Closing Bell - Closing Bell: Gundlach’s First Take on the Fed 3/27/23

Episode Date: March 27, 2023

DoubleLine’s Jeffrey Gundlach gives his first, exclusive interview since the Fed’s decision to raise interest rates. He gives his take on the Fed’s next move, the odds of a recession and the turmoil in the banks. Plus, Sofi’s Liz Young weighs in on Gundlach’s recession prediction. And, market expert Mike Santoli breaks down what he’s watching as we kick off a fresh trading week.

Welcome to The Closing Bell. I'm Scott Wapner, live post nine here at the New York Stock Exchange. This make or break hour begins with stocks and bonds telling two different stories lately. Yields, though, up today have been falling as more recession sirens blare. Equities, on the other hand, showing some level of resiliency, even as concerns about the economy mount. Here's your scorecard with 60 minutes to go in regulation. You're looking at it. We're green across the board now. In fact, the Nasdaq, which was a touch negative, looks positive now. Stocks have been mostly higher throughout the day.

Nasdaq will call it, for all intents and purposes, flat. S&P has been fighting with that 4,000 level for much of the afternoon. It's just shy of that now. Talked to you about the Nasdaq giving back a little bit of its recent gains. Yields are higher, too, but that closely watched yield curve growing steeper. Yet another warning sign for where growth may be heading in this economy in the months ahead. And that leads us to our talk of the tape and our lead guest, DoubleLine's Jeffrey Gundlach. In a Closing Bell exclusive, he is with us for his first live TV interview following the Fed's decision on interest rates, raising them, of course, by a quarter point.

Welcome back. It's good to see you again. Hey, Scott. Nice to be with you again. We talked just before where you said probably go 25 and that would be it. You got your 25. You think that's it? I think the chances are better than 50-50 that we're done with the rate hikes. We're going to have to watch that, how the short on the Treasury curve is moving, because it's been so schizophrenic in response to all of these strains in the banking system and the deposit runs. So basically, the two-year Treasury has averaged about 4.4 for the past month. And so it's sort of in the context of where the Fed is now, but it suggests to me that the base case is the Fed's not going to be raising again. And I think this credit contraction concern is going to be at the core of them pausing,

because obviously we've seen financial institutions, lending institutions tightening credit conditions for a year now. And obviously, over the past few weeks, the signs are they've tightened further and may tighten even from here. I mean, the thing that Dominic Chu was talking about at the end of the last show is pretty real. I think that a lot of people fell asleep on their checking account balances, not really realizing that they were getting such low interest rates while the six month T-bill was giving you 5% and still, you know, 4.5% or 4.75%. And since it's all over the newspapers now and all over news programs,

I wouldn't be surprised at all to see that deposits as a percent of GDP fall fairly significantly as people wake up to the fact that they are giving away 400 basis points by staying in the banks. And so that's going to be a liquidity concern. Also, regional banks fuel a lot of small business lending, a large fraction of it. And it's fairly clear that that's going to be contracting. So I think all in all, the economic headwinds are building. We've been talking about this for a while. And I think the recession is here in a few in a few months. All we really need is the rate to go higher. You seem to be suggesting, I think, and please, you correct me if I'm wrong,

that it's either or for the Fed. It's either you fight inflation or you you're going to have a problem with financial stability. Whereas, let's say Christine Lagarde, for example, ECB president, suggested that you could do both. One doesn't sacrifice the other. You have enough tools in the toolbox to continue to fight inflation. And if there are credit financial stability issues, that you could fight those as well at the same time. Do you disagree with that? Strongly. I strongly disagree with that. You can't have it both ways. You can't have your cake and eat it too.

So we're hearing a lot about the financial system sound and all that. But, you know, in the United States, we've had such a different movement in the bank sector over the past, and I'm talking back 20 years, really, or at least to 2005, where the U.S. banks, if you look at Bank of America, it went all the way back to its high, or nearly to its high, back in 2005, 2006. J.P. Morgan, way above the highs pre-global financial crisis. Wells Fargo, same thing. But you look at Credit Suisse, and they never recovered from the global financial crisis. They were still down like 90 percent the whole time for the past few years. And that's the same chart pattern that we

see on Deutsche Bank. And it's the same chart pattern that we see on Societe General. They're all down from their highs. Pet Suisse now basically 100 percent, but Deutsche Bank 90 percent, SG 85 percent. And now they're raising interest rates. So it seems to be that there's obvious financial fragility in Europe. And the United States is also trying to cause a recession. And we've seen what's happened to the financial system with the fact that the Fed really was too slow. We talked about this a year ago. You remember painter get off the ladder, judge. And the Fed should have raised rates much faster. Instead, inflation came. And it's not really the Fed raising rates that caused these huge losses in long term treasuries at SVB.

