Closing Bell - Closing Bell Overtime: The Fed & Your Money 9/21/22

Episode Date: September 21, 2022

DoubleLine’s Jeffrey Gundlach gives his instant and exclusive reaction to today’s Fed decision. Plus, why Gundlach says there is a 75% chance of a recession in 2023. And, Mike Santoli breaks down what he’s expecting from tomorrow’s trading session … and what it could mean for your portfolio.

All right, Sarah, thank you very much. Welcome, everybody, to Overtime. I'm Scott Walkman. You just heard the bells. We're just getting started here from Post 9 at the New York Stock Exchange. We get right to our talk of the tape today. It is, of course, the Fed decision and what it means to your money in the weeks and months ahead. Well, let's ask our headline guest today, Jeffrey Gundlach. He is the CEO and CIO of DoubleLine Capital, joins us once again in an Overtime exclusive interview on a pivotal Fed day. Jeffrey, welcome back. It's good to see you as always. Good to see you, Scott. It's hard to believe that two months passed so quickly since we were on the last Fed meeting.

And so many things happened. Your reaction to today's decision, one in which our own Steve Leisman said the Fed out hawked the hawks. Is that how you see it? It's pretty hawkish. I mean, he started out just saying we're strongly committed to getting inflation at 2%. That's pretty clear. Sound a lot like Jackson Hole. And then six minutes later, he said the exact same words again. And so they're very aggressive. The problem that they're going to have is that the inflation rate has gone up so much more than they expected. And they're trying to get it to drop just as fast as it went up. And the market pricing and the consensus of macro economists say that they're going to succeed at getting the inflation rate down to 2 percent fairly quickly. In fact, the trajectory that's priced in the market for the decline in inflation is actually slightly faster than the increase was from below 2 percent to 9.1 on the CPI. What's weird about the way the market and economists are thinking is they think that the inflation rate is going to go quickly down to 2 percent and then somehow magically just stop there and go dead sideways. In fact, the prediction of economists is it's going to go stay at two percent for a couple

of years after that. But the bond market is not really reacting to these inflation numbers anymore at the long end. In fact, today's post-Powell bond market action is very recessionary looking. We have that moment that I talked about in past appearances. It's here now, that moment where we have the Fed raising rates and the short end reacts to it. Rates on the two-year treasury are up about five basis points today. But the long end actually rallies.

Long-term treasury rates are down 8 basis points today. And so now we've arrived at that moment of the yield curve that is truly flashing red for economic problems. And of course, Jay Powell acknowledged that that's the base case. Those data points are a 50 basis point inversion from the 2-year to the 5-year, sorry, from the 2-year to the 10-year, and a 25 basis point inversion from the 5-year to the 30-year and a 25 basis point inversion from the five year to the 30 year. These are really flashing recessionary signals. Jay Powell said that the unemployment rate was probably going to go per the committee's

expectations. We've been here at 4.4%. Well, a very strong indicator of recession is when the unemployment rate crosses its 12 month moving average and the unemployment rate is at 3.7 and its 12-month moving average is at 4.07 right now. So if the Fed is right and the unemployment rate rises to 4.4 by year-end that will be a corroborative indicator of recession. Consumer sentiment is very weak as well. That looks recessionary. And so there's a lot of things out there. And I'll just finish on one more data point. And that's the leading economic

indicators, which are at 0.0 for 12 months and strongly negative if you analyze the three and six month numbers. So I read this as being recessionary. I was surprised when the stock market actually rallied during the press conference. I thought it was completely inappropriate. I think risky assets broadly are sort of going to be on the back feet for a while. So there's a lot to unpack in what you just said and a number of areas I'd like to go. You told me last week out in California that you worried the Fed was, in your words, oversteering, that they should just do 25. Well, I mean, obviously, it appears that they're doing

just the opposite of going 25, right, that they're in your territory of oversteering. I'd like you to react to a tweet by Senator Elizabeth Warren, who called what Chair Powell did another extreme interest rate hike. I've been warning that Chair Powell's Fed would throw millions of Americans out of work. I fear he's already on the path to doing so. Are you guys on the same page, you and the senator? He's doing too much in your mind? I'm of the camp that the Fed should have done more earlier. I think it was in April or May, whenever it was, that I actually sort of facetiously advocated, because I knew it would never happen, for a 200 basis point increase at that time.

