rates on third-year treasury, they've barely changed year to date. There's been volatility, but they haven't gone down while the two-year treasury rate has come down a fair amount. And so this steepening theme and the rejection of recession being a positive for the long bond has been in play all year on a point-to-point basis. So I think that the problem that I worry about is that our responses to recessions have been incrementally more money printing. Yes, COVID is very unusual. We hope we don't have a repeat of something like that. But the amount of money that they were willing to give away is a cautionary tale as to what might happen

when the next recession comes and that's my thesis as to why long rates might actually after the initial Pavlovian response of coming down which has already happened to a not insignificant extent that may get rejected and rates may start to go up and that would be that a real trap. I mean, you could even have like a failed auction or something. Remember when that happened in the UK and the long bonds went up a hundred odd basis points in a day. I think we have a chance of that happening if the policy isn't handled correctly, but it's going to be fascinating to navigate through this because none of us know what it's like to have a big bear market in

bonds, start from a level, and then will they drop during the recession? Maybe they won't. Where will credit spreads go during a recession if, say, junkier borrowers don't have the ability to refinance during a recession, which they've had historically, because rates go down. Even though spreads widen during recessions, the base rate, the treasury rate has always come down quite substantially. I'm of the mind that that might not happen this time. And so there could be a lot of companies that are trapped into fixed rate debt.

Thankfully, these CFOs are smart. They locked in very tight spreads and very low rates back in 2021 and they extended maturity. So it's, thankfully, it's not an immediate problem, but it's kind of like the rent data or the shelter data in the CPI. It's sort of like we see the new rent rolls are not that robust. There's actually parts of the country where the new tenant rents are declining, but it takes a while for the old rents to kind of get to their roll level and roll over. So I think we have potentially coming our way in 2025, sort of a tailwind on the shelter component coming down on the CPI. I think Jay Powell kind of alluded to

that too. He seemed quite aware of this differentiation between new tenant rents and rolling of old tenant rents. And it's happening at a rate that's shorter, a timeline that is more extended than most people, I think, are used to assuming when they look at the rent levels and the shelter component. So that's another reason why I think that the Fed is comfortable. He says he's balanced. He's that word over and over. What I heard was we're more worried about the employment picture than the inflation picture. And I agree that he's right on that. You've made the argument that if people assume that it's going to be, as some have even suggested, that this is going to be a golden age for fixed income because of the trajectory of rates, that it's more nuanced than

that, that you need to be more selective and careful than just thinking that way. How? Yeah. I mean, the golden age for fixed income was a year ago when spreads on high yield bonds were 500 over and the base rate was at 5%. You could get 10% if you underwrote your credit risk prudently without really trying all that hard. But now, fixed income rates are down around 3.5 on treasuries, kind of for most of the curve. And we've got these spreads that have widened, but they're still only at 320 basis points on junk bonds. So you've gone from 10 plus to 6.75, and the spreads have started to widen. And so I think credit is still fine in single A, triple B, strong double Bs, maybe even some strong single Bs. But you've got to be careful

on where you are on the curve. And you want to make sure that you have companies that don't have rollover risk in the very near term. You've raised a lot of eyebrows, I think, yesterday when you suggested that private credit is a bubble. Do you want to expand on why you think that's the case? Trillions, it's a trillions of dollars asset class at this point. Yeah, private credit is a very cyclical asset class, and it usually gets to a high valuation and a lot of overinvestment when you can look at public markets and find that they're not very attractive by traditional analysis. So for example, starting 2022, in my Just Markets webcast, I pointed out, this was right at the local top of the S&P 500, I pointed out that using

conventional decades-long data series evaluation on the S&P 500. So PE ratio, cyclically adjusted CAPE ratio of PE, price to sales, price to book. There's about 25 of these things that you can look at. And versus its own history, forget about other asset classes, just where these valuations were versus decades of the S&P's history, the stock market was really overvalued versus its own history. It was top percentile of PE, Cape PE, top three percentile of almost all of these 25 data analyses. But weirdly, as overvalued as they were relative to the internals of the S&P 500, I said in my Just Markets webcast, they're actually undervalued versus the 10-year. So we've got this way overvalued equity market versus itself,

but it's actually cheap to the 10-year because you can compare the 10-year yield to the inverse of the P.E., which is called the earnings yield of the S&P 500, and it was below average versus the 10-year treasury. So I said, this is a bad setup because you've got an overvalued stock market and you've got interest rates almost sure to rise with what we knew was going to be rising inflation from negligible interest rates.