It's the fact that they didn't raise rates. I think if they had raised rates faster, the losses would have been less on the long bond because the long bond was forced to price in inflation itself because the Fed wasn't fighting it. But if the Fed's going to fight inflation, then there's going to be difficulties in the economy. And in fact, that's their stated goal. Remember, it was, I think it was a Clubber Lang. I think one of our last interviews I said was Apollo Creatives. Clubber Lang, the Rocky series, who predicted pain. And that's what Jay Powell did last fall. And he's continued to deliver on that prediction. So the market is now suggesting you've got a 50% chance of a May hike. Now, you're saying, it seems to me, that if they go, if they go again,

we risk more problems within the system, be it the banks, some worry about commercial real estate, but overall, that they are going to continue to manufacture issues within the economy if they continue on this path like they suggest they are? If they continue on this path, the gap between what you can get on T-bills and what you can get in the banking system will grow and it will kind of counterproductively cause to shrinkage, great shrinkage of liquidity in the banking system and maybe some more problems with unrealized losses. One of the things that has made the markets understand a little bit happier in the past 10 days or so is the long rates have come down. They've come down pretty significantly. So the losses on long-term treasuries have contracted, not today, but as a general theme.

And so some of these issues are being helped by long-term interest rates having fallen. If they reverse back up again, which I'm sort of suspicious that they will at the long end, they just seem too low. The 10-year treasury just can't break through 337 on a closing basis. And it sometimes does it overnight or something, but it can't get through there on a closing basis. And that is a shelf of resistance that goes back for quite some time. And so I've been owning Treasuries as a hedge to credit, and I continue to advocate that as a strategy. And I would continue to move in that direction if we get more towards 390 or so on the 10 year from the level that we are today, which is about three, three and a half. So, I mean, when some say, look, you know, inflation is is obviously still bad. And I know

you point to a direct cause and result of, you know, the Fed starting too late and then going too fast, which is why SVB, in your estimation, had the bulk of its issues. I mean, there are those who would say it was more mismanagement than anything else, not hedging out risk, the positioning. I think they were a victim of their own success. They had the bad luck of having a deluge of deposits coming in because of the distortions in the economy in 2021 when there was no interest rates. And so what are you going to do? I mean, you have to get some sort of a yield, and the yield was zero on short-term security. So some people say SVB should have hedged, but that's not really a thing.

You can't buy treasuries and hedge out their interest rate risk and earn greater than the T-bill yield. It's just bond math. You can't do it. And also, if you put hedges on, you'd have to mark those to market. And so you have a mismatch from the accounting perspective. But if they hadn't gotten all those deposits in, you know, or if they got them in now, like might be happening to some of the money center banks, it's a pretty easy way to earn carry if you're a bank paying out 25 basis points and your securities, you can buy T-bills

yielding four and a half. I mean, they're matched. It's sort of a money machine. So that's pretty good for the money center banks. Obviously, this is an uneven stress on the system at the present time. I mean, I know we're sitting here talking about the possibility of more hikes. You, in fact, think that we're going to see cuts. You tweeted the Fed will be cutting, quote, substantially soon.

What does substantially mean in your mind and how many times will they cut this year, do you think? A couple of times, I think. And it's I think when I wrote that tweet, we were kind of in the teeth of which bank is going to go down next. And that was consistent with the two year Treasury dropping one hundred and fifty basis points from its high yield. And it's relaxed somewhat, but it's still down a lot the two-year treasury was at 510 and now it's at four percent so it's still a big drop so i i think that the fed is not going to raise interest rates unless uh for some reason the two-year treasury rate starts to go back up but i just don't see it because the world has woken up to this gap again i think this is really critical and people are talking about it but it's probably even more important as generally believed this gap again. I think this is really critical and people are talking about it,