And of course, the Fed has raised interest rates now fully now by 300 basis points. And I think they should slow down because everyone knows the chairman said it so himself a couple of times in the presser. The monetary policy has lags that are long and variable. But we've been tightening now for a while. And the impact of these tightenings is going to accumulate into a recession. So I'm not sure I share the same rhetoric as Senator Warren, but I do think the Fed should be slowing down on these rate hikes. I think what they've got on their predictions for the rest of the year going another, what is it, 125 basis points up to about four and a quarter percent. I think that is I don't think they're going to be four and a quarter percent. I think that is I'm I don't think they're going to be able to pull that off. I think the economy is showing signs of weakening.

So I do think the unemployment rate is going to go up and I do think we're headed to a recession. And I think the Fed should have paced this differently. But now they're so committed to this two percent that I think the odds of a recession in 2023 are very high. I mean, I would put them at 75 percent. That high. Wow. And they certainly don't seem to be listening to your calls for restraint. If anything, the R word they use is resolute. Right. Powell himself said they have, quote, a ways to go in terms of getting to a restrictive level to put, in his words, meaningful downward pressure on inflation. Also said there isn't a painless way to get inflation behind us. It gives you an idea of what's in his mind.

Yeah, well, he also said in plain English that he wants the yield curve to have positive real interest rates at every point. So with the inflation rate, it's interesting how they like to use the PCE because it sounds more muted at about 4.5%, I guess, on the core. But we have an 8.3 CPI. We've got a core CPI at 6.3. So it might come down a bit. But to get real interest rates positive. We're talking about really a restrictive Fed funds policy. That should be really negative. If you hear the Fed chairman saying, I'm going to make real interest rates go higher,

that's a sell signal for risk assets broadly. Risk assets do very badly when real interest rates are rising. And so I think we've been talking for a few months now we've been fairly- I just got not very convicted so much on on risk assets in stock market left. That has to appearances. Also neutral on

stocks. I think at this point you have to be looking for a down leg. And I think the S&P five hundred should be prime world more like a thirty four hundred thirty eight hundred right now. And if things get really bad, the S&P 500 could drop all the way down to the breakout point that led to the

huge rally the last couple of years ago that stung around 3,000. So the thing about stocks is they started this year overvalued by all historic metrics, but they were cheap to the bonds, unbelievably, as overvalued as they were versus their own internal history. But that's totally changed. The bond market has sold off a lot. The Fed has raised rates. The two-year treasury is up about 400 basis points almost over the past year and a couple of months and spreads wide in credit products like junk bonds, investment report grids, just in all non-treasury securities. And so now it's just the opposite of where we started the year. Stocks are certainly less overvalued

than they were, but they're overvalued right now compared to a bond portfolio strategy. It's quite easy for investors, in my opinion, to make in a very low risk way returns that might be high single digits from almost no risk securities in the bond market. I'm talking about floating rate bank loans and not the riskiest ones, the ones that are more sort of a double B type of a rating. These have spreads against short term interest rates. So as the Fed raises the short-term interest rate, the coupon, the interest payments from those bank loans go up one for one. And so

now that the short rate is getting up there, you put that spread on, and as the Fed's going to actually follow their dot plots, you might be looking at a coupon spread that gets to a yield of 7.5% or 8%. And these are securities that are very unlikely to suffer defaults. They might suffer price declines when risk assets go down. And that's already happened, which is another bonus. Because these are securities that might be down at about $0.95 on the dollar. And they have every inclination in the fullness of time to go back to $100. So you might be looking at something and give you for the next two years 10% in a very low risk way. Now, if you want to go and get aggressive,

you can buy credit funds. So there are closed end funds. Many of them are trading at discounts, which is another bonus. And maybe these funds have coupon payouts of around 9%, but their NAVs are down. And so you get an income flow that's around 10%. And the chance for price gains is extremely high looking forward a couple of years

yes the prices can go down just like the prices of stocks can go down but the volatility of those types of funds is probably less than that of the s&p 500 and the potential for returns of 20 percent per annum for the next two or three years are plausible because these are these are these are securities that start out life at 100 cents on the dollar. And many of them now, on average, are down at 70 because rates are up hundreds of basis points. Spreads have wind. Credit has done badly. And so you have a prospect for returns that are probably as good as you can possibly dream of from the equity market. But the current payout is so much higher. So these dynamics have completely reversed. I have been managing bonds for 40 years.