So what allocators end up doing is they say, well, I don't like the S&P versus itself. I hate the bond markets. It's cheap even versus an overvalued stock market. But rates are going to go up. And so that means that stocks will not have a tailwind. They'll have a headwind of the discount rate of the forward earnings going up. And so that means that stocks will not have a tailwind. They'll have a headwind of the discount rate of the forward earnings going up. And bonds are going to take the worst losses in the history of the bond market, which is what happened. So what allocators end up doing is they say, I don't want to buy the S&P. I don't want to buy the tenure for sure. So what am I going to do? And so they turn to things that are more opaque, things that aren't so rich in valuation history.

And they say, you know what? You're coming to me with a blind pool. You've got a SPAC going on and your blind pool, a lockup fund. I'll tell you what. I don't like public markets. I don't like stocks. I don't like bonds. So I'll give you money to allocate to your SPAC under one condition. You don't tell me what you're doing, because if you tell me what you're doing, well, then I'm going to be able to map over this overvaluation and go in. And they hope that it's going to work out.

Unfortunately, the promise of a lot of private markets is a little bit of a false promise. It's based upon a sharp ratio or volatility argument, which means you get about the same return and hopefully a little bit better than the public market, but you have lower volatility. So you risk adjust in a much better place. That's a false promise because they're not mark-to-market. They're private. It's like saying you never lose money on a CD. Well, you have a penalty if you want to get rid of it,

but they don't mark it to market. And so I think that there's false promises that go into these non-mark-to-market strategies. And I think every speech that I've given in the past two years, one of the very first questions is, what about private credit? And I say, well, I guess you must own a lot of private credit. Yeah, a lot of private credit. Well, I noticed at Harvard, when they had their problems with their donors backing away, they've got a $50 or $60 billion endowment. They had to tap the bond

market for operating money because they didn't have enough liquidity in their 50 or 60 billion dollar portfolio of endowment to raise a billion dollars or two billion dollars for salaries and for maintenance and so forth. That's telling you a lot that there's a lot of illiquidity that's built in to some of these large pools. And when they get tapped, they need to get money. Well, they have to liquidate some of the stuff, and it's not at par. It's going to be at a haircut. So I'd be very cautious about being overly illiquid in our market today, because as the economy transitions, if I'm wrong, and it takes a year to get into a recession, it doesn't matter. Once you get to these types of conditions, you have to act. You can't just say, oh, everything's okay. Valuations are high, particularly on the magnificent stuff, and spreads have started to widen.

This is a fun area for active management. It's great when rates are moving. It's great when the yield curve's changing. You can start to make some clear decisions on what to do. But I would not be allocating significant money at these yield levels to long-term treasury bonds. I want to ask you about a couple of other investment ideas, but I want to take a quick break. You stay with us. We're back here at Double Line with Jeffrey Gundlach. We're going to get Mike Santoli's first reaction to the decision in the market zone, which is next.

We're back in Los Angeles for the closing bell market zone. CNBC senior markets commentator Mike Santoli is here to break down the crucial moments of the trading day. Of course, double lines. Jeffrey Gundlach is still with us. Michael, you're looking at the markets here. We're at the lows, I guess, for the Dow and the S&P. It's really dangerous, though, to judge what's going to happen in the markets by a knee jerkjerk reaction an hour after a decision? Yes, usually a hazard to extrapolate to directly. In fact, the pattern is often just a weak close on Fed day. There is a sort of mild rotational force underneath the surface. There's a bid in regional banks. It was an attempt to try to push up the small caps. Consumer cyclical is doing well, but it's really getting swamped by just a general

maybe sell the news response. Also, the first rate cut in a cycle often is greeted with a little bit of indifference by the market. What I would say, too, is Fed decides to go bigger rather than smaller on the first cut, but Powell actively tried to withhold any promise that therefore it's going to be an accelerated easing cycle. There was a higher implied neutral rate.