but it's probably even more important than it's generally believed. This gap between getting on the two-year treasury, if you just want to get that for two years, 4%, and what you're getting at a money center bank or a G-SIB is just enormous. And it's going to keep downward pressure, I think, on the two-year. And also, that is going to keep the pressure on the Fed not to be raising short-term interest rates further. Also, the economy is just clearly weak. And I think everybody knows that. Even the Wall Street economists that are kind of trained to be looking for green shoots and everything, almost everybody realizes there's a recession coming. It's just a question of how severe it's going to be. And as a bond manager, it doesn't make any difference. Because frankly, whether it's raining a half an inch an hour,

you need an umbrella if it's raining half an inch an hour. So if it's not that bad of a recession, you still need an umbrella. And if it's raining two inches an hour, well, you still need an umbrella. Either way, you need an umbrella. So I am strongly committed, as I talked about in past appearances, we've been doing it successfully for about 18 months, that when we get back ups in long rates, which I expect should happen at least moderately in the near term, we should buy long-term treasuries. Because as we've seen through this period of turmoil, they do act as a ballast against credit markets, which have been wobbling a bit. And Scott, I'd like to talk about the message from the credit markets, because it's a little bit wonky. Most people, because it's wonky, don't have visibility into it. The high-yield bond market is shut down. There hasn't been a

high-yield bond issue since March 2nd. And what's happening in the high-yield bond market is what we call spread decompression. In other words, the spreads on the junkier stuff, the triple Cs being the lowest rated, the spread on those has widened pretty substantially versus double Bs, which is the highest quality in the junk bond universe. And that's showing signs of continued instability, or at least should be watched, as that spread is a real tell on what is the health of the credit system. And it's not looking really good. So that's something that we're really, really watching. I would not advocate this before buying triple C or such types of securities because the default rate is going to go up. We've seen the banking standard's substantially. We've done it again. That leads default rates in the lower tiers of credit, particularly the junk bond market, by about eight months to a year. And we're right at that point, and the conditions are getting tougher.

So I think you want to be in middle tiers of credit, hedging it with long-term treasuries. And the market has been very generous to be able to put those trades on. Markets have been very range bound. You showed that chart of the S&P 500 and its battle with 4,000. It's been in a range for a long time. I mean, do you know that the Dow Jones Industrial Average, S&P 500 and the NASDAQ are all basically on price? Forget about dividend. Have a zero return for the last two years.

I think the NASDAq's actually slightly negative. I think one of them is up very slightly, and one of them is almost exactly at zero. So no gains in two years. Of course, that's been better than bonds, as we talked about in past discussions. But we're really in a trading range. Yields are in a trading range, too, right now. If you look at the 30-year Treasury yield, it's coiling. It's been going into a narrower and narrower range. And I think it's going to break out to the inside. Do you think that as a result of the banking crisis that we just exhibited, that if we have a recession, it's going to be worse than you would have otherwise thought before? I ask you that question in the context of what Ian Shepardson of Pantheon said

today. I'm getting really nervous that an economy I thought was going to dodge a recession is at much greater risk of falling into one. It could be quite severe. He said that on our network earlier this morning. Well, I share some of the pieces of that sentiment. I think what may make it really bad is the inflationary response to it. I think that if we have a recession against this financial system, I think that the Fed is going to have to act very dramatically. And we've seen in the past few recessions that it's always more deficit spending, more quantitative easing. And quite frankly, they talk about these tools as if they're surgeons or something. These tools are basically quantitative easing and negative interest rates or zero

interest rates. That's what it is. And we've seen the effect of that, that we seem to have crossed the Rubicon. We've done this long enough that it's going to be difficult to keep going. And also, the other thing that's looming, and this is really important, is that the entitlement programs need to be reformed. And it's not our grandchildren's problem anymore. The Social Security trustees themselves admit that they're out of money in nine years, assuming no recession, and that by 11 years from now, without reforms, we'd have to cut benefits by 20 percent. Of course, we're going to have a recession, at least one in the next nine years. We're probably

going to have one in the next nine months. And so the Social Security system is going to run into trouble far faster than nine years from now. It's going to be more like five years from now. And we need to address this. And I'm happy to hear that there's a growing acknowledgement, at least around the edges of the political population, the politicos, that they realize that this is something that needs to be addressed. So we're getting into the real action period for the next recession is going to really be a problem. And I think we're going to have monetary responses that are quite inflationary. I think we talked about this last time, two weeks ago.