And for the last 10 years into this year, it was the worst period ever for a prolonged basis because there was no way to win. There was no yield anywhere. The Treasury market started the year at 50 basis points. How are you going to win? Well, the long bond is at a drawdown of 40% from its high close on a price basis, 40%. So we've had total repricing in the bond market. And our team, we at DoubleLine, we're actually excited because we finally have value in the bond market. And our team, we at DoubleLine, we're actually excited because we finally have value in the bond market. And it's absolutely provable that the credit portfolio

in bonds, you have to go into some junk bonds, you have to go into lower reaches of investment grade credit. But you put the whole thing together and it's really cheapened a lot. And the prospects are excellent. You said it explicitly that you don't think that the Fed is going to be able to do what it thinks it can. In essence, their actual bite is not going to match their bark or how hawkish that they talk. You also referenced that they forecast the unemployment rate to move about 1% higher. From here, Steve Leisman questioned

whether that was a credible projection or not. Do you think it is? I think if it goes up 1%, it'll go up more than that. It's just like if the CPI actually drops from 9 down to 2, it's going to go negative. You can't have that type of movement and have it controlled so surgically, just like they completely overshot on the inflation rate. They wanted to get up to 4%, maybe, I think secretly, but it went to nine. So it overshot

massively. So I don't know. I just think that if the unemployment rate goes up 1%, it really means that we're in a recession. It's going to go up more than that. So that's kind of my view of where we are with those forecasts. I just think the rhetoric that I'm hearing, and I heard a lot of it today on CNBC and some of the commentators, people seem to act like the economy is really strong. I even heard somebody say that the economy was going to reaccelerate here in the third quarter. I have no idea what that person's talking about. We're only nine days left in the quarter.

And GDP now keeps getting adjusted lower and lower. I think it's 0.5 at the present moment. And the data is underwhelming, to say the least. So we have zero GDP on a real basis, actually negative by a little bit in the first half. The way things stand now, we'll have zero GDP on a real basis almost certainly through the first three quarters. And housing is absolutely collapsing, as you would expect. I mean, housing prices are up 40% on the case chiller over the last two years, cumulatively. And the mortgage rate has gone from the high twos into the pretty soon it's going to be

like six and a quarter, maybe even six and a half. So if you look at the monthly payment on the average price home, so you take the median, the average price home, the median home price and monthly payment on average started two and a half years ago at a thousand dollars a month. And thanks to the price increases and thanks to the more than doubling of mortgage interest rates, it's now over eighteen hundred dollars. So home affordability has absolutely collapsed. And that's a that's a big part of the economy. And also, as I mentioned before, the leading indicators, et cetera, I won't run through those again. But I think the economy is weaker than people think. I was somewhat struck,

and I want your opinion on this, by the Fed's inability, its ongoing inability, to forecast. And the fact that Powell explicitly himself said they expected inflation to come down more than it has by now. He said it tells them they need to do more increases. They expected shelter inflation to come down more than it has. Now he thinks it's going to remain elevated for some time. Do you have any confidence in the Fed's ability, or what is your confidence, probably better asked, in the Fed's ability to forecast exactly what's happening on the ground? I have very little confidence. The record is very poor. A year ago, there was an expectation for something like 25 or 50 basis points of rate increases this year.

And, you know, that came out of the Fed and other people. That's we've just blown that out of the water. Inflation transitory. I don't think so. I mean, that was that we're coming on almost two years of inflation being transitory. So I always look at the market, Scott, you know that I always say the Fed follows the two years of inflation being transitory so i i always look at the market scott you know that i i always say the fed follows the two years funny i did a podcast yesterday and somebody asked me a question and said we all know that the fed determines the rate on the two-year but they can't

determine the long end and i stopped the question and i said you've got exactly backwards it's the two-year that determines what the fed's going to do so it's the two-year going above four percent well lo and behold what's the Fed say they're going to do? They're going to raise rates to a four-handle by year end. So they're following. So the Fed follows. They don't lead. Employment is a lagging indicator.