So the destination is a little bit higher. And then you guys were talking about Treasury yields response on the long end, especially going up. And I think that's kind of made the message a little bit staticky here in the markets. Big picture, we also had a market that seemed already priced pretty well for a soft landing type scenario, bumping up against levels that have capped the market for a couple of months. So let's see tomorrow if there's a cleaner kind of message in this market than we're getting so far. Jeffrey, you see at the bottom of our screen here, gold hits an all-time high. You've been talking a lot about it. What do you think of it

here? I continue to hold gold and I would dollar cost average into it at these prices i'm over close to the highs of all time and so but the setbacks are very small it's it's it's symptomatic of of a market that is in accumulation mode and i I think that the path of least resistance for gold continues to be up. And I think also that the one thing that's interesting about gold is I kind of pioneered this thing, the copper gold ratio using the commodity market. And it used to be a very, very good starting point for where the fair value is for the 10-year treasury. It'll divide the price of copper by the price of gold.

And it worked very, very well for many, many years. And now it doesn't work at all. It says that the 10-year treasury should be somewhere like 2% or something, now up at 4%. And basically, I think it's because the purposes, the reasons that people own gold have gotten to be less speculation and more kind of permanent holding or in insurance policy once again because there's a growing mistrust

the political system and the global economic order the uh... the the global geopolitical risks and these lead to a of bull market trend for gold that i believe is firmly in place interesting michael i i guess one of the hot debates is going to be going forward what the small caps are going to do you know not a great lift today although obviously the russell is in positive territory

you've you've heard the arguments like i have that it's not really safe to buy small caps until you actually get the rate cuts. But we have a delicate balancing act there, too. Yes, we got the rate cuts, but it's not like the economy is in the all clear for the foreseeable future either. No, that's right. I mean, you know, I mean, they did run into the meeting, too. Right. Once we started having the chatter about a half point cut today, Russell was outperforming going into today's decision. So they're digesting some of that. I think it's more interesting to see financials, how they're going to respond here, especially large-cap financials.

That would be a little bit of a message about whether, in fact, the soft landing scenario is going to be preserved. Big picture, we talk about it all the time. Historically, you want an easing cycle to be deliberate, not rushed, not urgent. Powell did everything he could today to say this is about being preemptive. It's about trying to maintain a strong labor market, not to save one that's already eroding in a worrisome way. Whether everybody sees it that way or not, that's definitely the operating assumption that they're going with. We can hope that that or not. That's the- that's definitely the- the operating assumption that they're going with. We can hope

that that's true- even with that they're saying they're going to be cutting rates significantly through next year even without inflation getting to two percent so there is a Fed put in this market- obviously four point two

percent unemployment two and a half percent- inflation all that should be good as an input but. Again it's a matter of a market that's already trading a little bit rich, possibly based on today's earnings. Jeffrey, if I'm an equity investor and I've heard since 2009, don't fight the Fed. Is there any reason to change that strategy today? I don't think so. I do think it's important to think about

how we are approaching the equity market the s and p five hundred because excluding financials has very little floating rate debt so open sale fixed-rate debt so they don't really benefit that much from the fed cutting rates go to the to russell two thousand you've got about forty five percent of the ex financials their floating rate and they get will have a tremendous benefit so i think that the book while the trend of the s and p versus the uh... brussels two thousand has been relentless

it has rolled over from a double top and i'm pretty sure that this fed uh... hiding cycle will create much bigger till when for the brussels two thousand the fearsome p five hundred so i think that that's important way to do it i i remember last meeting we said that uh... i i said the fed one starts cutting is going to be good for financial assets things have done pretty well since the last meeting i think it's going to be a little bit trickier because of

interplay between why they're cutting rates which is because there's concern about the labor market and the economy it's going to be a good time well there's the bell uh... this is a really just a second every thank you so much for having us and i think this is group which we will see you for the next

that meeting and see what happens but certainly a a big day today off fifty basis points the federal reserve maybe a bit of a surprise market to get close uh... albeit slightly