When forced to choose, they're going to give up the inflation fight to take care of, you know, a growing unemployment problem and a growing economic divot. They'll abandon the inflation fight because they always do. Let's leave the first segment there and take a quick break. We'll do that. We'll come right back. We'll talk some strategy, more of it with Jeffrey Gundlach on the other side. And let's get to our Twitter question of the day while we're at it. We want to know, do you think the Fed will cut rates this year as Jeffrey Gundlach does? Yes or no? Head to at CNBC closing bell on Twitter. Please vote. We'll share the results a little later on in the hour. We're back right after this on Closing Bell. More with Jeffrey Gundlach. We're back on Closing Bell. More of our exclusive interview now with Double Line's

Jeffrey Gundlach. Jeffrey, so you made your thoughts pretty clear on what you think is going to happen for the economy, what the Fed is going to have to do as a result of all that but what what now with risk assets do you think given all of what we've witnessed in the past few weeks with the crisis that we had the way the fed dealt with it the fact that you do think they're done and they may have to cut coming up i think right now the best the optimal strategy is to reduce risk on strength. The markets are so volatile and so much movement that it's almost impossible to sell on weakness. The markets just go into a mine shaft type of decline. And that's true in the credit markets.

And I think it's true in other risk assets as well. The move index, which is the volatility index for treasury bonds, is really elevated and remains elevated. It went to the highest level in many years during this banking situation. But it's still, as of right now, even though it's relaxed a little bit, it's still higher than it was at its peak in March of 2020 at the front edge of the economic lockdown. And that's suggestive to me of further volatility ahead. And when I say volatility, it usually means down. So we're in a hiatus here. We have some lower interest rates and we have stability in the equity markets, which I even talked about that two weeks ago, Scott, even though we're right in the middle of bank failures. I said I'm not really worried about the stock market other than volatility. And here we are hovering still at about 4,000.

I think stocks going up 4,200, 4,300 is once again an opportunity to reduce risk. And that would go along with probably a decent opportunity to reduce lower tiers of credit risk. I'm really negative on lower credit quality bank loans because they've and we talked about the credit conditions being tighter and the rates are obviously much higher and they're going to and they reset quarterly and so they're going to be defaults the bank loan triple c market to no defaults which is a totally implausible assumption but that's the way they they yield 20 to no defaults. So obviously, the market is looking for a pretty elevated default rate. When you start having defaults in the lower tiers of the credit system, it's very unlikely

that you're going to be seeing substantial gains in other risk assets. They kind of drag everything lower, and it becomes tremendous competition. Remember that junk bonds, even though they're low credit for a fixed income portfolio, they're senior in the capital structure to equity. And so if junk bonds are going to have a problem, I think you need to be battened down in terms of risk. The good news is that there is this sort of stable place here now that the storm is at least the first wave of the storm seems to have passed. Well, so you don't and you don't think you don't think forgive me for interrupting you, but you don't think that, you know, if you get to forty two or forty three hundred on the S&P, the and as you said, that the storm has passed, at least the first storm. You don't think the Fed's going to say, you see, we can do it. We can keep going.

The stock market is fine. The economy is still OK. We put out a fire and we did it relatively quickly. And if there's another flare up, we'll just do it again. They may feel that way, but it's a ways till the next meeting. And we have a couple of employment reports coming out. I think the next meeting is May 3rd. There probably isn't an employment report because that would be on Wednesday. So the point would be on the 5th. But there's going to be some economic data. And the way things are going, I expect the economic data to be weakening. And so I'm not so sure the Fed's going to be able to feel like, you know, we've pulled this off because the economy has been deteriorating for quite some time.

And I don't think it's very logical to assume that trend's going to continue. So I just don't think I just don't think the Fed I think the Fed kind of halfheartedly raised rates. It reminds me of the old story I tell about this guy, the guy that swam across the English Channel, first guy to swim across the English Channel, went to western New York and saw these amazing rapids in Niagara Falls, and he made a boast that he could swim across it. And he actually, the reporters came and he actually did jump in down in the lower gorge of the Niagara River, and he was seen flailing his arms and legs a little bit. And then they found his dead body six miles down the river. He had to do it because he bragged

about it and just wanted to save face. I sort of felt like, and I talked about this two weeks ago, that's kind of what it felt like to me was where the Fed was at in the press conference last week. So I don't think they're very braggadocious about or highly confident in what was the dot plot out there and still remains out in 2024. I think they're going to have to capitulate. Well, May 3rd, we're going to find out. And the good news is we're going to be together again right after that Fed decision. So I can't wait for that. Keep your calendar open for me, OK? I'll do it. I'll do it, Judge. Always enjoy meeting with you on Fed Day. I missed it last week, quite frankly. Yep. So did we. So did we. But we'll see you soon. Thanks for the time today.