The people that want to say that the economy is so strong, they always, in the present moment, they just lean on the employment picture. And that's a lagging indicator. And the leading indicators, I'll say it one more time, there is a data series called the leading economic indicators. And it's almost assuredly going to go negative year over year on the next print, which is a very strong signal of recession. So I think that the Fed, I don't, I understand where Jay Powell's coming from. He's in a certain position of responsibility and he's got to be very measured in the way he talks. And I think they sculpt their forecasts to be as easy to swallow as possible

when medicine's bad, tastes bad. But I think their ability to forecast has been pretty much shown to be no better than anything. And the thing that's the best at forecasting is the financial markets, which have an uncanny way of doing it. Right now, I think they're forecasting recession. Jeffrey, let's do this. Let's make that a breaking point for us. I'll take a quick break. Let's come back and continue the conversation on the other side. We'll do that with our exclusive interview with DoubleLine's Jeffrey Gundlach right after this. We're live today, as always, from the New York Stock Exchange, and we're back in two minutes. All right, we're back in overtime. We continue now our

exclusive conversation with DoubleLine Capital's Jeffrey Gundlach. You said a couple of times, Jeffrey, that you think we're going to go into a recession, that the market is flashing signs of that. There are debates going on right now as to what that recession might look like, shallow or deep. What are your expectations of that? I think that if the Fed's slowed down on interest rate increases, it could potentially be shallow. If they follow the dot plots, I think it's going to be fairly deep. Like I said in the last segment, if the Fed is right, the unemployment rate is going to go higher by 1%.

We talked about their forecasting record isn't great, but I'm really just talking about direction and magnitude. If it really goes up 1%, it's going to go up a lot more than that. So I think if they stop raising rates around these levels, I think maybe they could go another 50 or 75 or something. I think you might get a shallow recession because, as people have pointed out, the corporate economy is pretty good. There's still savings from the money spraying back a couple of years ago, at least at the upper middle and high end levels.

So that could be a buffer. But I think if they follow that path, the bond market, I can't say this strongly enough, the bond market action of the last few days and particularly today is classic late cycle action. Now, one robin doesn't make a spring and one day doesn't mean that a trend has been locked into place. But when you have the Fed raise rates and the long end rallies while the short end sells off, that is massive yield curve inversion. And we've gotten to levels which are absolutely consistent with coming recession. So I'm going to lean pretty heavily on that.

And if they invert the curve more, particularly at these rate levels that are so low, I mean, if they raise like they're saying and the long end doesn't move, I mean, we're going to have some pretty nasty inversion there. And that would mean a deep recession. Well, I mean, it raises clearly the issue of when is the Fed going to know when to stop, right? That's what Leisman has been asking for the last couple of meetings to try and get an answer to that key question. The Fed chair today saying that they have to be, quote, very confident inflation is moving down to 2 percent before we would consider that. That implies that they're going full bore straight ahead. That's right. That's exactly right.

They won't give a reason, you know, because I can't blame Jay Powell. I mean, there's so many forward hypothetical scenarios. You have no idea exactly how all the variables are going to line up. So, you know, to say like what would have to happen by March for you to stop? I mean, that's an impossible question to answer. But it's clear to me now that we're going back to my Mr. Magoo and the jalopy analogy in terms of the way the Fed's going to be acting. They're going to keep gunning the jalopy. They're nearsighted. They don't really see that well. And they're just going to keep going until they bang into something, run into a dumpster. And that's what's going to happen. And the data is,

it's amazing. I'll use the housing market as a good metaphor for the entire economy. The housing market, it was like somebody flipped a light switch about three months ago. The housing market was just nonstop on fire. And then all of a sudden, it just completely dried up. And now we have obvious declines coming in terms of future housing activity. I think that that's what when he says we have to be confident, we have to be certain that we have the inflation trajectory on the right on the right path. That means you're going to have to see some really noticeable and crystal clear signs of deceleration. We have it in the housing market. We have it, again, in some of these forward-looking economic indicators, like the leading indicators, sentiment, and so forth. But when that gets joined with more real-time economic activity

deteriorating, it's going to be too late. And I suspect that, based upon the way the markets are acting, that the Fed, with all of of this resolve he said the r word is resolute from the fed and jay paul made it very clear he cannot we talked about painting right get off the ladder and paint and they then they've been painting like crazy but they've painted themselves into a corner because they've said we will not stop until the inflation rate shows very convincing signs of of easing back down to our targets. That means a deep recession for that to happen in line with their intentions. So this is where we are. And this is why it's been defensive all year. You've got the S&P down 19%. You've got emerging market

equities down 23%, probably more after today, et cetera. You've got junk bonds down 14%, investment-grade corporate bonds down more than that, down more than 19% or 18%. So this has been a year for defense and capital preservation, really the last 12 months. But now there's opportunities developing, particularly on the credit side. And the truth of the matter is that when the economy slows down and the market cracks further, and I do expect this to be to go to $3,400, maybe even $3,000, well, buy low. Those are good opportunities. They're already there in parts of the credit world. See, I was going to ask you, you know, when does this once in at least a decade opportunity in fixed income

run out? How long does it last for? Well, the problem with bonds in particular, and particularly when the market's illiquid, which has increasingly become, thanks to regulations and the like, you have to buy before the low. What happens in the bond market is there's buyer strikes that go on, and it feels like we've kind of been in one for a while now. And then when the sky clears up and the sun starts to shine, the market just gaps higher. So the way you invest in fixed income is you wait until the valuation looks really good, and then you start buying on a disciplined basis because the market will probably still go lower for jump bonds in my opinion and for credit broadly although probably at a lesser pace than it has been but then once it once it rebounds it just gaps up and you can't deploy any real amount of money we're at the level in the fixed income market where it makes sense to start averaging

in today's valuations understanding that you might be sitting on a five percent loss or something uh between here and maybe year end maybe not who knows and then all of a sudden it will go up 15 15 in a month that's the way these things operate stocks you have more liquidity generally speaking but i think you also have to start buying uh before the bottom comes in in equities less less less so than fixed income but still you have to start buying before the bottom comes in in equities. Less so than fixed income, but still you have to start doing that. I would start doing that around $3,500 on the S&P. Well, I was going to say that. If you go down to your target of $3,400 and, you know, if your worst scenario comes to pass and we go to $3,000, you're going to have a lot of competition

out there of people who say this is too good to pass up in equities. And maybe they make that switch at that point somewhat dramatically. And it can happen really quickly. You know, the weird thing about the equity market is it can actually rally faster than it goes down. The opposite tends to happen in the bond market. But the rallies are always sharp off of very, very cheap valuations. And we're not there yet. We are a little bit in fixed income. We're not there yet in equities. But people should not be thinking about being sellers.

They should be thinking about, and I hear this all the time, and I almost criticize people for saying it, but there is a moment when it's appropriate to say people should be focusing their attention on long-term investment returns at this point in time. Where are you going to be looking forward, say, a few years, not a few months? Because the valuations are there in fixed income, and they're probably going to get there in equities. Sage advice, certainly. Appreciate the time, as always. We'll see you in the next go-round. It continues to get interesting, and that's not going away anytime soon. I look forward to our conversations in the future, Jeffrey. I do, too, Judge. Good luck. Good luck, everybody out there.

All right. You be well. That's Jeffrey Gundlach of Double Line. Let's get to our Twitter question of the day. We want to know, will stocks be higher or lower by the next Fed decision on November 2nd? You can head to at CNBC Overtime on Twitter. Cast your vote. We'll share the results as we always do a little bit later on in our program. Up next, the Fed and your money. Josh Brown is standing by with his fresh take on today's Fed decision. Remember, earlier in the week, just a couple of days ago, he said we're going to get a rip your face off rally into and out of this Fed decision. What does he think now? We'll ask him next. It's time for a CNBC News Update now with Shepard Smith. Hey, Shep. Hi, Scott. From the news on CNBC, here's what's happening. American hostages freed.

Two veterans captured by Russian forces in Ukraine released as part of a prisoner exchange that Saudi Arabia brokered. Alex Druke and Andy Nguyen taken prisoner in June while they were fighting in the Donbass region. Both men now said to be at the U.S. Embassy in Saudi and heading home soon. The Phoenix Suns and Phoenix Mercury owner Robert Starver announcing today he's selling both franchises. Starver fined and suspended by the NBA last week after an investigation into his conduct. The allegations? Racism, misogyny, and hostile work environment. And a breathalyzer in every car. That's the recommendation from a new NTSB report on fatal car crashes.

Federal stats show alcohol-involved crashes rose 5% last year, and driving-related deaths are at their highest level in nearly two decades. Tonight, U.S. response to Putin's unprecedented nuclear threat, and Donald Trump responds to New York's quarter-billion-dollar fraud suit against him and his family. Plus, Steve Leisman breaks down the Fed decision on a huge news day tonight, right after Jim Cramer, 7 Eastern, CNBC. Scott, back to you. Huge news day, indeed. Look forward to seeing you at 7. That's Shepard Smith joining us there. Lennar earnings. Yep, we have earnings, too. They are out. Diana Olick, of course, has those numbers. Di?