That's Jeffrey Gundlach exclusively with us here on Closing Bell. Yep. Take care. Here's where we stand heading into the close. Take a look at the Dow. It is off the highs of the day. Still having a pretty good day, though. 283, 284, 285. That's where we are. We'll call it that anyway. We're working on a pretty decent finish here with about 30 minutes to go. Up next, SoFi's Liz Young here with her first reaction to Jeffrey Gundlach's big market calls. We'll do that after this break. Welcome back to Closing Bell. Just heard from DoubleLine's Jeffrey Gundlach, who believes the economy will enter a recession within the next few months and that investors should be selling risk assets on strength.

Joining us now is Liz Young, SoFi's head of investment strategy here at Post9. It's good to see you. Welcome back. So that's one of the things we have to deal with. Hikes are done. Recession soon. Fed's going to cut twice. What's your reaction to all this? I do think there's a good chance they're done hiking because there's a lot of time between now and May. I agree with Gunlock on that piece. And there's a lot that could happen, frankly. I think we've seen probably the first phase of what will turn into a downturn in the economy and a downturn in economic data. It's possible that we've plugged this particular hole, right?

But I think I've said this before, maybe on this program. It may have been unique circumstances for certain institutions, but liquidity is universal. And we're going to continue to deal with a liquidity issue, especially if the Fed stays on this hiking path. And, you know, I don't I wasn't completely convicted last week on whether they should have hiked or not. I think maybe the responsible thing would have been to not and just wait and see how the data moved. I don't know that 25 basis points really makes that much of a difference. But I do feel confident saying that we're probably done at five. What about the idea of what he said in the way that we did the intro into you about selling strength? He doesn't think that risk

assets are going to do all that bad right now. You go 42, 4,300 on the S&P, but he would be a seller of that strength, would you? Absolutely. Yeah, I'd be fading little rallies along the way. So there's a couple of things. Last year, we obviously saw all of the growth assets really get hit hard. It's possible that if we do have a downturn that's recession related and not rate related, that it hits cyclicals harder. And you see already this year, the Dow is negative on the year. The S&P and the Nasdaq are up on the year because people have flowed into tech and some of that growthy stuff. So it's definitely possible that not everything gets hit the same amount, but I would be selling on strength. I think it's an opportunity to take some gains if you have any and put them away, wait for the rainy day and then see what happens.

But I think the distinction here is that if we start to get confirmation, and that's the thing, is if economic data starts to weaken, it no longer serves as a warning, it serves as confirmation that things aren't going well. And then that confirmation is that a recession is either imminent or it's already here, and assets are going to react differently in that scenario than they would in a rate-driven scenario. If all this is true, why is the Dow up 300 points today? Why was the market up near 1.5%, the S&P, last week? If we know all of this, if you have a re-steepening of the curve, which is yet another recession siren blaring in our faces,

why is all that happening? I think there's a couple things going on, one of which is crisis averted for the time being. We had this huge fear that there would be banking contagion across the system very, very quickly. We saw how quickly some of it happened with certain institutions. And we've had crisis averted so far, right? So there's some rally and a lot of that had gotten hit really hard as it was going on. The other piece of it is that I think there's an expectation that this is going to be disinflationary. We are going to get an inflation print this Friday in PCE, but that's for February. We're also going to get more CPI before the next Fed meeting. So I think

there's an expectation that, OK, inflation will come down. And I do think that we can probably stay afloat. I'll call it afloat in the equity market if that's the case, because we're sort of waiting. But keep in mind, financials are the first group to report in earnings season. And First Republic is one of the first ones to report in that season. So we could sort of stay afloat to about mid-April. April 13th, 14th is when that starts to come out. And then we begin an earnings season.

And the rubber hits the road on whether or not companies cut enough already, whether or not financials need to be revised down even further, and so on and so forth. You worried that earnings have still yet to come in enough, right? Like when Steve Weiss was on halftime today, I said, well, what gets you more positive because he's been more negative than most? Is it the point where you think that earnings have troughed? And he doesn't think it's happened yet. I don't think it has either. Absolutely.