Hey, Scott. Yeah, nice beat for Lennar in Q3. EPS coming in at $5.03 a share versus estimates of $4.88. Revenue a little lower at $8.9 billion versus estimates of $9 billion, but still up 29% year over year. Revenues were higher primarily due to a 13% increase in the number of home deliveries and a 15% increase in the average sales price to $491,000 from $4.28. That's a little surprising in the current environment. But Lennar Chairman Stuart Miller said supply chain constraints, while improving, still continue to limit deliveries. New orders were down 12 percent year over year. And Lennar's inventory of finished homes and homes under construction

rose 24 percent from the end of the last fiscal year. Scott, I would call that a red flag. Yeah, no doubt. All right, Diana, thank you. That's Diana Olick with those housing earnings coming out as we speak. Stocks closing out the day at session lows, as you know by now, following that 75 basis point rate hike by the Fed. Jeffrey Gundlach telling me just moments ago recession could be fairly deep if the Fed does, in fact, keep raising rates. In fact, he put the odds of a recession happening next year at 75 percent. As for his outlook for stocks, he said the S&P 500 could drop more than 20 percent to 3,000. Said there's, quote, real value in the bond market now. Here to react to all of that, Josh Brown, Ritholtz Wealth Management's co-founder and CEO.

All right, my man, you stuck your neck out earlier this week looking for a big rally. It's not an easy thing to do. Do you have a revision here and now or are you sticking to your guns here? The face that got ripped off was mine. So I actually I actually I look today and I actually was surprised by the 200-point rally, however high it got, 220, because that idea of getting to 4.25% by the end of the year or 4.5% by the end of the year, that's really the main takeaway from today. And as I mentioned the other night, the bond market is already laughing at this. Either it won't be necessary because recession is already here,

or it still will be necessary, but it will throw us into a recession. The 10-year being down, the point that Jeffrey Gundlach made was really the most salient point. So it was a shocker. Obviously, you can't have a rip-your-face-off rally with a shocker like that. So my call was wrong. My face was ripped off. But I want to give you the good news. Can I say anything that's good today?

Of course. Yeah, of course. Well, we had you on for a reason. You've got to face the music on both sides. Here's the good news. Having been bearish pretty much all year and coming on and really not having a lot good to say on the technicals, on the economy, on whatever, we are now getting into a situation where this is a really good investing environment. great if you're 80 and your timeframe might be a couple of months or years and every dollar you'll ever make is already invested. But for everyone else watching, think about the setup now. You could build a 60-40 portfolio, take almost no duration risk and earn 4%.

You can buy muni bond funds, earn taxable yield equivalent of like six, six and a quarter percent. And you ain't even have to buy Chicago. Like you can buy national muni bond portfolio without a big credit risk and without big duration risk. You have not been able to do that for like 10 years. So that's what you can do with the 40% side. No junk bonds necessary. No reaching for yield yet necessary. Jeff just mentioned a two-year paper right now. Like this is a really great setup for that. Now on the stock side, you've had 25% multiple contraction already this year. Go back and look at recession-related market corrections. The average since World War II correction in a recession is 31%. We've already done 20. And again, that's the average. We don't

even have to get to the average. So the market, the stock market, the 60 part of that 60-40 portfolio has already done a ton of work on valuation and on that correction that you would normally see. What are the numbers coming out of recession? So Jeff is talking about start thinking about being a long term buyer here, not a seller. I couldn't agree more. And I'm not quite bullish yet. But think about this. If you look at the one, three, five and 10 year numbers coming out of recession over the last 80 or 90 years, the one year number is plus 21 percent. The three year number is plus 48%. The three-year number is plus 48%. The five-year number coming out of a recession for the S&P 500 is a double.

The 10-year number is 256%. Those are the numbers. Those are averages. So we're here. Jeff's talking about 75%. Vanguard's economist, pretty conservative. He's saying 65 65 chance of a recession i would say pretty much we're gonna we're gonna do the recession if if the dot plot

can be believed into the end of the year right so okay so we're here so the wild the wild card the wild card in in all of that is a the fed's willingness to tolerate a recession, and maybe they're willing to tolerate one longer than people think because it's the only way that they're going to finally crack demand and bring inflation down because they seem to have no other way of doing it. You know, in surgery, in the hospital, there's a thing where the hospital will never allow the surgeon who makes an error during surgery to be the one to finish the surgery. So, and why is that?

Because what they're worried about is this natural human tendency to not go in there and do what's in the best interest of bringing the patient out, but to go in there and maybe cover up a mistake or focus too much on fixing a mistake as opposed to finishing a successful procedure. So they don't let they don't let anyone do that. Powell has screwed up so many times. It's actually amazing that Biden has kept him on. I think he's bright. He's well-spoken. I think he means well. But you look at that fiasco in 2018, tightening into the trade war, which we knew was causing a global recession,

and then saying we're nowhere near neutral, only to have to turn around three months later and start cutting rates. Like, this is madness. So I don't think that they need to go as far as they think they need to go. Most economists are now saying that. I really don't understand the

logic behind anything that's been going on. I wonder if a fresh set of eyes walked in here, they would be talking about finishing the year Fed funds rate four and a half percent, as opposed to, hey, let's see how the first 375 basis point hikes went, right? Like, so, so that reason seems to have left the room. I don't, and that's how you got the shock that you got today. So I can't tell you what they're going to do, what they need to do. I'm not on the fed. Uh, I haven't earned my slot there, but there are 400 PhDs in that building. And for some reason, a year ago at this time, they didn't think they'd hike rates at all. Now they think they're going to a terminal rate more than four and a half percent. Somewhere in between is going to be

the truth. And we'll let the markets play it out, I guess. Yeah. Look, I appreciate you coming on. As I said, facing up to a call that didn't go your way, at least not yet. But we'll see. We so much appreciate that. I know our viewers do too appreciate that. Won't be the last one, Judge. All right, we'll talk to you soon. That's Josh Brown, Ritholtz Wealth Management, joining us. They're up next, the big inflation fight. Fed Chair Jay Powell pledging more rate hikes to combat rising prices. So what will that mean for stocks in the long run?

That's the key, the long run. We'll discuss in today's Halftime Overtime. Don't forget, not too late to sign up for CNBC's Delivering Alpha conference. It's just one week away in person. I'll be speaking with Citadel's Ken Griffin. Can't wait. You can register now, deliveringalpha.com. There's a QR code there on your screen, too, to register if you want to just do that. We're back right after this. All right, we are back. That's how the market ended today. The Dow down 522 points.

Took a while to get to that place, too, as the market and investors digested what the Fed had to say and what was a pretty hawkish meeting, a pretty hawkish news conference from the Fed chair as well. Big conversation today. What happened with interest rates as well? The two year note above four percent for the first time since 07. We keep our eye there and on the 10 year and what all of it means for where the economy and of course, the markets are going from here. We'll be right back up next. A busy day on Wall Street. The action, though, as you know, far from over your overtime movers are next. We're back in overtime. Double lines, Jeffrey

Gundlach telling me moments ago he sees a 75 percent chance of recession next year. His comments come in the wake of that Fed meeting meeting today. The Fed maintaining its hawkish interest rate forecast. Requisite Capital's Bryn Talkington joins us now on the phone for more reaction. What is your reaction? You've maintained don't fight the Fed. I can't imagine you're looking to buy a bunch of stocks today. That narrative has been pretty good all year, and it's been pretty good for the last 10 years, as we've had 10 years of QE and zero rates. And when that information changes, you know, you have to change your mind. So I think that there was no surprises today. And I think this talk about a recession, it's really important for the viewers to understand, well, two things. If we go into

a recession, I don't think it's going to look like the recessions in the past, because Jay Powell said he looked at the JOLTS report. And as Jeff Gumlach pointed out, we have 1.87 jobs for every unemployed person. And wage growth, although under inflation, Scott, is at 6.2 percent. I find it to be highly improbable that we're actually going to get unemployment to move higher with that type of structural deficit we have with people that want a job can have pick one of two. So to his point as well, that these opportunities that are presenting themselves now in fixed income are without question, maybe, you know, according to him, the best opportunities you've had in at least a decade, that that's the place to be, that stocks

aren't the place to buy and to go look for opportunity until you have more of a decline, which he says is coming? Well, I mean, I think you have to peel that back. Saying the biggest opportunity in a decade, well, rates have been at zero for a decade. So it's not like we have really high rates. I think what's interesting is on more of the shorter duration side, three and six month treasuries, one year,-year treasuries. That's really interesting. But that's on the very short side. I still don't think it's—I think it's way too early to go into credit. I think that we have to understand that we've already had peak to trough in the S&P, a 24 percent decline. And so if you look at, like, 1990, we had a 20 percent decline. I think that people have somewhat of PTSD that every recession is

going to look like the great financial crisis. I just think the ingredients are different. This recession will look different. But a heck of a lot is being priced into equities. So I still don't think long-duration fixed income is even remotely interesting. And so I would still stick into more covered calls on the cash side, invest in some three and six month treasuries and kind of wait your time to go into longer duration fixed income because I don't find it to be very attractive at all. All right. Different takes. That's what the market's all about. I appreciate yours, Bryn Talkington. Thanks so much for calling into overtime, reacting to what happened today. Up next, we're all over some big movers in overtime. Christina Parts and Novelos tracking the action for us. Christina.