Well, and you have to look at it. There's a difference between trailing earnings and forward earnings, right? So on a trailing earnings perspective, we just hit the peak in earnings really in about the third quarter of last year. We just heard about the fourth quarter of last year, which was our first negative quarter since 2020. This would be the second negative quarter in a row, which is technically an earnings recession. Then I think the bottom in earnings comes after that. That's what makes you more bullish. And frankly, I mean, I've been negative for a while. I'm tired of being negative. I'd like to just sort of get it done, hit the bottom in earnings, hit some of those contractions and estimates, hit another drawdown in the equity market,

see credit break a little bit, and just get it done, get it over with, and move forward. Speaking of earnings and where certain parts of the market have gone, tech has obviously run away with the show so far. Lizanne Saunders tweets earlier, the tech sector's forward PE has climbed by 30 percent since October. Is that one of the principal areas that you would fade, one of those areas of strength that you would agree with those who suggest it's time to sell? I would fade this, yes. So again, back to if it's a drawdown that's not rate-driven, tech could hold up better comparatively to other sectors. I think cyclicals get hit harder.

But I think that this run-up in valuations is too much, especially if we find out that the Fed is going to hold rates higher for longer. What if they don't cut three to four times before the end of the year? If we get a higher inflation print or if we get inflation that's sticky, if this is an economic growth issue, investing in growth stocks that are now facing a permanently higher cost of capital, probably not something that you want to pay a pretty penny for. So you want to be careful about the valuations. I think they've gotten a little ahead of themselves. All right. Thanks for being here. Thank you. Liz Young of SoFi. Back at Post 9. Up next, we're tracking the biggest movers as we head into the close today. Christina Partsenevelos is standing by with that. Christina.

Well, we have a new breast cancer drug that is showing promise and that's helping one pharma name. And the U.S. government is suing a large crypto exchange and it's spooking investors. I'll explain all of that next. 20 to go until the close. Let's send it to Christina Partsenevelos now for a look at the key stocks to watch as we head through that home stretch. Christina. Well, let's talk about the crypto crackdown that continues today. The Commodity Futures and Trade Commission filed a complaint against crypto exchange Binance for letting Americans trade crypto derivatives. And that's caused crypto exchange Coinbase to fall about 8% right now, so off the lows of the day. And this is after Coinbase actually fell 10% last week after the SEC issued a Wells notice that it plans to file a lawsuit

against Coinbase over securities law. If we zoom out, though, the stock is still about 3% higher on the month. And you can see Bitcoin is also falling on the news, down 3%. Novartis shares are jumping right now, about 7.5%, 8% right now, after his breast cancer drug showed initial trial success. The drug is called Kiscali, and it cut the risk of reoccurrence in women who are diagnosed with the disease, although it had to be used in conjunction with the standard endocrine therapy. This breast cancer drug will be part of a unit called Sandoz that Novartis plans to spin off in the second half of this year. Shares are almost at 8% higher right now.

Scott? Yep, nice day there, Christina. Thank you. See you in a bit. Last chance to weigh in on our Twitter question. We asked, will the Fed cut rates this year? Yes or no? Head to at CNBC Closing Bell on Twitter.

The results after this break. Let's get the results of our Twitter question now. We asked, will the Fed cut rates this year? The majority of you, near 58%, say no, they will not. Up next, trading tech's recent run, one money manager breaking down his strategy for that sector. He'll tell us if he sees more upside ahead. That and much more when we take you inside the Market Zone. All right, let's do it. We're now in the closing bell market zone. CNBC senior markets commentator Mike Santoli here to break down these crucial moments of the trading day. Plus, CIC Wells, Malcolm Etheridge on how he is trading, the big names in tech, and Pippa

Stevens on the surge in oil prices. Get to everybody in a minute. Mike Santoli to you first. Let's talk gun lock, OK? No more hikes, maybe two cuts. And this idea that you can't do both. You can't keep hiking rates and then just deal with every credit flare up that happens. I want you to listen to what he said on that thought and then get yours. Here he is. You can't have your cake and eat it, too. If they raise rates faster, the losses would have been less on the long bond because the long bond was was forced to price its price in inflation itself because the Fed wasn't fighting it. But if the Fed's going to fight inflation, then there's going to be difficulties in the economy. And in fact,

that's their stated goal. What do you make of that? Right. Because like Christine Lagarde would say, no, we have tools to deal with both. It's not one or the other. Well, Powell said the same thing, too. Right. I mean, they're dealing on an emergency basis with what they view as individual extreme circumstances. And they think they can just put these programs in place. Now, I think the big question is where we are in the cycle. Do they really think another quarter point bump is going to be the stake in the heart of inflation? Right. I mean, after all we've done, it's really going to be about what the economy and the markets seem to be priced for at that moment and whether, in fact, you can, you know, kind of give yourself a

little more insurance on the on the inflation front. So I really don't know. I'm very cognizant, though, of the fact that a month ago we were talking about no landing in an overheated economy. And we're still seeing the PMI on Friday, composite PMI come in consistent with 2 percent real GDP growth. And, you know, we haven't had another outright bank failure in a couple of weeks. I know that's very low bar. Is that the benchmark? The point is, it's the point is, it seems right now like it's not some kind of uncontrolled chain reaction. You know, we'll see. I do think that, look, the six month treasury yield is four point eight. That's where Fed funds is. So the market is saying in six months,

we'll probably give or take right where we are right now. Everyone's focused on the two year. You've got to tell me, was the two year. Did they have perfect foresight three weeks ago when it was a five percent or on Friday when it was three point seven or neither? Is the stock market in do you feel like it's in denial again in any way of, you know, this re steepening of the yield curve? Bond market telling you something in the stock market a little bit late to the game again? I think the stock market arguably is underreacting or is not rushing to price in the negative scenario. But I think that there are reasons for that.

Look, again, the smaller cap stocks are pretty much, they're a lot closer to the October lows than the February highs. So it's not like the overall market has been oblivious to this drag that we're seeing in the economy. It's that it's getting obscured to some degree out there. I'm not going to deny that sometimes the stock market is a little bit late to catch on. We made a new high in October 2007 before the world fell apart in the S&P 500, and people said, oh, it's not really even overvalued. So I'm open to the idea that it may not be fully recognizing what's happening. But on the other hand, what's happening right now is not all that worrisome yet.

Sure, because in large part because tech, Malcolm, has just dominated and it's carried things and it maybe has made the market look better than it actually is under the surface to some degree. I wouldn't disagree with that. I think to Mike's point, you know, back to the October low, we're talking something like 20 percent, I think, to the positive in in tech. And so if you think about the fact that we can't go on this way forever, if we're talking about all the other things that are broken underneath the surface, it can't be that tech is the only thing that happens to do well, considering just how high the multiples in the tech sector we already accept in comparison to everything else. But I don't think the tech rally will be very much longer lived. I think it does make perfect sense. The rotation that has been into tech as sort of the safety longer lived. I think it does make perfect sense. The rotation

that has been into tech as sort of the safety trade, if you think about the one sector that doesn't really have to borrow to run its operations or even to invest in future growth right now, they don't have to worry about the banking sector so much. It's a Microsoft. It's an Apple with the billions of dollars that they have sitting in cash on their balance sheet. So it makes sense that, you know, over the last couple of weeks, that's where we rotate to. Maybe we've got another week, but we're already talking about the fears in the banking sector starting to abate. And if and when that happens near term, I think that's when the tech trade will start to turn

against us. So does that mean you'd fade it at this point? Right. You've got you've got exposure into two of the biggest places within that universe, both Apple and Microsoft. as soon as I get done talking to you guys, going to start doing my homework to see if it makes sense to exit some of these positions, knowing that I can come and buy them back later, or expecting that I can come and buy them back later, right? We have no idea what's gonna happen in the stock market. That's what makes this so exciting. But I have to expect all of the things that we just talked about that make a recession imminent

at some point this year, I'll probably get a chance to buy back Apple, Microsoft and everything else that I have that I love in the tech sector for cheaper than what it is right now. So why not ring the register or at least pare back some of those positions? And that's the thought that's starting to permeate my brain here. How would you have voted in our Twitter poll? Right. If Gundlach thinks the Fed may cut two times this year, the majority, some 58 percent said they won't. What do you think? I'm with the 58 percent. I think the folks who are counting on a rate cut, and I understand that we're saying that's baked

into the markets right now. I think that the expectation that a cut is going to come is very unrealistic, especially when the Fed came out and showed us his willingness to hike rates in the midst of pandemonium around the banking sector and people's fears that their deposits aren't safe anymore. His willingness to come out and do the unpopular thing and hike rates right then in that moment to me is a precursor that he's even more willing to hang in there and take the slings and the arrows later on in the year when we start yelling, we need a cut, we need a cut, and not give it to us. All right. We'll see. Malcolm, thank you. Then there is that move in oil today, Pips. Pippa Stevens joining us now, up near 6 percent, back above 73.