There is a rumored takeover deal in the IT space, and that's causing the stock to pop and be all over the place. And then we have another manufacturer cutting over 150 corporate jobs. I'll have all those details next. Okay, we're back in overtime now. Christina Parts and Novelos has the biggest movers for us right now. Christina? Let's start with shares of Steelcase bouncing around in the OT right now. Shares are negative. The company is known for their ergonomical office chairs, and they missed on earnings and warned that their recent volume drop for incoming orders

and lower-than-expected return-to-office trends in the United States means they will have to make further cuts in Q3, and that means about 180 jobs will be cut. So the shares are down 2.5% roughly. Shares of HB Fuller moving higher. This is a major adhesive manufacturing firm here in the United States, and the shares are actually popping 4% right now. They posted an increase in profit not because of volume,

but thanks to price hikes and from taking market share from competitors. And then lastly, DXC technology shares. They were all over the place just in the OT. Yay, they're higher today, or I should say higher right now. The jump was triggered by a Bloomberg report this afternoon that the IT provider is working with advisors on a potential takeover. No details on who wants to take over DXC, but the report says it could be a private equity fund. Unclear if DXC wants to play ball. And I said yay because originally it was down, then it was up, then it was flat. It's in positive territory, four-tenths of a percent.

That's the kind of day it was all the way around. All day. Christina, thank you. Thanks. Yeah, that's Christina Partsenevelos is always with us. A last call to weigh in on our Twitter question. We're asking, will stocks be higher or lower by the next Fed decision on November 2nd? Head to at CNBC overtime. Please vote. We'll reveal the results just after this break.

Santoli's word is just after this, too. Let's get to the results of our Twitter question. We asked, will stocks be higher or lower by the next Fed decision on November 2nd? Fifty nine percent said lower. It's the kind of thing you get coming out of a pretty hawkish meeting like that. And maybe some of the comments from Jeffrey Gundlach, too. What's your last word? Mike Santoli, of course, here to react.

I'm actually interested in the whole stocks versus bonds discussion. Gundlach touching on some of that. And I find it interesting that there seems to be this idea coalescing that bonds are offering you a bit of decent risk reward proposition here. And yet it's not yet time for stocks. Now, that may be true in terms of kind of the exact lead lag as to how things work. But we're in a year when the big story is stocks and bonds going down together as if they're handcuffed, you know, sinking in the ocean. And all of a sudden it's going to be, oh, no, but bonds are going to actually do well because the scenarios under which bonds start to pay you and perform well are Fed's nearly done or at least priced properly in the market. Inflation is likely

under control. Maybe you get the economy struggling a little bit, but not cataclysmically. Those things probably are net friendly to stocks or at least to the median stock out there that's already taken its punishment. Did Powell didn't really leave us with any indication that they're near done. In fact, it was quite the opposite. He out hawked the hawks. I keep going back to that line that Leisman, our own Steve Leisman said. I think that's correct, but he is also, and I also go back to this constantly,

until the moment he feels he's done, he's not going to give the idea that he's nearly done because that's going to undo what he already thinks he's accomplished here. So I'm with you. There's more to happen between now and, let's say, March of next year. I think the time element is really fascinating because I think that the investors want to be past the point of having to live and die every six weeks by how much the Fed's going to hike and what they're going to say about it.

And then you can be to some kind of steady state and just go from there. We're not there yet. You know, if the stock market is down, as the Twitter poll suggests, in six weeks at the next meeting, I think you're going to, again, be at that. The market's done nothing in two years. Has it priced in enough yet? Or are we in one of these multi-year meltdowns like 08 and 2000 that we basically have seen no hope for a while? You know, it's hard to come out of these news conferences, frankly, with a ton of confidence that they are going to orchestrate the soft landing that people hope for because they

give no promising one. Not only that, they can't see that far in front of them. They just don't know where we're going to be. I appreciate it. I'll talk to you tomorrow. That's Mike Santoli with his last word. I will see you tomorrow. Fast Money begins right now.