Yes, Scott. A huge jump for oil today. And there are a couple of things going on here. First, of course, is just generally better sentiment across the market broadly. Then for oil specifically, we have seen disruptions out of the northern Iraq region affecting about 450,000 barrels per day of exports. Eurasia Group saying that this could last for days, if not weeks. And of course, the longer that does last, the more supportive that is for prices. Trading activity, another factor playing a role here that's leading to volatility, both now on the upside as well as over the last few weeks on the downside. UBS noted that after a huge liquidation by financial investors, net long positioning across WTI actually got down to the lowest level since 2011. So just not a lot of bullish bets being made here on the direction of oil prices. Now, I did finally want to take a look at energy stocks because it is the best performing group today.

It's getting back within that 200 day moving average. And as Matt Maley over at Miller Tabach has noted, you can see there on that chart in prior times when it's gotten below that level and then bounce back above. It has led to a meaningful leg higher. So it's certainly something to watch here, Scott. It's about 300 is about 3% below that 200-day right now. Looking at some of the gains today, Pippa. Exxon Mobil in front of me, 2.3%. Chevron, I'm sure, is having a similar day as you would expect as well.

Not quite as good, up 1%. But yeah, you're right. These stocks are moving as oil gets a little bit of a bounce. Whether it is sustainable, of course, is the question, right? Yeah, and I think that there's a lot of people who just don't want to be in this space right now, given how volatile oil's been. Of course, in the last three months prior to this banking fallout, it had been stuck within that $70 to $80 range.

But in the last year, we've gone from $70 up to $130, down to $65, and now here we are above $70 again. And so if there is no stability right at this moment in oil and then nat gas as well, I think for a generalist investor, there's not really going to be momentum to enter this space when you just don't want to bet on the direction of commodity prices. Yeah, no doubt. Pippa, thank you. Pippa Stevens with that. Mike Santoli, I mean, it's hard to push people into commodity plays if you're worried about a recession in the near term. It is. I think on a day like today, you can say the big banks up a few percent, energy bouncing. It looks like absolute pure

unwind mean reversion from what's been going on last week. So you see if it has room to go. I think it's probably a net positive that people have sort of psychologically been shaken out of their trust in the energy sector. It took a few months, but it has seemed very stubborn. So we'll see if there's anything more to it, you know, than that. But you're right. It could the psychology can quickly turn from and I've said this a million times. Oil couldn't get out of its own way. Right. Everyone was saying China reopening and it couldn't get above 80 and it bounced between 70 and 80. That could quickly turn to, you know what? Couldn't get below 70, at least not for long or at least not for more than

a day, which is when we traded down in the 60s. So we're going to get the two minute warning. Any second now, you'll hear the sound effect and we'll walk you right up to the end of the close. There it is. Dow's hanging on to a gain of, you know, it's still a gain, but it's certainly less than where it was up better than 300 earlier it's a 188 now you made a great point earlier this air pocket right there's really not much coming on you got a jobs report you don't have a fed meeting no until we have the pc number on friday it's unclear if that's really you know the true swing factor at this point so yeah i yeah, I mean, the market kind of reacting to itself, reacting to the presence or absence of stress. And you got to run down the list of things. You look at credit spreads. I know Jeff Gundlach was talking about this.

You look at the short-term funding markets. Is commercial paper starting to act up? Not so much, not too bad, but it's, you know, you can't be comfortable. I have so much money flowing into money market funds. That should be a backstop to some of that short-term funding stuff. But, no, I think that's where we are. And it's a decision of whether there can be a really elegant re-rotation out of the big growth stocks that have supported this market for so long, or if it gets a little bit messy in the handoff. I always like to point out the market doesn't always go for very long of like letting you buy the most obvious popular defensive stocks called Microsoft, Apple and Alphabet and have you be fully safe. And what else is going on? You probably get what, two and a half ish weeks from the start of earnings season until the Fed decision, which becomes even more interesting, not that the market may not move all that much initially on earnings,

because it's going to be so waiting on what the Fed has to say within that period. There's some commentary that this will be the quarter when companies really feel the clearance to downgrade expectations. A lot of people said that three months ago, but maybe this is the one where you have banks, you know, pulling credit lines. Two out of three are going to go out with a gain, S&P and the Dow positive. NASDAQ giving it up right at the end. That does it for us.